It seems to me, contrary to what is often claimed, the problem of central planned economies (not just state-wide ones, but also company-wide ones) is too much optimization at the expense of robustness.
In top-down planned systems, there is always somebody who says something like "we only need this one thing for everybody". For example, in communist Czechoslovakia, there was only one factory designated to produce certain electronic chips. But then everybody becomes dependent on that one factory, and if that one factory slips in schedule, everything that depends on it will slip.
There is a fundamental trade-off to be made. You can have an efficient system but it's robustness (ability to withstand a failure or adapt to change) will be very low.
But the planners are often willing to take risk of being less robust for the sake of efficiency, because it usually gives you a free promotion in human status hierarchies.
(If you ever worked in a large company, I am sure you can recognize the above effect, somebody hyper-optimizing through a mandate, and it has 2nd order effects in decrease of efficiency.)
Compare that with market economy, which actually has huge overabundance of production capacity, and multiple producers of almost everything. This is less efficient but works really well in practice. (However, it has the other kind of problem; there is no way the free market can recognize that there is too much companies, without the agony of "malthusian" overcrowding and associated nasty effects such as more stress for everybody. Things like bullshit jobs are probably an end result.)
The inefficiency of market economy is terrible. Also it leads to production of bad products where repairability, quality is sacrificed to reduce costs and increase sells (who would make a good light bulb, which will last years if you can make a bad light bulb which will last months and sell dozens of them). I'm living in post-USSR country and a lot of old consumer goods which were "made in USSR" are an etalon of quality compared to modern goods.
I still think that central planned economy is superior to market economy. USSR failed because of human factor and probably because computers were not good enough to produce proper plan on a USSR-scale, but even with those factors it was able to compete with the rest of the world in science, space, military. It's quite fascinating.
> even with those factors it was able to compete with the rest of the world in science, space, military.
Competing on a few key sectors is easy when you sacrifice the livelihood of your whole nation, spoil their property, and send millions to the Gulag to deter any political opposition.
And the Soviets did not compete in "Science". They competed on military and space exploration mainly, but most of the other areas of Science were left dry by the Soviets, or left to crazy experimentation based on pseudo science in agriculture. Most of the genetic discoveries were done in the US, most of drug development happened in the US, computer development was way ahead in the US as well - there is no world where the Soviets were competitive across the spectrum.
And let's not forget that the US continuously shipped grains to the URSS because they could not produce enough food for their own people consistently. You can't do Science if you can't even grasp agriculture.
> Competing on a few key sectors is easy when you sacrifice the livelihood of your whole nation, spoil their property, and send millions to the Gulag to deter any political opposition.
I doubt it is actually that easy. There wasn't many economies in the world to pull that off. It is probably not a coincidence that most successful countries give its citizens high degrees of personal autonomy.
>Competing on a few key sectors is easy when you sacrifice the livelihood of your whole nation, spoil their property, and send millions to the Gulag to deter any political opposition.
Don't forget that Russia (and thus USSR) started of as a poor agrarian nation to begin with, much behind in industrialization than the US, UK, etc.
The pictures of huge queues aside, USSR was a huge jump in standards of living and consumption for millions of people compared to before (which even included a tradition of serfdom).
USSR had also started quite early with non-central planning (NEP was a "free market" attempt similar to today's China), but ended it to quickly allocate resources between WWI and WWII to being able to withstand invasion. Quite prescient it was too.
I'd say USSR would have done much better without Stalin at the helm, without WWII that had a 30+ million human toll, and with NEP continued (it was stopped sometime in the late 20s).
>And the Soviets did not compete in "Science". They competed on military and space exploration mainly, but most of the other areas of Science were left dry by the Soviets, or left to crazy experimentation based on pseudo science in agriculture.
Maybe invest in some science history books? The "crazy experimentation based on pseudo science in agriculture" (Lysenko I guess) is a known early example (then again the west had its own share or pseudo science, remember lobotomies?), but they had tons of important scientists and engineers in all fields, much beyond "space exploration and military" -- from Kolmogorov to Basov, and tons of inventions we depend upon today...
