From time to time an author or thinker will create a work, often in the Utopian genre, which lays out a detailed design of an ideal society. Fourier’s phalanestères are one example: they are described as the structure of a social unit, all the way down to the number of inhabitants and to the shape of the actual buildings that house them.
The general problem with these plans is that they lack generality over time and space. They fail the test of universality. The following will be my random walk through some of the problems with rationalist institutional construction and the subsequent problems of central planning.
Social planning is vulnerable to real-world changes
Most people would recognize that a particular building design or architecture can become obsolete. Many would laugh if there were an actual plan to actually construct Campanella’s City of the Sun or Fourier’s phalanxes in the present day. Their reasoning would be obvious: those things were designed in an entirely different time, under different circumstances. This is not to say that those authors and many like them put forth their ideas as timeless and never requiring change (some occasionally have had the delusion of technological growth simply stopping at one point), but a large degree of universality is frequently attached to more abstract kinds of social planning.
Some examples of central design are much more concrete than others, but central planning when it involves a particular kind of physical engineering is not the only instance in which central design encounters severe problems. It can also include institutional design. For a long time, it was thought to be sound business strategy to always have a middle-man for many kinds of transactions. With changes in technology, the middle-man has frequently been cut out, and with good reason: he’s no longer needed. Yet what would happen if, in my ideal construction of a society, there were always a middle man between wholesale and retail? What if I claimed that this middle man led to the greatest well-being of my society’s members? Economics would most certainly stand against me.
Institutions are not universal
Despite that, all kinds of social manifestos, utopias, and even national constitutions establish permanent institutions as a feature of the society. It can be a ruling council of Thirteen, a Guardian class, or a president, a 480-member congress, and a 11-member judiciary. They make the mistake of integrating information available at the current time and creating a set of concrete institutions that are to be held as universal, but are not in fact universal. This is symptomatic of a general problem with leftist thought, which is that it is often too concrete-bound in its approach to society. Those contingent concretes – such as the current distribution of income and power in society – are then used as premises from which “universal principles” are derived, like: there’s always the class of the rich and the class of the poor, and the former always oppress the latter. The problem is that those supposedly universal principles only apply in narrowly contingent cases, which makes them not universal (not even considering whether the derivation of those principles is valid). They ignore changing circumstances and technology (never mind all the other fallacies, like the total fabrication of principles of justice, ignorance of actual factors that cause poverty, etc.)
The general empirical principle underlying this is that no mind or group of minds can ever gather, process, and coordinate all of the information necessary to perfectly govern complex human conduct. Even without any normative principles relating to individual autonomy, the idea of governance – especially economic governance – by few over the many is riddled with problems, in theory and as it has been demonstrated in practice. Every economic agent has a delicately unique and complex set of circumstances and preferences, and has direct access to his own set. Supposing that someone trying to make economic decisions for this person was acting totally altruistically (another very generous premise, again as demonstrated in practice), he would require a means of translating that agent’s changing circumstances and preferences (closely related to subjective experiences of pain, pleasure, etc.) into usable information which he then must process to prescribe a course of action which must be then executed correctly. Multiply this process over thousands or millions of people, and there is quite a huge problem. It is wishful thinking already that one person can make decisions for another effectively (people already have enough problems making decisions for themselves), so it must be even more wishful to think that some people can do it for many others, even suspending for a moment the selfish interests of those decision makers.
Only the free market (which is run by, precisely, nobody) is capable of coordinating the largely diffuse information spread among economic agents into forming an optimum output. This is not just an optimum regarding maximal manufacturing output for the lowest possible cost, a common straw man constructed against the free market to paint it as a cutthroat institution of total efficiency. That notion is just a Platonic hangover – as if goods are produced for the goods’ sake – which ignores why those goods are created in the first place: to enhance an individual’s well-being. The free market forms an optimum output with respect to the amount of resources available, and, more importantly, to the totality of the individual preferences of all market participants.
Weaknesses in central planning
Very closely related to the information problem of central planning is pricing or, more broadly, valuation of goods, services, or virtually everything whose control and consumption can be transferred from one individual to another. Valuation by demand is self-defining: what someone is willing to pay for something is what it’s worth. No Platonism necessary, no intrinsicism, just pure empirical fact. In a centrally planned system that prohibits free association, value must be decided; otherwise, there is no meaningful way of allocating produced goods among the members of society. Again, suspending the selfish interests of the appraisers, this leads to bizarre information problems and to the humorous possibility of the “value” contributed by producers exceeding the amount of goods and services available in an economy, resulting in people deserving more than is possible to provide.
Another problem with central planning is, in brief, the actual presence of human beings. Markets can’t be avoided; the free market is all about incentives. Proof in practice of markets is the responsiveness to incentives embedded in human nature, no matter what system prevails. Black markets develop in response to government prohibitions; defying the law becomes a business, where risks are taken but large profits are reaped. In totalitarian systems (especially those with distributive wealth patterns, like in communism) individuals use their positions as or connections with bureaucrats and politicians in order to gain a bigger share of the pie. Even in our purportedly “free” economy in which the government intervenes to harness the “dangers” of the free market, interest groups spend billions of dollars yearly lobbying federal, state, and local governments getting laws passed in their favor to the detriment of others and electing politicians and bureaucrats who use the force of the law to increase business profits.
(Incidentally, the few errant cases in which people’s preferences are static and minimized do not undermine this universality of the human condition, for the reason that incentives can be structured to shun accumulation of material possessions or other conventional measures of well-being. Some tribes have a social value of personal prestige over wealth, and thus individual members will often spend all of their wealth on extravagant feasts for the tribe or on constructing large memorial edifices.)
Up to this point I’ve freely switched back and forth between central institutional design and central planning. Though there is a distinction between the two, they ultimately suffer from the same problems. First, even in a static environment, central design and planning simply lack the coordination of information necessary to achieve anything close to efficiency. Gathering the information is either next to impossible or is so costly to achieve that it defeats the purpose of establishing any institutions in the first place. Then, not only must the institution measure up to the circumstances of the time, it must be resilient and adaptable to the rapidly changing and non-ergodic world. The environment changes. Technology changes. People change. If the institution itself entails an active form of intervention (such as value arbitration, as in Marxism), the central planners constantly face the problem of incomplete and changing information.
Any societal plans that establish hard-and-fixed institutions and that rely on constant governance are prone to disaster, especially when abuse of power is considered. Up to this point, I’ve neglected to address that fact, which is the most important of all: much of the preceding discussion generously takes for granted that those involved in the central planning have no interest but doing their job the best they can. For the most part, that means that I’ve ignored an even more fundamental flaw in central planning. Yet even with that, it still had problems, didn’t it?