Is it so difficult to run a command economy?

Yes, it is very difficult when there is no absolute power, when there are many powerful interest groups with strong support bases, when the rule of law and constitutions are supreme, like the USA. In the most recent case of the unmasking of a secret agent by a top govt official, only in the USA that the culprit can be brought to task. There is not only a separation of power, but the opposition is equally strong to prevent abuse by the top national executives. Then life is not so easy. George Bush is now facing opposition in his war in Iraq. He needs to convince the people's representatives that what he is doing is right and for the good of the nation. As long as others are not convince, he cannot do as he wishes. But when there is hardly any opposition, hardly any strong interest groups to challenge the govt, everything goes. And running a command economy is about the easiest thing to do. All essential services are a monopoly in every way. The supplier dictates the service, the quality of service, the price to be paid, without competition and opposition. How difficult is such a task? And to lose money in a monopoly is criminal. Yes there are airlines, steel mills, etc that gone bust despite being monopolies and with govt backings, all because of corruption and incompetence. In a functional govt when there is rule of law, when there is transparency, when there are watchdog agencies, incompetence and corruption will be nipped in the bud. Unless everyone is walking with eyes closed. Compare to the private sector that operates by demand, when the customer is king, life is not so easy. Any goods or service providers thinking of raising his price should be wary of losing his customers and market share. And they cannot dictate to the customer what is good for the customer. The customer decides what is good for him and what price he is willing to pay. There are alternatives and substitutions from competitive suppliers and service providers. So, which economy demands greater skills and greater talents? (Matilah, your favourite thesis)


Matilah_Singapura said...

Ok, I'll bite the bait. It's Saturday afternoon and a very hot day in The Kingdom of Smiles. I'm sipping delicious Thai fruit juice at the hotel's pool, admiring bikini babes... so why not, I talk some cock? :-)

Sure, a command economy is possible, for sometime (no one knows exactly how long, every situation is different)—but eventual failure will always result, and the end result is enormous pain and suffering for all—economic privation, social and political instability and collapse, probably rioting and violence on the streets, civil war even.

You have to go right back to the beginning and consider the nature of man—Man has freewill and that freewill chooses selfishly—i.e. that is to say, "in his own self interest", his "self interest" being what that individual has chosen to value in his own mind. Each individual is different. For e.g. Person A with $5 might buy a magazine, Person B a can of beer, Person C might buy some flowers for his mum—it all depends what the individuals VALUE at that particular time and thus makes his choices (chooses to ACT—in this case TRADE) to allocate his given resources accordingly.

This is called making choices or acting "on the margin", and the logic of human action is called praxeology, and this is why the Customer is King, in the sense that it is his wants, desires, needs and values which need fulfillment which drives the DEMAND in a free economy.

I'm going to skip many steps as my time to explain this is limited, but will place some links for those who are interested in the praxeological basis for markets.

In a market there are millions, if not billions of demanding individuals who have needs, wants and desires all requiring fulfillment. It is of course IMPOSSIBLE to fulfill all those requirements instantly because resources have to be allocated to CREATE the goods and services to serve the customers.

In that society, almost every customer is himself a PRODUCER of goods and services. For e.g. a cab driver supplies his transport services, he earn money which he exchanges for food for his family, however he doesn't produce the food—someone else does—a complete stranger.

So you get a situation with all the demands of individuals and also their ability to produce. Many of those individuals also have cash which they will invest in the businesses producing the goods and services. What you get is a SPONTANEOUS ORDER, much like any other eco-system found in nature. And all of this is because man has freewill, and therefore chooses his VALUES and then seeks to have those VALUES "serviced" (so to speak), all driven by SELF-INTEREST.

As always, any attempt to interfere with the natural order of things without concern for the "environment" or the players that environment is bound to have adverse effects. This is NATURE (the spontaneous order of the market) we are talking about. Nature has its own "laws" and behaves accordingly.

Man of course can control certain aspects in nature (in limited contexts)—we couldn't have civilisations if our species didn't or couldn't do that. BUT as long as he OBEYS natures "laws", he is ok and his quality of life improves. However if he attempts to short-circuit the natural order of the Universe, he gets the appropriate "feedback". Remember, the universe behaves PERFECTLY all of the time. Just a reminder, I know I'm getting into "spiritual" territory, but you see, every thing is interwoven into each other. That is the nature of SPONTANEOUS ORDERS.