> Don't forget that Russia (and thus USSR) started of as a poor agrarian nation to begin with, much behind in industrialization than the US, UK, etc.
This is not true. Revolution in Russia was performed by industrial workers, not by agrarians. Also, Russia was third-fourth economy in the world just before war. Other countries in the world were much poorer and agrarian.
You can compare Russia with Japan, or Korea, or Singapore, or China. Apples to apples.
If you look at historical values of GPD, you will see that grown in first world countries (Europe, Russia, the United States, Canada, and Japan) started at about 1850, and they outpaced rest of the world in about 1900. I see no correlation between data and Stalin.
> The pictures of huge queues aside, USSR was a huge jump in standards of living and consumption for millions of people compared to before (which even included a tradition of serfdom).
A huge jump? Versus the tsar regime, probably - it was a catastrophe in itself. But compared to the Western world, GDP growth was miserable and clearly behind all "modern" countries in comparison.
It was, anyway, clearly going to hit a wall economically.
> About Science
Your argument does not refute anything of what I mentioned. The Soviets were behind in most disciplines. And their had clear ideological barriers that prevented them from doing actual Science, in case you forgot:
> Already in 1920s, certain fields of scientific research were labeled "bourgeois" and "idealist" by the Communist Party. All research, including natural sciences, was to be founded on the philosophy of dialectical materialism. Humanities and social sciences were additionally tested for strict accordance with historical materialism.[2]
> After World War II, many scientists were forbidden from cooperation with foreign researchers. The scientific community of the Soviet Union became increasingly closed. In addition to that, the party continued declaring various new theories "pseudo-scientific". Genetics, pedology and psychotechnics were already banned in 1936 by a special decree of the Central Committee. On August 7, 1948, the V.I. Lenin Academy of Agricultural Sciences announced that from that point on Lamarckian inheritance, the theory that personality traits acquired during life are passed on to offspring, would be taught as "the only correct theory". Soviet scientists were forced to redact prior work, and even after this ideology, known as Lysenkoism, was demonstrated to be false, it took many years for criticism of it to become acceptable
There is this thing about soviets is that you can't at the same time fight Truth in all areas of daily life, and at the same time promote the scientific method. It's just not compatible.
> A huge jump? Versus the tsar regime, probably - it was a catastrophe in itself. But compared to the Western world, GDP growth was miserable and clearly behind all "modern" countries in comparison.
I'm curious, how useful is a GDP measurement in a "communist" country where there are no monetary transactions to obtain the most important human needs -- housing, education, daycare, leisure, vacations, etc?
You need to learn more about these countries then. Don't just buy the propaganda.
One of the ways Marxist-Leninism splits from traditional Marxism is Lenin believed (or realized that) a communist state would need to go through a transitionary market period with strong regulations and planning. The USSR never abolished money. That is way way way farther then they managed to get. There were super markets (not great but I Western standards, but they were there). They believed an ideal socialist state would take a long time to achieve.
I’m aware that there were money and shopping in the USSR, thanks. I’m also aware that there was no real estate market in the USSR, daycare and education of all levels was free, vacations weren’t paid for, etc. I’m assuming none of those are in GDP calculations? That was my question.
Very convenient how you left out the last two sentences in the paragraph about Lysenko and Lamarckism:
>After the 1960s, during the Khrushchev Thaw, a policy of liberalization of science was implemented. Lysenkoism was officially renounced in 1963.
Hmm. Almost like you started with your mind made up and went looking for the quickest thing that confirmed it.
Of course, the US didn't engage in any cooky political pseudoscience from the 1930s to 60s. Only the bad guys were backwards 80 years ago right?
> The Tuskegee Study of Untreated Syphilis in the Negro Male, also known as the Tuskegee Syphilis Study or Tuskegee Syphilis Experiment or the United States Public Health Services Study of Untreated Syphilis in Black Males was an infamous, unethical, and malicious clinical study conducted between 1932 and 1972 by the U.S. Public Health Service. The purpose of this study was to observe the natural progression of untreated syphilis in rural African-American men in Alabama under the guise of receiving free health care from the United States government.
Well say, what do you know, it's almost like going back 80 years and finding some old fucked up political shit is an unfair way to prove a country is backwards.
