Saturday, December 19, 2009
Centralised Planning Versus Disciplined Pluralism
I was reading John Kay's The Truth About Markets as I was touring recently.
In it, he mentioned that there were many instances when centralised planning fails and how a market economy could actually achieve better coordination compared to an economy which had some form of central planning.
Take for example the queues in a supermarket. Shoppers are out to protect their own interest and based on their own judgements, join the queue that they perceive to be the shortest. This sort of decision making without any form of centralised control (i.e. a supervisor of the shop directing shoppers to join the shortest queue) is efficient by itself.
That is why you seldom see supermarkets employing people to help people get to the shortest queue. People who are looking after their own interests will automatically search for the shortest queue to join. This is how a successful market economy ought to function with disciplined pluralism.
In another example, no one discovered the personal computer. Instead, the industry emerged from a process of unplanned trial and error within a framework of disciplined pluralism. We are all well aware of how the founder of Microsoft himself was not even certain of the need for such powerful machines for an individual when he said: "640K ought to be enough for anybody."
A look at the failures of Mao in his attempt at the Great Leap Forward also shows the failures of a centrally planned economy. We idolised Jack Welch because it is hard to believe that a large corporation like General Electric remained successful because of decentralised decision making amongst thousands of individuals in the organisation.
So what does all this have to do with my tour?
During my tour, I could not help but noticed lots of unfinished buildings that lay scattered amongst the landscape. I was told that it was perhaps due to the economic crisis that led to this projects being abandoned.
This unfinished hotels were indeed a sore sight to any tourist. The buildings looked like they could easily become 5 star hotels but were now left abandoned without any windows or paintwork.
It made me wonder how disciplined pluralism really works. Sure.. we can let all the businesses flourish and let businessmen make their own decisions. The market will decide everything and that is why there were so many unfinished hotels.
But wouldn't it have been better if there was some kind of central planning agency to estimate the actual supply and demand of tourists that were expected in the area? Of course, for all we know, the central planning agency might have failed even more spectacularly with over optimistic figures and for all I know, the landscape might have been littered with even MORE unfinished hotels.
And yet when we look at Singapore, we seldom see any so called unfinished hotels or buildings. The tight control and central planning by URA has been efficient and effective in that sense.
So which works better? Centralised planning or Disciplined Pluralism? I don't know.
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