The Cold War isn't over

Tomorrow sees the 25th anniversary of the fall of the Berlin Wall, which raises the question: who really won the Cold War?

One standard answer is that western freedom won against Stalinist tyranny. To which we should reply along the lines of Clay Davis.

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.

By this I don't just mean the collapse of banks: in his cult of personality, bullying and micro-management, Fred Goodwin was far more of a Stalinist than we Marxists. I mean instead six other things:

 - 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 fact that cognitively diverse groups can solve problems better than even skilled people corroborates Hayek's claim that centralized decision-making is often sub-optimal.

 - 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. 

Comments

[quixote]

Indeed. A useful and insightful perspective on a pervasive problem.

[Brett]

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.

That could just be self-selection at work. Most people are not self-employed, so those that choose to be so may be more inclined to want to be their own boss and control their own schedule, and thus are happier for doing it.

Meanwhile, some of the research from Poor Economics was that the poor in poor countries generally didn't like running their own businesses - they'd much prefer to have stable jobs. It's just they couldn't get them, so they had to "invent jobs".

[Dain]

Self-employment sucks. I hate "being my own boss." It may be great for the minority of such who are superstar "consultants," but not for most who lament the insecurity and uncertainty.

What's this about the treatment of black Americans? By police? Most police are responding to reported crimes - reported by OTHER black people in most cases. What a silly and unrelated thing to bring up.

[rogerh]

Re firms growth and death. Surely largely a result of nimble entrants and lumbering giants reluctant to let go. But most nimble entrants fail whilst lumbering on is another word for 'cash cow'. Will depend on the availability of new profitable opportunities which will wax and wane.

Too often centralised planning promotes its superior strategic planning, often a cushy billet for those long since past it. As the man said 'strategy is nothing without tactics', big tasks need some strategy, just hire some hard bitten tacticians and lose the old stagers.

Self employed happier? Don't think so, try talking to a 50 year old plumber or electrician, sure the independence was attractive but the work is patchy and pensionless. Try talking to a software coder, a meteoric career path up to 34 and then trading on past experience and then the dreaded project management and then - nothing. Depends a lot on the personality type and the profession - but not all its cracked up to be imho.

Whether village blacksmith or General Motors, someone has to run the show, the blacksmith knows their trade and is close to the workforce and customers, the problems you expose seem to arise from distance which is I suppose related to centrality but not a necessary result of centralisation.

[Donald]

Improper use of Clay.

It surely is fair to say that western freedom beat stalinist tyranny. The west was more free, and that extra freedom no doubt contributed significantly to winning the cold war.

[Luis Enrique]

I am not persuaded. I think this just boils down to objecting to production at scale, which seems daft. It's not about hierarchy. What is central planning? Trying to coordinate and control the economic activity of a large set of individuals. That's necessary if you are going to build airliners, whether you are a worker controlled democracy or a hierarchy. Either way you are not allowing uncoordinated units to interact without direction.

Plus, when it comes to things like freedom, we are talking about degrees not types and whilst I accept the west has been nastier than its boosters like to admit, I still think the west had a far greater degree of freedom and that mattered.

[Dave Timoney]

It isn't intellectually inconsistent to argue that central planning works at the level of microfoundations, i.e. individual firms, but that it is inefficient at the macroeconomic level, though I'm personally sceptical about both halves of that argument.

However, it is inconsistent to argue that the exercise of power (i.e. hierarchy) is different in kind between the economic and regalian spheres. In other words, the significant point of the Cold War "peace" is not the survival of central planning so much as the continuity of attitude between Markus Wolff and Theresa May.

[Anon]

Donald ... when employees of state-owned enterprises sit in rooms with lawyers being questioned by state prosecutors on all their communcations, when they aren't allowed to know who is listening on the end of the open phone line, when the government says you are presumed guilty unless you can prove your innocence, I think we can be fairly confident which side won the cold war.

[David]

Interesting discussion. We exaggerate our own freedoms as well as the comparative oppressions of the two systems. In many respects, Soviet industrial organization merely borrowed the worst management techniques (such as piecework) of nineteenth century industrial enterprises and added the coercive power of the state to that of the managers. The late W. Edwards Deming had a different vision - more focused on workers than on management. No wonder few US enterprises adopted his recommendations. But they worked well where adopted.

[Keith]

Off course the slightly different way of looking at it would be to say that the USSR and satellites formed a large multi ethnic oppressive empire which just happened to use a form of Marxist ideology as philosophical glue.

Large multi ethnic empires are always based on lies and brutality and tend to collapse as the people inside them are unhappy about being oppressed and subject to discrimination by the ruling tribe/ race/ nation.

Almost any set of ideas can be used as a philosophical glue and different empires use different lies.

A large part of the failure of the USSR must be down to the enormous cost of running the empire and trying to compete with the west by maintaining huge military forces permanently.

I am sure many parts of the economy would benefit from long term planning such as utilities. And indeed large private firms tend to both do long term planning and have authoritarian structures as well. So to that extent there has been less change as a result of the collapse of the USSR than was anticipated by free market advocates.

[jcee]

Mmm... didn't realize corporate authoritarian structures in the west were somehow contingent upon the long term ripple effects of an imploding USSR. Thanks for the heads up.

[Minnow]

" 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."

But looking at bloggers openly criticising these things without fear might cause one to take a second guess.