There's some survivorship bias at play here. The crappy, poor quality goods made in the USSR went to the scrap heap decades ago. The stuff you're seeing today lasted the test of time, but a lot of other stuff didn't.
Some Soviet categories of goods, and brands were pretty decent. My grandparents' fridge has lasted a good 40 years, without any issues. Their television was broken more then it was working.
A percentage of this effect is due to "restrictions" on manufacturing. i.e. you had to make things with a certain thickness of steel, etc. You see this effect with American goods too. You have avocado green fridges still running for 50 years or washing machines from the 1970's that are still running. Things don't last today because we have paper thin metal and various other cheap parts and there is no incentive to make a washing machine that lasts for 40 years.
I received an old washing machine when i got married and a new dryer. That washing machine is super heavy, but still working. The dryer is a POS and the plastic knobs have all started failing, so I have to use pliers to turn the knob.
I'd pay 2x the price of a standard appliance to get a quality one without question.
Isn't part of the "50 year old fridges running" due to survival bias? Meaning : you aren't (and probably can't for obvious reasons) counting the vast numbers/majority of the same model of item that are no longer in service.
If you ever lived in the actual USSR, you must also remember how poor average people were, how hard was it to find and buy anything decent, or simply anything. Including food. Want a piece of meat? Spend two hours in a line. Want a piece of Bologna sausage, or butter? Here's your food stamp for a minimum monthly ration.
USSR just did not have enough resources to properly feed everyone using planned economy. It had to admit the very smallest pieces of market economy (sell apples from your orchard, don't go to jail) to keep people somehow fed.
I think there were several different periods where things were not bad, and when things were not that great, like the 60s, 70s, or 80s, and different people who lived in the USSR refer to different periods, so you get people claiming very different things.
> I'm living in post-USSR country and a lot of old consumer goods which were "made in USSR" are an etalon of quality compared to modern goods.
Maybe the simpler ones, like blow dryers. Cars made in communist Poland usually broke down within first couple of hundred kilometers of purchase. People used to take a new car to a (private, as in not-state-owned) mechanic, who would dissasemble it and then reassemble, to make sure everything was put together correctly. Not to mention that communist Poland, a nation of 40 million, was unable to design its own car and had to licence it for production from capitalist corporations.
Strictly speaking, Soviet goods (very few of them, though) were of somewhat decent quality when compared to the cheapest crap made in a non-name sweatshop for dollar stores. Or export to the Eastern Europe and ex-Soviet countries.
Even in the space, USSR achieved much more launches than the US for a simple reason -- Soviet satellites crapped out in months instead of years.
I'm living in post-USSR country and a lot of old consumer goods which were "made in USSR" are an etalon of quality compared to modern goods.
If you replace USSR with "period up to the late 80s", that statement is repeated in many countries, so maybe the central planning part is not the distinguishing factor.
>USSR failed because of human factor and probably because computers were not good enough to produce proper plan on a USSR-scale
I think this too. There has been recent work by Paul Cockshott (a computer scientist) on new models of central planning with modern computers. I'd urge anyone interested to check it out.
I investigated case with planning in USSR and found that all planing was done by single woman. She got position by "blat" (bribe + protection from someone in power). All planning process was down to increasing of previous numbers by 5-10% once in 5 years. No known computer in the world can fix that.
> I investigated case with planning in USSR and found that all planing was done by single woman.
That's interesting. Are you saying that the functionality of entire Gosplan organization from the 1920s all the way to the end was done by one woman? What was her name?
No, I'm talking about GOSPLAN in last 15 years of life of USSR. I forgot name of woman (I did investigation more than 15 years ago), but it was just one woman, protege of Babaian. I forgot details, so maybe it was yearly plan, but idea remains: for last 15 years, USSR was on autopilot and bribes.
Do you know meaning of words "tufta", "purga", "pripiski"? USSR officials were happy to perform on paper any reform, increase and improve anything, because it was the easy way to climb hierarchy. Glasnost` and Perestroika were symptoms of deeper problems with economy. The main problem was "everything is ours, so nobody cares".
