Planning for Competition: Planning For Prosperity

Sep 19, 2011 by

“Dira necessitas.” Horace

Last weekend Will Honeycomb threw himself into an armchair in Diuretic Delights, our local coffee house; a newspaper twisted in his hand and proclaimed: “What a dire necessity is money!”

 “You only say that because you have none,” Joe Philistine teased him.

“This whole nation is in a mess. Why can’t we have an economy that works for everyone, not just the rich; an economy that promotes justice; where production for profit is replaced with production for need and use? Laissez faire capitalism only works for the selfish, and it only promotes greed.”

“Just how could this be accomplished without the government planning the economy?” Joe posed. “Which is fine with me, so long as I can profit by it.”

“At this stage in our economy I wish someone would plan something!” Will Honeycomb exclaimed. “If it becomes any less planned we will sink to irretrievable bankruptcy. The treasury owes more than it could possibly repay, the jobs reports are flat and unemployment is up. If we could only figure out a way to give more money to the poor we could stimulate the economy into prosperity,” Will replied.

“Could it be,” I queried, “that over zealous interference and planning has brought us to the position we are in?” Will looked taken aback as though he had not considered such a notion. “Consider,” I went on, “The largest landholder in the U.S. is the Union Pacific Railroad, and that is because the government loaned them the money to build the rail road and gave them the land it is built on. The government is seeking to take over a sixth of the economy through a health care mandate. The government controls the interest rate, inflation, and has a personal income tax. Ninety percent of all the nations’ mortgages are held by two mortgage firms: Fanny Mae and Freddie Mac. Both firms were created by the government and both were backed by government money. I don’t see how you can say that the economy isn’t already planned!”

“You are right. It is not that the economy is not planed; it is that it is not planed intelligently. We are stacking the deck against the poor and creating a society with a greater disparity of wealth. The economy and liberty are contracting at one fell swoop,” Will replied.

Later as I walked home I thought about Will’s comments again. He has a soft heart and despairs at the suffering of others. It is hard to sit back as things fall apart and seemingly advocate doing nothing.

However, this interference in, and regulation of property, choice and liberty in general will only result in a contraction of liberty not the expansion of freedom. It is just this type of economic policy that prompted Voltaire’s observation: “The entire art of government seems to consist in taking money from one class of citizens and giving it to another.”

Voltaire probably had in mind the ancien regime that mercilessly taxed the commons through the taille while the nobles and clergy rode upon the economic backs of the commons. The various methods of economic redistribution are historically a double edged sword. Hayek reminds us that “ whether we should wish that more of the good things of this world should go to some racial elite, the Nordic men, or the members of a party or an aristocracy, the methods which we shall have to employ are the same as those which could insure an equalitarian distribution” (Hayek, 84).

All societies and economies are planned in a sense. The question is what the best way to plan is. Are individuals most fit to plan for themselves, to make decisions about their utilization of resources? Or has society become far too complex for any one person to be able to make such decisions reasonably? If the later is true collectivists would argue that planning is best done centrally.  This central planning, and the coercive power to allocate resources is what most people understand by central planning.

Economic liberalism regards competition as the most efficacious means of planned control. “…It regards competition as superior not only because it is in most circumstances the most efficient method known but even more because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority” (Hayek, 86).

The use of competition as a method of economic planning requires that certain coercive elements are restricted while others are permitted. For instance economic transactions should be entirely free. Likewise the ability for anyone to try to enter any occupation or career should also not be limited. This would not be possible in a planned economy. If the society needs doctors the government can coerce people into becoming doctors. Other restrictions may also be acceptable so long as they affect all businesses within the sector equally. A society may decide it is in its best interest to make sure that candy companies do not have lead in their candy. Competition is preserved so long as all the business is equally subject to the same regulations. However, it must be borne in mind that the more regulations there are, the more restrictive it becomes for smaller businesses to thrive or new business to be created. Regulation will generally favor larger more well established firms.

In order to accomplish a consistently efficient level of competition there must be a legal framework in place to secure both the rights of the proletariat as well as the bourgeoisie that secures the benefits of competition but also regulates less humane aspects of absolute competition. It is clear that in the past this framework was not present. However, that does not mean that such a legal framework could not be created. Our system as it exists has serious shortcomings, for instance in the law related to corporations and intellectual property. Many of these laws fail to secure the benefits of competition and they sometimes discourage civic virtue.

Somewhere at the beginning of the last century the project of making competition work was abandoned. Its failure was seen as inevitable. The terrible conditions of workers and the lowly legal status of labour were proclaimed to be incompatible with humane virtues. Competition was rejected in favor of collectivism in Germany, and of wealth redistribution in Britain.

In Europe what has emerged is something bleaker than unbridled corporate competition: The government has merged with big business to form syndicates; Co-operative organization of business exists. This new form neither respects competition the rights of labour or consumer choice. In America the regulation of insurance is one industry that has perhaps reached this stage of development.

There are then only two choices. We must have a return to competition. Or the alternative “is the control of the monopolies by the state – a control which, if it is to be made effective, must become progressively more complete and more detailed. It is this stage we are radically approaching” (Hayek, 89).

A middle path is not feasible. A planned economy with a dose of competition admits elements of chaos that it can not permit. A competitive system that admits planning will erode competition and liberty. Or as Hayek suggests: “planning and competition can be combined only by planning for competition but not by planning against competition.”

 

Citations

 

Hayek, F.A. The Road to Serfdom. Chicago: University of Chicago, 2007. Print.

1 Comment

  1. Much appreciated for the information and share!

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