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No, Walmart Is Not Evidence That Centrally-Planned Economies Work

April 5, 2019 in Economics

By Ryan Bourne

Ryan Bourne

It’s fair to say the modern left has schizophrenic views
about Walmart.

Back in 2005, the left-leaning economist and future head of
President Obama’s Council of Economic Advisers Jason Furman
wrote a paean to the company. He argued that the big-box chain
supermarket was a “progressive success story,” due to
its role in driving down retail food prices for poor consumers. In
a new Jacobin book, People’s Republic of Walmart,
neo-socialists Leigh Phillips and Michal Rozworksi ferociously
disagree, calling Walmart an “execrable, sinister, low-down
dirty villain of a company.”

Believe it or not though, their new book is predicated on
admiration for the company which, if it were a country, would be
roughly the size of Switzerland or Sweden. For Phillips and
Rozworksi’s see Walmart’s success as a sign that modern
socialism can work.

Their argument is essentially this: free-market economists are
wrong to denounce the possibility of economic planning, because
major companies such as Amazon and Walmart plan extensively every
day. They have developed algorithms, tracking tools, logistics and
distribution networks that allow them to react in real time to
changing demands for their products. Nobel prize-winning economist
Friedrich Hayek, then, was wrong to say socialism couldn’t
work because information was inherently decentralised. In fact,
modern technology means information can be acted upon centrally and
swiftly. Planning is easier and more accurate than ever.

The problem, in Phillips and Rozworkski’s view, is that
these planning tools are currently being put to the ends of
generating profits. But what is profitable is not always socially
useful. Rural broadband and solving the problem of antibiotic
resistance are socially needed, but they would not be delivered by
private companies. Therefore, they conclude, what we need is a
planned socialist economy harnessing the techniques of Walmart and
others to socially productive ends.

It’s difficult to know where to start with this line of
reasoning. From the work of Ronald Coase, free market economists
have understood that firms are islands of planning of various sizes
within a sea of markets and that in different sectors, the
efficient scale of organisations varies considerably (especially
over time and depending on technologies).

Most free-market economists acknowledge too that there are
public goods and externality problems inherent in markets (although
these are often overplayed). But it’s difficult to see how
evidence of market failures or corporate success stories translates
into the conclusion that a completely planned, socialist,
non-profit economy is optimal.

The empirical evidence of attempts at central government
planning is clear. So much so that this book tries to skirt over
it. The Soviet Union, it implies, did not fail because of planning,
but authoritarianism which diminished the quality of feedback
information from planning. Chile’s Allende …read more

Source: OP-EDS

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