"too much optimization at the expense of robustness"
That is not unique to central planned economies. Consider how the 2011 Thailand floods lead to a global shortage of hard disk drives, or the saline solution shortage in the US when the plants in Puerto Rico were damaged by Hurricane Maria.
I think the author expressed it clearly that the planning algorithms depend on linear programming, and that non-linear effects - and I believe 'robustness' counts as such - are beyond what can even hope to achieve. The author also points out:
> If it’s any consolation, allowing non-convexity messes up the markets-are-always-optimal theorems of neo-classical/bourgeois economics, too. (This illustrates Stiglitz’s contention that if the neo-classicals were right about how capitalism works, Kantorovich-style socialism would have been perfectly viable.)
Hence why capitalist systems may also have robustness problems.
"You can have an efficient system but it's robustness (ability to withstand a failure or adapt to change) will be very low."
I think that's an observation in how centralized systems are implemented. I don't see why robustness can't, at least in theory, be included as part of the optimization process.
Beyond the factors highlighted in the essay, of course, like the inability to decide how to weight those factors, and the non-convexity.
"That is not unique to central planned economies."
Yes, however, when it happens in market economies, it is not caused by planning for greater efficiency (saving money). Nobody really decided there to be only one factory that produces hard drives; it is a consequence of hard drives being particularly difficult to produce.
"I think the author expressed it clearly that the planning algorithms depend on linear programming, and that non-linear effects"
I disagree with that. I think planning itself (algorithms) is not the issue here, I think the objective is.
"I don't see why robustness can't, at least in theory, be included as part of the optimization process."
In theory, perhaps. But in practice, it's difficult to prove to the people in charge (whoever that is) that you made the system more robust, compared to proving that you made the system more efficient. So there will always be an inherent organizational bias towards efficiency.
Airlines are an interesting example of industry which strives for efficiency, yet has strong robustness guarantees through regulation enforced by central agency. (Although in this case, it is not economic robustness.)
Maybe the robustness of the economy as a whole is given by how much choice you have in being conservative or take an experiment. So there really cannot be "robustness" as an objective, since it depends on continual experimentation with different models of operation, where most of them fail.
>Nobody really decided there to be only one factory that produces hard drives; it is a consequence of hard drives being particularly difficult to produce.
Are they? To the point that some factories in Thailand had all/most the knowledge and equipment to do so?
I'd say it's exactly they were located in Thailand for exactly the same reason a planned economy would focus on: "greater efficiency (saving money)": it was convenient and cheaper to get them made there (except when it suddenly weren't).
What I am trying to say is that it was a convergent decision to buy from a single manufacturer (although perhaps cost-driven), rather than a decision to, in order to reduce costs, have only one manufacturer.
Making HDDs is quite difficult and there is only a handful companies that can do it. If the barrier to entry was lower, there would be more different manufacturers and probability of relying on single manufacturer would be reduced. Like in most other industries.
>What I am trying to say is that it was a convergent decision to buy from a single manufacturer (although perhaps cost-driven), rather than a decision to, in order to reduce costs, have only one manufacturer.
"however, when it happens in market economies, it is not caused by planning for greater efficiency (saving money)."
I think the author addressed that, writing:
> "For the capitalist or even market-socialist firm, there is in principle a simple objective function: profit, measured in dollars, or whatever else the local unit of account is."
"I disagree with that .. I think the objective is"
I'm not sure what you disagree with. My incomplete summary? The author also goes into detail about the problems in determining the objectives. I mentioned them in passing in my last line.
"In theory, perhaps"
Well, yes. That's because it's a response to the theoretical statement you wrote: "You can have an efficient system but it's robustness (ability to withstand a failure or adapt to change) will be very low."
Do you have any evidence that this is a universal statement?
Anyone worried about possible environmental catastrophes as the result of greenhouse gas omissions must certainly be wondering what can be done to include that robustness factor in a market economy.
I disagree with the usual notion that the problem of planning is somehow (algorithmically) difficult, once you know the objective function.
Instead, I argue there is a tradeoff in the objective function, which is hard to estimate in theory without experimentation. This experimentation goes against the goal of efficiency (you need redundancy).
