Tomorrow sees the 25th anniversary of the fall of the Berlin Wall, which raises the question: who really won the Cold War?
For one thing, many of the west's most belligerent cold warriors were no friends of freedom. They supported Pinochet, apartheid and Macarthyism, not to mention repression at home. Looking at the treatment of young black Americans today - as documented (pdf), for example, by Alice Goffman - or our Home Secretary's Stasi-like desire to block communication between law-abiding citizens in the name of "national security" one would not guess that the west is the home of freedom.
Nor even did the collapse of Communism spell defeat for the idea of central planning. Quite the opposite. In the west, central planning is thriving and expanding.
By this, I mean of course, the dominance of hierarchical modes of production: the capitalist firm is a form of central planning. And it is winning. The fact that CEOs' pay in the UK and US has risen so much relative to that of average wrokers since the 1980s tells us that central planners are valued more highly by society than ever before. And the central planners are extending their reach into areas such as universities and hospitals where professional virtues once dominated instead.
Herein, though, lies a paradox. Although the cold warriors were fond of pointing out that centrally planned economies were a stupid idea, they didn't tell us that centrally planned firms were a bad one. Nor do they do so today, even though the evidence against them has grown substantially.
- Firms' growth and deaths are largely random and unpredictable. This, say Ormerod and Rosewell, tells us that bosses "have very limited capacities to acquire knowledge about the true impact of their strategies."
- A big chunk of productivity growth comes (pdf) from firms entering and leaving markets rather than from existing establishments upping their game. This tells us that bosses don't do as much to increase efficiency as they claim.
- The self-employed tend to be happier than employees. This tells us that bosses make people unhappy - which means that deStalinization should be an objective of anyone interested in happiness economics.
- The high-powered incentives that generate high pay for bosses can worsen corporate performance because they incentivize what can be measured (short-term earnings management) at the expense of things that aren't, such as longer-term investment.
- There's evidence that inequality of pay within an organization can reduce performance, perhaps by demotivating underlings. This is consistent with a body of evidence showing that more cooperative firms can increase productivity.
Despite all this evidence, however, there's remarkably little opposition to central planning or demand for workplace democracy: the relatively mild suggestions (pdf) of the Smith Institute haven't attracted much attention. This confirms Steven Lukes' contention, that the power of the rich consists in part of preventing some questions from even being raised.
I don't say all this to mourn the collapse of Communism. Exactly the opposite. I say it to point out that the fight against central planning was only very partially won.