On growth through planning


One of the rather annoying memes running around is that certain of the East Asian tigers managed to grow their economies through the use of planning rather than markets: thus we too should have more planning and less markets. My own opinion of this idea is that it's nonsense in our own situation: lovely people though both may be neither Ed Balls nor George Osborne strike me as competent to decide whether a computer company should go here or there, nor whether there should be a new computer company: not even whether computers should be new or not.

So I reject the idea of planning on the basis of the lack of quality of those who would be doing the planning. But there's more to it than just my prejudices. If planning worked so well, why isn't North Korea still richer than South?

As late as 1975, its income per head still exceeded the South’s, according to Eui-Gak Hwang of Korea University in Seoul. “Obviously, sooner or later the country must be reunited,” wrote Joan Robinson, a Cambridge economist, in 1977, “by absorbing the South into socialism.” South Korea’s central bank reckons that North Korea’s annual income per person was only $960 in 2009, or about 5% of South Korea’s.

After all, the North has definitely had more planning than the South: and if you want to say that the planning was just better quality, just look up to see why that cannot apply to us. But what about Vhina I hear you ask? After all, it's not exactly an entirely free market economy, is it?

One of the few communist countries to liberalise its economy without a big drop in output was China. It did so by keeping its central plan in place long enough to grow out of it. In the early years of reform, households and firms kept their centrally allotted entitlements and obligations. But they were free to sell or buy anything extra for whatever they could get. This allowed prices to do their job of signalling scarcity and abundance, even as it avoided the disruptions and hardship suffered by other transition economies.

China did indeed keep some planning: but all of the growth came from that part that was unplanned. Essentially, they let the "free" part of the economy rip and it has, over time, made that planned remnant just that, a puny remnant as a portion of the economy.

But let me close with a little question to those who still think the UK economy should be "more planned" than it is at present. Just who do you actually trust to be able to do that planning among the current political crop?

And who in one of the political parties you don't currently support would you trust to do it when your favoured and anointed one loses office: as will surely happen in a democracy?