The Case against Economic Planning (1981), by Sean Gabb

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The Case against Economic Planning
(Published in March 1981 by the University of York Conservative Association)
by Sean Gabb

In beginning this leaflet, a clear distinction must be drawn between socialism and the concept of a planned economy. To do otherwise will lead to unnecessary confusion. The former is a doctrine, or set of doctrines, of which there are as many definitions as it has followers. Only the latter is something that can be properly defined, and so reduced to its essential parts for analysis. Planning, then, is the central control of economic activity to produce a desired outcome.

We take first the notion of control being central. To be planning in the sense given above, direction must come from a single authority, which must, moreover, possess all the coercive power of the state or something like it. If, for example, real control were devolved to workers' committees running whole industries or single factories, there would be no more planning of an economy than in a free market. There could be no overall coordination of activity. A system of autonomous yet interdependent communes, therefore, while an alternative to capitalism, is still incompatible with a planned economy as defined. Again, we might suppose control to be devolved to local authorities. But either these will become agents of the central planning body or the localities will tend to become economies in their own right. In both cases, the insistence on control being central remains valid.

Next, we examine the use of the word control. At first glance, it may seem unduly vague. Yet to require public ownership or some other similar form of words is to restrict the definition of planning without proper reason, and to retain the confusion between it and socialism. The economy of nazi Germany, for example, was most certainly controlled from the centre, and controlled with increasing severity throughout the period of nazi rule. Confiscation of the Jews aside, though, there was little disruption of private ownership. In modern England, on the other hand, whole stretches of the economy are owned and run by the state without our conforming to the above definition. Ours is perhaps a managed economy, but not a planned one. Control, then, not public ownership, is the more essential feature here.

Now to the ends for which an economy is planned. Most often in this century, those alleged have been the welfare of the working classes. Whether this has been ‑ or was intended to be ‑ the true purpose is not currently important. It is important, though, to stress the neutrality of planning as a method of achieving a desired outcome. If we look, to take a non‑standard example, at Ptolemaic Egypt, we see what is almost the paradigm of a planned economy ‑ state control or ownership of all arable land and access to water, and of mines and quarries; state control of prices and incomes; state monopolies of all main commodities and so forth, We see one of the most striking examples of a society directed to one purpose ‑ to supporting the luxury and prestige of a governing élite.

This, then, in outline is a planned economy. Naturally enough, there are objections to planning. For much of the present century these were muted, and the various advocates of planning exercised an often boundless sway over the western mind. In recent years, however, the critics have become louder and more insistent. But, in considering these, again we must draw a distinction ‑ this time between the false critics and the real. Into the first category we place the great majority of supposed critics. All fascists, many Christians, most social democrats and conservatives ‑ all condemn not planning per se, but simply socialist planning. The manifesto of the National Front, for example, on one page rails against economic planning and on another promises to nationalise the banks and restrict imports. This may not amount to planning - easily could, and probably would.

We therefore concentrate on the genuine critics of planning, who are the economic liberals. For the sake of convenience, we divide their critique under the two headings of political implications and of economic calculation.

The first of these involves the claim that planning is incompatible with any normal definition of freedom. It should Perhaps be enough to point out that every planned economy presently existing is run by a bureaucratic despotism that builds walls to stop its subjects from running away and controls them only with threats of arbitrary arrest and torture. But, since the apologists invariably explain this fact ‑ when admitted ‑ as an accidental rather than essential feature, further discussion is required.

No matter how vastly productive a planned economy may be imagined, the problem of scarcity would still remain, though on a higher level. This involves choice. Now, in a free market, choices are made by individuals acting in what they regard as their best or least bad interest at the moment of choice. In a planned economy, choices must be made and imposed from above. Even without such signs of total control as the direction of labour and limitation of families, the individual would necessarily lose control over much of his spending. Currently, he loses upwards of thirty per cent in England, where the government taxes him and provides various services ‑ ie education, defence, health insurance etc ‑ in proportions and at costs and standards that he might not choose to buy left to himself. Under full planning, the degree of choice would be still further reduced.

To reply that democratic control of the planning board would safeguard freedom is to miss the point. Firstly, it assumes that freedom and democracy are synonymous when they are not: they are not even connected necessarily ‑ only contingently. Secondly, it ignores that any meddling with a unitary plan, democratic or otherwise, is as incompatible with economic planning as is syndicalism. It must result either in rule by the biggest pressure groups, who proceed to run things in their own interest, or the nullification of democracy in even the formal sense. And it remains that the more rigorously planned an economy becomes the smaller becomes the area of free choice within it.

Now to the second and more profound of the objections. This is that a pure planned economy is an impossible state of affairs. In a free market, economic activity is based on individual choice between alternatives. The immediate outcome of this is a structure of relative prices that reflects the subjective valuations of all economic goods at any one moment. The function of this structure is to express information about what goods to produce, in what quantities, at what qualities and by what means. These signals are responded to or anticipated by entrepreneurs. The function of profit and loss here is to show that some change has occurred in the pattern of individual choices.

As an instance of this, consider just some of the effects of an increased demand for petrol. The first and most obvious would be a rise in price as retailers took advantage of the situation. Next, the oil Companies would find it profitable to refine more petrol. Assuming the total supply of crude oil to be fixed, this would entail withdrawing supplies from other, suddenly less relatively profitable, activities. This would lead to a rise in costs for makers of Paints and records. Now, do these raise their prices or look for substitutes for oil? That depends on the technical options open to them and to the subjective valuations of their products. For example, the paint makers might find demand stable or increasing even in spite of higher prices. The record makers, on the other hand, might find it necessary to economise on oil. This in turn might lead the suppliers of substitutes to expand their activities.

The responses to a single change in demand would continue throughout the entire economy, inducing further changes, without limit. To trace or predict all of them would be impossible. Yet the encoding of information in prices allows every adjustment to be made, and made often without anyone knowing why they become necessary.

Even in a state of equilibrium, a planning body would never be able to gather the smallest fraction of the information passed on By the price Mechanism, let alone act on its In the real world, where the pattern of choices shifts from moment to moment, any attempt to suppress the market must result in economic chaos.

It is, of course, true that The Soviet economy, though inefficient, has not so far collapsed. Whether this is an answer to the above criticism depends on the extent of black markets inside the Soviet Union, and the official copying of market information derived from abroad. This said, it remains that the advocates of a planned economy have to face considerable opposition on the level of political and economic theory.