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… is from page 89 of Charles Steele’s 2002 article “The Soviet experiment: lessons for development,” which is chapter 6 in Sustainable Development: Promoting progress or perpetuating poverty? [2] (Julian Morris, ed. [2002]):
The Soviet Union was one of the great experiments in economic development – a grand, tragic, failed experiment. The poor performance of the system is directly attributable to the inability of central planners rationally to allocate resources. This in turn is a consequence of the lack of private property rights and markets, which meant the planners were unable to acquire coherent information about what should be produced by whom, with what, when and how.
DBx: Few people in 2018 dispute the truth of this statement. Yet many people – in 2018, in 2002, in 1991, in 1989, you choose the year – draw from the truth of this statement an insufficiently broad lesson. The “knowledge problem” (as it is called) does not arise only when the attempt is to completely socialize – to completely centrally plan – an economy. The knowledge problem arises whenever government officials substitute their own designs in the place of the complex patterns of interactions that arise through market entrepreneurship, consumer sovereignty, competition-as-a-process, and prices. The damage done by the likes of minimum-wage legislation, tariffs and land-use zoning is not as deep or as widespread as is the damage done by Soviet-style central planning, but that’s only because the extent of the obstruction of market relationships in the case of minimum wages or of tariffs or of zoning is far less than in the case of complete central planning. Yet many of the very same economic reasons that explain the failure of central planning also explain the unintended ill-consequences that arise when the state intervenes into market piecemeal.