Central Planning By Business Is Not The Same As Central Planning By Government

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Advocates of capitalism say: “CENTRAL PLANING DOESN’T WORK!”

Also advocates of capitalism: “CORPORATIONS DO WORK!”

Sensible socialist: “Uhhh … aren’t corporations all centrally planned?”

This is a relatively new, and even imaginative critique of markets which has recently been circulating the meme-o-sphere. It looks like a pretty clever point at first glance, but it completely misses the mark on how and why markets work and why we advocate for them. There are several key differences between a so-called central plan issued by the CEO of a company and those issued by a commissar, or even a democratically elected senate or parliament.

Do the people whom services are produced for actually like the product? How can we tell? Well, on the free market people have limited resources and they need to make choices on what to spend those on. There is a tendency for them to buy the things they value the most first, and to get the stuff they could make do without if they have enough left over. This means that businesses have the feedback mechanism of profit and loss to let them know if, when it comes to the crunch, people value what they are selling enough to buy it at the expense of everything else they could possibly buy instead. This lets them know if their “plan” is any good or not. The government has to tax people and then make a wild guess.

In addition to that, the “central plan” of the corporation is competing with the “central plans” of several competitors, who may be doing certain things better than them and certain things worse. They can look across to try and figure out what others are doing right and tweak their plans in light of the evidence of trial and error between several different service providers. If someone makes an innovation, they can copy or even improve upon that idea if it is suitable to their business also. There is a place for variation between products, as every consumer has slightly different preferences, but fundamentally, if they fail to keep up with the better “central plans” of their rivals, then their own, inferior plans will be eliminated from the market—they’ll either have to close up shop or try another product which they are better suited to producing. Since the commissar is delivering a monopoly service, he cannot compare the relative merits and success of alternative variations.

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