The Madness of Government Planning
Why “Top-Downism” Will Always Fail
[This article is excerpted and adapted from an essay published previously on Free Life.]
It can scarcely be denied that the past two years have seen a rapid increase in the centralisation and consolidation of state power. While 2019 was hardly a small-state paradise, the penchant for central planning has gathered pace during the time in which we were all confined to COVID house arrest. Indeed, the whole sorry spectacle of lockdowns, masking, distancing and mass vaccination programmes were themselves uniform, top-down responses to a particular problem. Never matter how disastrous and destructive these policies, governments haven’t wavered from the notion that more of their input is the panacea to every societal ill – most of which, needless to say, are caused by governments themselves. Indeed, there is a pending attempt to harmonise government responses to health “emergencies” under the auspices of the World Health Organisation through a “pandemic treaty”.
It is therefore no surprise to see this attitude continuing with the subsequent problems caused by COVID lockdowns and excess money printing – high inflation, supply change disruption, a growing food and energy crisis, and so on. The UK government alone is presently trotting out grand plans such a “food strategy”, an “energy security strategy”, a “strategic plan for homes”; in the field of transport alone, there is a “transport investment strategy”, a “future of transport programme”, a “transport decarbonisation plan”, and an “inclusive transport strategy” – undoubtedly one of a few amongst many others. Moreover, all of these – some of which, quite literally, are Soviet-sounding “five year plans” – are individually quite modest compared to bigger schemes such as “Net Zero” or the “Great Reset”, although they may all be fashioned from the same mould. All in all, we seem to have given a green light to the zeal for remoulding social and economic systems according “all-encompassing” visions enforced upon society from the top-down.
If, for the sake of argument, we assume that such visions are promulgated with the best of possible intentions, they are, no doubt, built partly on the misguided notion that chaos would reign without such interventionism. In other words, only the steady hand of government on the societal tiller can foster “harmony”, “unity” and “co-operation”. The opposite, however, is really the case. It is this top-down, state planning that will always bring disorder, misery and destitution.
Of course, the most extreme form of top-downism is outright socialism. Such a system is bound to fail owing to the economic calculation problem. If the state owns all of the means of production across the entire economy then there is no trade in machines, tools and equipment. Without exchange markets for these factors, then they cannot command market prices. If there are no market prices then it is not possible for a state controlled planning board to undertake any kind of cost accounting. Without accountancy, there is no way of determining profits and losses. And if there are no profits or losses then you can never know whether scarce factors of production are being deployed efficiently or wastefully. The result is economic chaos as the capital structure deteriorates into a quagmire of wasteful surpluses of some goods and chronic shortages of others. In the former Soviet Union, for instance, fields of crops were left un-harvested because as much as one third of agricultural machinery stood idle owing to a shortage of spare parts.
Ultimately, however, all kinds of top-downism fail because they are fundamentally at odds with the nature of human beings – that we are each individuals with our own ends and desires, and that we each act within a local, limited environment so as to fulfil those desires. In human society (and often, for that matter, in the natural world), anything that can be observed as a complete, harmonious system is not the product of any single cause. No individual designed or moulded the whole thing in the way in which a single architect may design a building or a sole author can write a novel. Rather, social systems are the amalgamation of thousands of individuals striving to fulfil their individual ends in such a way that, nevertheless, manages to mesh them into a coherent whole. Institutions such as culture, language, market prices, customary legal systems and money are of this ilk. No one person ever invented any of these, and yet we can clearly define them as singular entities that exist to fulfil human purposes in a conflict-free manner.
As Leonard Read pointed out in his essay I, Pencil1, the same is true of all complex economic processes involved in the production of goods and services – whether its food, clothing, construction, automobiles, etc. In building each of these economic systems (or industries, as we tend to call them), each individual producer acts within his own sphere of understanding with means available to him. An individual farmer, for instance, will have intimate knowledge of the layout of his land, the crops that can be supported by the soil type, the local climate, the drainage, the best kind of fertiliser to use, and so on – details that may have taken years of experience to acquire, or even generations for a family business. Moreover, he will also be sensitive to the immediate needs, habits, desires and terms of his suppliers and customers, tailoring his produce accordingly. These people, in turn, may serve to fulfil other, individual steps in the chain of production necessary to place a completed food product on the dining table of a consumer. They too will have a similar purview only over their own, specific area of production.
