I hate to break it to the author of this piece, but toasters and pencils do not magically spring fully-formed from the uncoordinated, joyful, dignified labor of confident Ayn Rand heroes.
A company decides to get into the toaster business. That company then deals with coordinating everything needed to bring the pieces together and put toasters on the market. That company places orders with others which provide raw materials. That company builds or acquires factories and machinery. That company gets workers to build toasters, probably on an assembly line. That company sets up distribution channels.
In other words, the toaster company has to -- gasp! -- engage in centralized planning of how toasters will be produced, distributed and sold. Fortunately, centralized planning and coordination is only doomed to fail when the government does it, right?
And the odds are that most of the people in the chain are not working with much joy or dignity, especially the closer you get to the manufacturing and raw materials. They most likely work not because they find their life's purpose in mining the ore that furthers the wonder of captalism, but because mining the ore is about the only option in whatever place they had the misfortune to be born into.
Of course, when you put it like this it's not a juvenile libertarian's wet dream anymore, and Reason wouldn't want to publish anything like that. But ideology and reality don't often match up (and, to be honest, I've no doubt that if the author of this piece had been born in Stalin's Soviet Union, he'd have used similar logic to extol the wonders of the Glorious People's Ore-Mining Facilities, which bring raw materials from far-flung places to produce the Toaster of the Motherland, in a striking blow to the decadent imperialist capitalist pig-dogs).
I think you're missing something very important when you talk about the centralized planning in companies:
Failure.
A toaster company doesn't have to get it all right in order for toasters to be produced. It merely has to come close enough that someone else realizes that a toaster is a good idea, tweaks some features, and does it better. Eventually we end up with a working toaster, even if 99.9% of toaster companies didn't produce a working toaster.
It also helps that the toaster company can rely on the metal-casing company already have gotten most of that right, and the heating-element company having gotten most of that right, and the timer coming having gotten most of that right. It doesn't have to start from scratch for every component of the toaster, only the toaster-ish ones.
The difference between governments and corporations is that corporations can fail. When they can't (eg. Citigroup, GM, and AIG in the current financial crisis), central planning in a corporation is every bit as harmful as central planning in the government. But most of the time, when a corporation fails, other people pick up the pieces, tweak them a bit, and try again with a newer and better corporation. Hell, most of the time the newer and better corporation comes along first and makes the outdated one fail. (See: Toyota vs. GM, Google vs. Microsoft, Microsoft vs. IBM, etc.)
When a government fails, usually lots of people die. At the very minimum, there's lots of misery and uncertainty.
You could argue that one of the greatest things about the U.S. government is its ability to tolerate failure without bringing down the whole government. When a president royally screws things up, like the last one did, he's out in eight years, there's a peaceful transition, and someone new picks up the pieces. Could you imagine something like that happening in Castro's Cuba, Saddam's Iraq, or Communist Russia? For most of history, the modus operandi of governments has been to continue growing in power until they're so big they can't do anything but fail, then have a bloody revolution where the new radicals throw out everything the old guard did - even the parts that worked - and start from scratch. It's hard to make progres like that.
* The ideal size of corporations is an interesting subject. If central planning is so bad, why are some companies so huge? Why do companies get big if small is better? Why aren't we all just individual contractors, rather than employees?
* Free trade is generally seen as 'good' by economists, but a move in that direction may not be a Pareto improvement; i.e. while everyone is generally better off, there may be some people made (significantly) worse off. Technology improvements are the same way: people may be better off using computers than typewriters, but not typewriter repairmen. One strategy to mitigate the worst effects of this would be a bit of redistribution from all the winners, to the losers. Everyone is thus better off than before the move to free trade, or new tech, and the losers have some cushion to fall back on. Of course this presents problems of its own and is a long and complicated debate.
I agree. Though I doubt that the modus operandi you described was prevalent. For most of histories external power struggles (including war) served a check on inefficencies of governments.
For most of history, the modus operandi of governments has been to continue growing in power until they're so big they can't do anything but fail, then have a bloody revolution where the new radicals throw out everything the old guard did - even the parts that worked - and start from scratch.
To be fair, a lot of pre-democratic government structures weren't that bad at handling power transition. Either there was a generally-acknowledged official line of succession, or some kind of council of noblemen who were officially responsible for choosing the king's successor, or some combination of the two. Of course, kings back then also had more practical (if not constitutional) limitations on their power than Saddam had on his power.
Actually, the toaster company only engages in central planning of toaster assembly. They plan almost nothing else.
Where do they get their iron from? Commodities markets. If I'm not mistaken, even the name of the seller is abstracted away from them (by the financial services industry, which is also not planned by the toaster company).
