The Inevitable Failure of Central Planning

Play-Doh
I’ve got what in my beard?

It’s all very in practice but it will never work in theory.

As articulated by Plato, there has always been a belief that a “Philosopher King”, a wise and powerful ruler would be an ideal.  In the modern era, skilled and dispassionate technocrats are the Philosopher King’s heirs – they can best manage the complexity of the modern era for the good of everyone.This belief is not limited to government.  Many corporations embark on ‘streamlining’, ‘rationalization’ or other similar exercise to re-centralize operations that may have drifted.  When articulated, making a central body responsible for a specific function, such as information technology, for the entire company is rational, even obvious.  Duplication is reduced, incompatible processes united, and resources are shared efficiently.

And it always fails.

No matter the buzzwords, centralization relies on the mechanisms of command and control.  In order for command and control to be successful, two things are required:

  1. Near total control on all variables
  2. Near perfect information

No one person or group can control all variables.  It is why economies that are centrally planned always end up as totalitarian regimes in their attempt to extend control.

Contrary to what one may think, the more centralized an organization, the less information flow.  Since there are a limited number of communication channels, they are vulnerable to breakdowns.  Compare the distribution speed of a Twitter story to an official announcement.

Of course, the more centralized an organization, the less agile they are.  They cannot react quickly to changes in variables, assuming they are even aware of the change.

One of the perception problems with networked (decentralized) structures is it operates contrary to one’s logic.  How can loosely connected individuals or groups make better use of resources than a centralized, authorized body of experts?  It is counterintuitive, yet history is cluttered with examples of networks operating more efficiently than command and control structures.  Even in natural disasters, centralized organizations are not as capable as a loose network of groups in providing aid as the people of Staten Island are learning.

Adam Smith described the self-ordering nature of markets as an invisible hand.  While an apt analogy, it is a description of reality but is not a theory.   Perhaps technology such as social media and the capability to crunch mass quantities of data will finally provide the common framework to describe Adam Smith’s invisible hand.

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