However, there will be no one individual who has a grasp over the whole system, nor could anyone ever comprehend all of the relevant information that is required to be known at each stage of the process – a factor which, from the point of view of economic planning, we usually summarise as the Hayekian knowledge problem. Any kind of unified “vision” is both unnecessary and impossible to achieve when it comes to ensuring the smooth working of these industries. Indeed, the great accomplishment of the science of economics is to explain how everybody’s individual goals and desires need not lead to zero-sum conflict over a limited supply of nature-given goods, but, instead, to positive-sum, peaceful co-operation in the production of new goods without the need for a controlling arbiter.2
A failure to appreciate this and to assume instead that such systems can be built or refashioned in a top-down manner is likely to lead to disaster, as the failures of socialism have already demonstrated. But today’s governments, together with wealthy billionaires and philanthropists, seem equally convinced that, in order to make a positive difference in the world, one must think big and act big, making radical, far reaching changes to whole economic and social systems in the way that an inventor can dismantle a machine before starting over. Thus, we get attempts to revolutionise and control “farming”, “the housing market”, “transport”, “the climate”, “the internet”, “sustainability”, or even human society as a whole.
If, however, you wish to make a contribution to human progress – and, to reiterate, let us assume that all of these grand plans and schemes are designed to promote human flourishing – this is precisely the wrong path to take. Rather than trying to make gargantuan, wholesale changes, you should focus instead on a small area where you can make a specific improvement, the effects of which you can control in a limited environment that you can understand. If you are successful, you will enhance one small part of an economic system, but at no point does your attempt to do so threaten the integrity of the entire edifice. And once everybody strives to make the same kinds of localised improvement then the system as a whole improves as well in immeasurable strides.
For instance, in improving the production of Leonard Read’s pencils, the sawmill may employ a more efficient machine in cutting the wood; the shipping company may purchase a more capacious or speedy freighter in which to transport the wood; the pencil factory may devise a process that saves money on electricity or on packaging materials. The success or failure of these innovations will be determined ultimately by the profit and loss test, with those employing successful innovations profiting ahead of those who employ less successful innovations. These examples may be multiplied many hundreds of times for each and every factor of production involved, and are not (as is commonly supposed) confined to the practice of inventing new technology – simply improving an existing process, or finding a way to market an existing solution better would suffice, as would simply gathering existing factors of production and combining them in a better way. The final, singular result that can be appreciated by the consumer is a greater number and variety of cheaper pencils. It shouldn’t necessarily be assumed, however, that such small improvements are always, on their own, insignificant, consigning their proponents to relative obscurity. Some of them – such as pneumatic tyres, the Ford assembly line and the jet engine – represented great strides in the progress of humanity.
On the other hand, truly big plans – whether it’s the so-called Great Reset, the UN’s Agenda 21, the Green New Deal, or Bill Gates’ bizarre proposal to block out the sun so as to cool the Earth – will be disastrous, as their attempts to remake or refashion the world in a certain basic image through making drastic and far-reaching changes will have ramifications on systems and processes that simply cannot be foreseen by any one person. Such effects are often referred to by economists as “unintended consequences”, outcomes that would occur even if we were to assume that the planners are employing basic premises that are correct. But if (as is more often the case) they were to adopt demonstrably false premises – for example, Malthusian over-populationism, the dubious conclusions of so-called “climate science”, or the disastrous COVID modelling – the effects will be even worse. In fact, it is the gradual accumulation of unforeseen problems coupled with the belief that it is the state’s responsibility to solve all problems that, in the long run, leads to the growth of the state and the strangulation of liberty.
Over the coming years, further crises and problems are going to be used as excuses to increase state control and involvement in every facet of our lives. This is only going get worse given that our economic house has, for the last fifty years, been built on the sand of paper money, and the tide is finally coming in. We must resist the tendency towards greater centralisation in managing this transition, dispersing economic control away from states and global institutions to the most local level possible.
Leonard E Read, I, Pencil: My Family Tree, Foundation for Economic Education (2019).
In the words of Ludwig von Mises:
What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests. For where there is division of labor, there is no longer question of the distribution of a supply not capable of enlargement. Thanks to the higher productivity of labor performed under the division of tasks, the supply of goods multiplies. A pre-eminent common interest, the preservation and further intensification of social cooperation, becomes paramount and obliterates all essential collisions. Catallactic competition is substituted for biological competition. It makes for harmony of the interests of all members of society.
Ludwig von Mises, Human Action: A Treatise on Economics, The Scholars’ Edition, Ludwig von Mises Institute (1998), 669.