Allocating “capital” to new “firms”

In a market economy, scientists employed by a company might convince their managers that it would be worth it to expand their business. Managers take this idea to their superiors and so forth, until the shareholders give their approval. Someone would put their own saved funds at risk in hope that the project will bring enough profit to justify the expenses.

Socialists also face this problem. But in the pure command economy, socialists choose from a variety of ideas from different people and then proceed to pursuit this idea. The problem is they are wasting their limited resources (they make a specific amount of resources) and if the idea doesn’t work out, they lose both the funds and the resources. Another problem is that if the project turns out wrong, they won’t be willing to work any further with the person who came up with the project idea they chose, which would get rid of the snake salesmen, but it would at the same time discourage other people from submitting their ideas. They could try to fix this by establishing incentives that both encouraged sensible risk-taking but weeded out the demonstrably incompetent. E.g. the planners could take the total amount of resources they intended to devote to the project and assign responsibility for a certain fraction of the resources to an individual expert, based on his overall track record. Any particular mistake would not disqualify him, so long as his or her successes had more than compensated for the failures.

Have you noticed that in the effort to correct the flaws with various ways of implementing socialism, our hypothetical planners are led step by step to reinvent capitalism?

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