So even if you knew all the demands of all the consumers, and could calculate what to produce (which e.g. von Mises argues is impossible), I argue you would still have a problem with central planning, because the resulting optimal plan would not be robust enough to execute. I also don't think the former is a big issue with computers, to be honest. There are examples of top-down logistical planning operations in the world which are comparable to an economy of a small country.
"Do you have any evidence that this is a universal statement?"
Well, in optimization problems, usually as you get closer to the possible optimum, the number of acceptable solutions decreases. So the closer the solution to the optimum, the less leeway there is to adapt the solution to some unforeseen circumstances.
Addendum: I think many economists try to paint free market as being efficient, and that's why they argue the optimization problem is impossible to solve. However, I don't think free markets actually are efficient, but rather, make a different trade-off, which works better in practice (it also has downsides).
The impact from greenhouse gases is already either a factor in some power markets (which heavily use state of the art optimization and are among the hardest problems to solve when you look at the size versus the time it has to solve in) or planned to be included. It is indirectly there in all power markets as coal is currently becoming less and less economic.
If you lived in communist Czechoslovakia you probably saw the amount of bullshit jobs in a (small) centrally planned economy. We had communist party activists in all institutions, secret police listening all day to people's conversations and the list could probably go on and on.
These might be considered useless but are not necessarily bullshit according to Graeber's definition. The definition of bullshit job is the person doing it knows that it is bullshit, yet they have to do it because there is no better job available for them.
And to be honest, I am not really sure there is less bureaucrats (which are only sometimes bullshit jobs) in the market system. I actually suspect the opposite, because there are much more hierarchies, and there is less people needed in agriculture and industry.
Speaking of bullshit jobs and hierarchies, here's a tangent.
Isn't it a little bit strange that we, the people of the world, who are striving for or already live in a market economy and a ndemocracy, are OK with living most of our lives in a hierarchy that in some ways resemble feudalism?
I'm a developer. I've chosen not to participate in "climbing the ladder" because that would make me less of a developer and more something else. I'm happy being a developer but I find I don't at all enjoy being at the bottom.
I am in a similar position and I find it strange, too. That's why I am pro (direct) democracy and minimum basic income, and more or less against power hierarchies.
But I know many people that don't want that, or don't care.
It's similar to a centrally planned economy but at a smaller scale. Imagine if your whole economy was organised like that, along with politics and you've got yourself a dystopia.
Not too diminish the aspect which is particular to communist Czechoslovakia, but it is a hard earned tenet of highly available systems best practices to have redundancies throughout a given stack. For example, a storage system that has disks in RAID, dual RAID controllers, dual NAS servers, dual connectivity to switches, etc is more expensive but worth it in the long run if you depend on it.
Maybe that lesson hasn’t been absorbed more widely. Market economy perhaps gets redundancy for “free” (or cost subsidized by losers)
>Market economy perhaps gets redundancy for “free” (or cost subsidized by losers)
That's a platitude, not a fact. We just are moved to believe that the market is naturally redundant by propaganda, our governments in the west urge us not to look at the instances where it's not, like economic collapses caused by banks or other government investing groups that are "too big to fail."
In top-down planned systems, there is always somebody who says something like "we only need this one thing for everybody". For example, in communist Czechoslovakia, there was only one factory designated to produce certain electronic chips. But then everybody becomes dependent on that one factory, and if that one factory slips in schedule, everything that depends on it will slip.
There is a fundamental trade-off to be made. You can have an efficient system but it's robustness (ability to withstand a failure or adapt to change) will be very low.
But the planners are often willing to take risk of being less robust for the sake of efficiency, because it usually gives you a free promotion in human status hierarchies.
(If you ever worked in a large company, I am sure you can recognize the above effect, somebody hyper-optimizing through a mandate, and it has 2nd order effects in decrease of efficiency.)
Compare that with market economy, which actually has huge overabundance of production capacity, and multiple producers of almost everything. This is less efficient but works really well in practice. (However, it has the other kind of problem; there is no way the free market can recognize that there is too much companies, without the agony of "malthusian" overcrowding and associated nasty effects such as more stress for everybody. Things like bullshit jobs are probably an end result.)