People fear the market because they don't understand NATURE. Nature has made it such that NONE OF US have ALL THE KNOWLEDGE or ALL THE SKILLS. we also don't have ALL THE TIME—we have 24 hours in the day and we are mortal. We really have NO CHOICE but to depend on each other to get our needs fulfilled—and depending on who demands what and by how much determines how and what resources will be allocated to produce those goods and services.

The "signal" is of course profit and loss. Resources at any given time are FINITE. When profit and loss signals come in, they tell the entrepreneurs that resources and the methods used for production are the "correct" or "incorrect" choices. By using the signals of profit and loss, businesses can shift and change to meet demand. There is no other way to tell. ALL BUSINESSES BEGIN BY SPECULATING on what their customers need. Of course that "speculation" is backed up by market research etc. However, a customer can change his mind anytime. what he wanted yesterday may not be what he wants today or next month. **Therefore when you encounter any privateer who is rich, give him credit—that person is one awesome human being and deserves a lot of respect**

Monopolies fail because they can and do neglect the profit/loss signal mechanism. Why bother? There is no competition—customers have to buy form a monopoly or miss out totally. Without the profit/loss mechanism, resources will be mis- allocated and you get either under or over production.

Without proper market signals, it is impossible to do economic calculation. What happens when you need to replace plant and equipment? How do you calculate? How many workers do you hire? What kind of processes would you have them do? How much does each process cost and what is the impact on the business and the customer?

Having market competition is HEALTHY. from the customers point of view, they get businesses competing for their dollar, and thus the quality of products go UP and the prices go DOWN—i.e. the customer gets "value for money" and INCREASES his wealth in real terms.

The free market produces goods and services which are high value and relatively low cost/price. E.g: watches, pens, clothing, shoes, food, furniture etc etc. Look at it this way: modern man works about 40 hours a week, yet he is able to have LIFESTYLE which costs BILLIONS of dollars to produce in terms of houses, vehicles, medical services, insurance, appliances, clothing, education, clean water, electricity, cheap telecommunications and IT, entertainment and leisure... and on it goes.

We OUTSOURCE nearly everything in our lives, to total strangers ALL OVER THE WORLD. Fantastic huh? Thank the free market for that.

This essay illustrates my point.

The seminal work on praxeology: Human action

The reasons why socialism (command economy)
eventually fails.

More on praxeology: http://praxeology.net/

These are the economic arguments. There is also the issue of individual FREEDOM and LIBERTY which is not covered here. A COMMAND economy severely limits freedom and liberty, and that has disastrous consequences on the psychology of individuals because, again it goes against NATURE (the nature of man) by short-circuiting FREEWILL and man's self-interest (which has a bad reputation due to misinterpreted religion and spirituality).

Command economies also breed CORRUPTION. The business which are favoured or nationalised by the "central command" are virtually protected by absolute executive power. For e.g. the HUGE military-industrial complex of the US, or the US Federal Reserve (a bunch of private bankers who control the US currency and virtually the money-supply of the entire world)

Freedom and economics are interwoven. That is why when government interferes with either one of them, the impact is felt in the other. Also certain groups benefit at the expense of others who suffer because of state interference. This is know as (negative) externalities. Those who are "protected" at the expense of others will also behave in certain ways as to create "moral hazards". ("Why worry? I'm protected" i.e. 'free lunch'attitude)

Anonymous said...

i,cigarette, would have a story that will certainly rival i, pencil anytime but unfortunately, there is a national campaign going on that forbids me to light up my butt and permeate you with my smoke.


Matilah_Singapura said...

C'mon, don't let a little "national campaign" cum between your love for a delightfully tasty albeit becoming a "less socially acceptable" activity.

Strange when you come to think of it actually: it's not cool to smoke a "cancer stick", but a its better than OK (a sign of "success") to smoke one of those big, smelly brown, overpriced motherfuckers—aka cigars.

Ahhh, the double standards of simply accepted without question in modern society.

So fuck the "national campaign". Singapore was built on a history of "national campaigns'—essentially govt brainwashing programs designed to fuck you out of your freedom.

"What would Jesus Do?", you might ask.

I'm certain He'd light one up. And he won't just "puff"—he'd be draggin', perhaps even tokin', really, really deep.