The manufactured parts (e.g. the plug and switched) may actually require them to care who they purchase from, but all the planning is done by someone else.
And the distribution channels are also, for the most part, handled by someone else. The company sends toasters to Walmart by the truckload, distribution is up to walmart from there on. Maybe the company sends some advertising materials, but that's about it.
The toaster company does engage in planning, but only a little bit. The rest is left up to the markets.
More precisely, everyone at every stage of the thing engages in planning. And those plans are coordinated almost entirely by the market. That's the point of the original article.
Who say that they are getting much joy or dignity or that they're doing it to further the wonder of capitalism or whatever strawman you made up?
The difference between a government's central planning and the company is that the company have to trade something to get anything done.
While the company may in fact central plan part of their operation, the fact is, the bricks must be traded for something else. The steel, the workers, and everything have to also occur by trade.
This is something that cannot happen by mere "central planning". Each individuals, must decide what will benefit them the most. After all, they could go do something else in the economy that need urgent attention.
"Who say that they are getting much joy or dignity or that they're doing it to further the wonder of capitalism or whatever strawman you made up?"
Here's a direct quote from the article:
"From the miners to the factory workers to the truck drivers to the smelters to the architects of the factories to the executives that run the companies that fund and organize each step of the process, each and every participant is in the game for his own self interest—to make a living, and to make a contribution that's really only a tiny part of the end result of a product, even one as insignificant as the humble pencil. Pan back until you've framed the entire world economy, and it's hard not to marvel at the wonder and miracle of capitalism's invisible hand."
You want to tell me I'm making stuff up now?
"The difference between a government's central planning and the company is that the company have to trade something to get anything done."
"While the company may in fact central plan part of their operation, the fact is, the bricks must be traded for something else. The steel, the workers, and everything have to also occur by trade."
"This is something that cannot happen by mere "central planning". Each individuals, must decide what will benefit them the most. After all, they could go do something else in the economy that need urgent attention."
OK, you tell me: if you're the guy who lives in a slum in Bolivia and works for slave wage in a tin mine, to what other aspect of the economy can you devote your urgent attention? And, with the lowest GDP on the continent, what are you, your employer or your country getting in return for that resource to make it a worthwhile trade?
EDIT: I see it now. I can see how you might interpret it as that.
In any case, it is doubtful that people care about furthering the glory of capitalism. I think the author is talking about the invisible hand rather than any specific noble cause.
"OK, you tell me: if you're the guy who lives in a slum in Bolivia and works for slave wage in a tin mine, to what other aspect of the economy can you devote your urgent attention? And, with the lowest GDP on the continent, what are you, your employer or your country getting in return for that resource to make it a worthwhile trade?"
What? I don't understand your question.
Surely the worker is mining tin so that he could eventually trade for food. The employer who are getting the tin can then eventually trade for something that they want, no?
There's always attention to devote to in an economy. After all, there's always the never ending needs and wants that must be satisfied and the limited amount of resource that can be devoted toward the unsatisfiable demand of men.
The question is not whether there's enough jobs but rather how the economy can reallocate resources correctly and efficently so that people can find work again.
If the resource allocation remain uncorrected(Examples include overpaying for labor which often happen when minimum wage are enforced), parts of the population may continues unemployed although they may be able or skilled enough to trade their labor on the market.
It's telling that your example of uncorrected problems is people being too well off.
And, once again: you seem to think that people in places like Bolivian tin mines have options, that they can just move, or be moved, to something else at the drop of a hat. Reality ain't like that.
> And, once again: you seem to think that people in places like Bolivian tin mines have options, that they can just move, or be moved, to something else at the drop of a hat. Reality ain't like that.
The existence of a bad situation does not imply that a given solution will make things better.
I note that hell-holes are usually associated with folks who are "doing things for the people".
And, in point of fact, they can "just move", unless someone is pointing a gun at them. That someone is almost always a govt.
Read what he wrote again. The uncorrected problem is italicized:
"If the resource allocation remain uncorrected(Examples include overpaying for labor which often happen when minimum wage are enforced), parts of the population may continues unemployed although they may be able or skilled enough to trade their labor on the market."
There's something very annoying about revolutionaries of all kinds, something programmers should know instinctively: you don't throw away good entropy.
It's very nice to criticize a system because a worker in Bolivia has it rough. You feel very good when you say "Something must be done!", but if by any chance you'd get any power all you'd do with this attitude would be to destroy. The current system works. It puts bread on the table of that Bolivian worker, and on pretty much everybody else's. If you want to change this you _must_ start by understanding the current system and its strengths and weaknesses. To try and replace it, or change it without understanding it can only end in ruin.
