Picking Winners and Losers

Dr Madsen Pirie, President of the Adam Smith Institute, describes value. (Hat tip: Samizdata)

That is all very well. But Marxist economists object that a reliance on market valuation will eventually result in the inequality of wealth. In their view, only central planning can modify that situation and make things “fair”.

The central allocation of state resources is essential in most countries because of regional inequalities in resource endowment, immigration, productivity, demand for products or for a wealth of historical reasons. Only a decision made at the centre can redistribute resources to compensate less developed regions, classes, gender and racial groups adversely affected by the above factors. Otherwise, the “market” tends to favour those with historic advantages and favorable endowments creating polar patterns of development or even fostering inter-regional/class exploitation and ethnic conflicts.

Left to itself, the market will result in a society of ‘obscene’ wealth and glaring inequality. Hence, the need for the guiding hand of central planning. Moreover, such planning does not have to be onerous. If the planners can control the high ground of the economy — key sectors like energy, banking, housing and health care — then the detail of the economy can be more or less allowed to set prices based on some kind of market rate.

planning does not mean detailed specification. The size of social budgets can be decided nationally by elected representatives and allocated according to public assemblies where citizens can vote on their local priorities. This practice has been successful in Porto Alegré in Brazil for the past several years under a municipal government led by the Workers’ Party. The relation between general and local planning is not written in stone, nor are the levels of specification of expenditures and investments to be determined at the “higher levels”. General allocations to promote strategic targets that benefit the whole country, such as infrastructure, high technology and education, are complemented by local decisions on subsidising schools, clinics, cultural centres.

This, it is argued, is the only way to achieve a “fair” society in which wealth may be more moderate, but with the inequalities less pronounced. Which was better formed the core of the debate between Barack Obama and “Joe the Plumber”. “When you spread the wealth around it’s good for everybody.”

To the accusation, that Marxist economics has always failed, the answer is simple: that is because past generations of Marxists made mistakes. But failure in the past does not mean failure in the future. “They look at the demise of communism in the late 1980s and not to its revival in the mid-1990s.” This time, they’ll get it right.

Thus the debate is far from settled. While professor Madsen Pirie may think that “value” resides in the appraisal of the mass of human beings, Marxists believe they know better; and that certain visions are intrinsically more valuable than others. The problem is simply in getting others to accept it.

But as this video about the Great Leap Forward shows, a command economy without price signals leads to catastrophic waste. Factors like the furniture used to fire the village steel smelters was unvalued and used profligately to produce worthless “steel”. Although the central planners accepted the products of the commune as production, in reality it could not be sold for love or money on any market, being entirely substandard. The same problem beset the “grain production” mandated by the central planners. With no no market to actually trade the grain, inflated claims of grain production were accepted at face value. One bureaucratic lie led to another, and soon the Great Leap Forward had assumed the aspect of a wrecking ball destroying the economy of China.