End to central planning

Guest Columns by Sauvik Chakraverti,

The Newindpress on Sunday, 2007-2008

End to central planning

O a central planner, the problem is simple: resources are ‘given’ and these have to be ‘allocated’ according to known ‘priorities’.

However, to those who believe in free markets, the problem is different. Resources are not ‘given’ to any one mind. The resources themselves, and the knowledge of their potential alternative uses, are entirely scattered amongst the populace. The solution, then, is to allow each individual perfect liberty with which to carry out his own plans regarding consumption, investment, saving and so on, completely outside government control. Instead of Manmohan, Montek & Co, let’s have each citizen as a free planner of his own economic life: one billion free individuals as purposeful economic agents.

Note that this dispersed and disaggregated individual planning is instrumental in getting us all our daily needs. Fruits and vegetables are abundantly available to us because the decisions to grow, to wholesale, to retail and to buy are all separately taken by millions of free individuals. No one mind planned how many mangoes will be bought or sold in any market or at any price. Individual orchard owners, individual wholesalers and individual retailers took independent, competitive decisions based on their own plans. Hence mangoes are abundantly available.

If there had been a Ministry of Mangoes, we wouldn’t get any, because a single mind cannot obtain the ‘knowledge’ required for the task. Central planning fails for precisely this reason: we don’t get roads, electricity and water because all these are being planned. With free markets, all these would be abundant as independent businessmen made independent investments and attempted to supply our needs. This is already visible now, when phones, cars, motorcycles and scooters are abundantly available: these were scarce under planning. As Milton Friedman cautioned: ‘‘If you give the Sahara Desert to the government, there will be a shortage of sand in five years.’’ As another Nobel laureate, Friedrich Hayek warned, ‘‘Where governments plan, the private plans of citizens fail.’’

The sheer marvel of the free market is that it enables us to use resources and knowledge without any conscious mind controlling it. The market mechanism and the price system that guides it are not of human design and do not need human guidance. (They could do with more human appreciation of their wonder and indispensability!) They enable us to extend the span of our utilisation of resources far, far beyond the control of any single mind. The marvel of the free market enables us to solve the problem of resource allocation without the need for any conscious direction. We can throw out government planning. Further, the price system provides the necessary inducements to each individual to do desirable things like using resources ‘economically’ (like save on petrol when prices rise) without anyone having to tell him what to do. For this understanding, humanity owes a great debt to Friedrich August von Hayek.

One of the most curious decisions of the Nobel Prize committee was making Hayek share the 1974 Economics prize with the high priest of central planning for Third World countries, Gunnar Myrdal. The Indian government then hugely felicitated Myrdal, bestowing on him the Jawaharlal Nehru award. Hayek was entirely ignored by Bharat Sarkar. Why?

Gunnar Myrdal believed that the poor people of the Third World were hopelessly so, unable to take rational economic decisions in the market and therefore in need of these decisions being taken for them by an ‘intellectual-moral elite’: central planners. Expertise made them an intellectual elite; and their immunity to the profit motive that guides businessmen made them a moral elite. Myrdal believed that central planners of Third World countries like India were Platonic Guardians. The masses of ordinary people were illiterate and irrational, or just plain stupid.

If Gunnar Myrdal had ever stepped into any Third World market, he would have seen there that the poorest people scout around most energetically to get the best deals. Poor people bargain hard — while the rich get easily conned! Like all socialists, including Amartya Sen, Myrdal believed that angelic superminds served the state while the people were dumb and dumber. Myrdal supported central planning; Amartya supports education: both believe that ‘knowledge’ exists in the state and that the ignorant people are in need of this knowledge. The state should plan the economy; the state should educate the people. The state is a fount of knowledge.

Today, it is time to recognise the fact that it is this socialist state that is ignorant. Our shoddy public administration proves it. Its ‘education’ is but propaganda: What else is the subject called ‘Indian Economics’, by which the young are forced to study every 5-Year Plan ever made, from the 1st to the 11th?

On the other hand, the people of India are a huge economic resource: they include some of the ablest trading communities in the world. Indians own almost every corner-shop in Britain. (And Napoleon called the Brits ‘a nation of shopkeepers’!) We don’t need this ‘education’. We don’t need this ‘planning’. We need free trade, property rights, and liberty under the rule of law. Nothing else.

Oops! My mistake. We also need roads. Our planners never built any. Yes, while free trade will enable most Indians to buy cheap second-hand cars, we will need massive public investments in rural and urban roads. Highways and expressways can come from the private sector, for which purpose the state-owned highway monopolist, NHAI, must be corporatised and forced to compete.

To conclude, India’s official economists have got the problem wrong, hence their solution is wrong too. The problem is how to best utilise widely dispersed resources and knowledge. This task is best left to free individuals in a free market. Shut down planning. Unleash a billion planners.

The writer is the author of Antidote: Essays Against the Socialist Indian State, and its sequel, Antidote 2: For Liberal Governance, both published by Macmillan India. He can be contacted at sauvikc@epmltd.com