And if you look closer at that specific worker you may find interesting things. You may find for example that the reason mining is the only thing he can do is not due to capitalism, but because some local politician decided (much like you) that capitalism is not the way to go. And that the evil foreigners who only want money must be kept far away, and let in only on a leash. So the greedy foreigners can't come to that part of Bolivia and build a car factory which makes cheap Fords and Fiats because well, nobody really wants capitalists to make more money of their backs. So the poor miner keeps on going down into the mine every day.
Free trade is good for poor people. Globalization is good for poor people. Capitalism is good for poor people. When you see them failing, there's usually some politician who thinks that if he controls every aspect of the economy that's still called capitalism.
Thanks for your illustrative example of the No True Scotsman fallacy. Good to know that capitalism, by definition, cannot fail, since anything which fails will be redefined to not be capitalism.
Now, get in line with all the "but communism was never really tried" folks.
Capitalism with strong state control is called Mercantilism. Or proto-capitalism, if you want. A few hundred years ago the main tools used today existed already: banks, loans, stocks, contracts of all kinds. The main difference was that the state believed (much like in a lot of third-world countries today) that tight regulation is normal and necessary. The moment the main source of income shifted from agriculture to industry and commerce was the moment the state started to use it for its own purposes (which usually were war related).
Not surprisingly, it did not work very well. Regulations went as far as dictate the type of products which could be produced, by whom and with what technology. Any newcomer had to obtain licence first and start production later, and any company which had an advantage in inovation only was pretty dead from the start. The incumbents always fought tooth and nail to keep things as they are, and since they had the support of the state they usually succeeded. In one extreme case this meant the execution of 16,000 small entrepreneurs whose only crime was importing or manufacturing cotton cloth in violation of French law. (last sentence is copy paste from Wikipedia).
Now, again, except the state control the economic climate looked surprisingly like today. Which is why there are still countries that proclaim to be capitalist, even when in practice it's impossible to build a successful business without political support. The difference is not semantic, it is very real.
Do you remember the recent case of the homeless shoe shiner who had to pay $400 for a licence? That would be the exception. In that time (and now in many countries), it was not only the rule, but the licence would cost you a lot more then one month's rent.
That paragraph says the workers are doinging it for their self interest. The bit about the miricale of capitalism is the author's feeling about it not the bolivian mine worker.
> In other words, the toaster company has to -- gasp! -- engage in centralized planning of how toasters will be produced, distributed and sold. Fortunately, centralized planning and coordination is only doomed to fail when the government does it, right?
One difference is that when govt does "it", govt typically forbids or at least seriously punishes alternatives. At the very least, govt takes resources from folks who would do things differently.
If I have no interest in your toaster idea, I'm free to develop an alternative and I don't end up supporting your idea. When govt develops a toaster, I pay for it even if I think that it's dumb, and govt is likely to place restrictions on my alternative.
Govt solutions are also less diverse. This takes two forms.
Each company will take a somewhat different approach to toasters while govts pick an approach and run with it. Since each attempt has roughly the same odds of success, taking multiple shots tends to produce a better "best" result.
It's also the case that one size doesn't fit all. Different companies end up optimizing their product for different users, increasing overall satisfaction. If there's only one product in a given space, as you get with govt solutions, said product ends up not satisfying a significant fraction of people and it has "flexibility" that gets in the way.
Folks rant about monopolies, but govt is the biggest monopoly of all.
I hate to break it to the author of this piece, but toasters and pencils do not magically spring fully-formed from the uncoordinated, joyful, dignified labor of confident Ayn Rand heroes.
A company decides to get into the toaster business. That company then deals with coordinating everything needed to bring the pieces together and put toasters on the market. That company places orders with others which provide raw materials. That company builds or acquires factories and machinery. That company gets workers to build toasters, probably on an assembly line. That company sets up distribution channels.
In other words, the toaster company has to -- gasp! -- engage in centralized planning of how toasters will be produced, distributed and sold. Fortunately, centralized planning and coordination is only doomed to fail when the government does it, right?
And the odds are that most of the people in the chain are not working with much joy or dignity, especially the closer you get to the manufacturing and raw materials. They most likely work not because they find their life's purpose in mining the ore that furthers the wonder of captalism, but because mining the ore is about the only option in whatever place they had the misfortune to be born into.
Of course, when you put it like this it's not a juvenile libertarian's wet dream anymore, and Reason wouldn't want to publish anything like that. But ideology and reality don't often match up (and, to be honest, I've no doubt that if the author of this piece had been born in Stalin's Soviet Union, he'd have used similar logic to extol the wonders of the Glorious People's Ore-Mining Facilities, which bring raw materials from far-flung places to produce the Toaster of the Motherland, in a striking blow to the decadent imperialist capitalist pig-dogs).