Environmental Decision-Making as Central Planning: What the “Commies” Can Tell Us (Part I of IV)

Western commentators attributed the fall of Soviet communism to the failure of both their political and their economic systems – repressive totalitarianism, on the one hand, and command-and-control/central planning, on the other. Many even concluded that the Soviet failures “proved” the superiority of western political and economic decision-making systems – democracy and competitive markets, respectively.

What this conclusion fails to recognise, however, is that more than a quarter of the economic decisions in North American are directed, not by market forces, but by central planning. The decisions that are made for us by the many levels of our governments – about the construction of roads; the provision of education, policing, and defense; and the selection of environmental policy – are not made by the impartial forces of “the market” but by civil servants, who operate under many of the same conditions and constraints as did those eastern European planners who were in charge of the production of steel, automobiles, shoes, and chocolate cakes.

In this posting, I argue that we can learn a lot about the difficulties of environmental decision-making, and about the types of responses to those difficulties that might be most appropriate, by investigating the manner in which central planning operated in countries that employed massive planning agencies.

Begin by thinking about the creation, distribution, and allocation of a common consumer item, like a shirt or blouse. A very abbreviated list of the resources that went in to the delivery of a cotton shirt to a particular consumer includes: the extensive list of materials required to build the store in which the shirt was sold; the labor required to staff the store; the labor, trucks, and gasoline required to transport the shirts to the store; the materials, labour, energy, and land, required to build and operate the factory; the land, labour, and energy, required to grow the cotton; etc. etc.

Now, imagine that you were the central planner in charge of producing and distributing shirts to the citizens of a country. Your job would have been to decide: how many shirts are to be produced, of which styles, colors, and sizes; who is to receive those shirts; how they are to be produced; and where the inputs are to come from in order to produce and distribute them.

Consider even the simplest of these problems: Assume you have decided how many shirts to produce, the type and size of factories in which they are to be produced, and who is to receive the final products. Now “all” you need to decide is the mix of styles. How many blue shirts, how many green, red, checked, striped, floral? How many short-sleeved, how many long? How many dress shirts, how many casual? Now multiply this decision by the thousands of consumer products that even a basic economy produces and it becomes easy to imagine how hopelessly complex central planning becomes.

And this complexity applies equally to decisions about the environment. The planners in our governments have to decide how much protection to give to each species (endangered or not); how much air and water pollution is acceptable/desirable; how much hiking, biking, skiing, and/or off-road vehicle operation to allow in protected areas; where to place parks, national forests, and wildlife areas and how large those areas should be; etc.

In my next three postings to this site, I will argue that we can learn important lessons about environmental decision-making by analyzing the problems encountered by the eastern European central planners. Specifically, each of those three postings will consider one of the three basic questions that all economies have to answer:

• WHAT is to be produced? Of all the environmental actions our governments could take, we need to decide which ones they will engage in, and to what extent.
• HOW is production to occur? In the same way that, say, bread can be made in many different ways, there are many alternative ways that any given environmental goal can be achieved. Antelope can be protected, for example, by setting aside parks, by imposing hunting restrictions, or by encouraging the establishment of game farms.
• FOR WHOM is production to occur? Once the planning agency has decided what is to be produced, it must decide who is to receive the output. In the environmental area, this question will involve issues such as access to public lands, placement of waste disposal sites, or issuance of hunting licenses.

Comments

[dude]

I will be very curious to see what your next three articles say. One thing I'd like to point out is that capitalism results in very similar inefficiencies in some cases. Perhaps they do not rear their head nearly as often, but the results can be potentially devastating. This is not an environmental example, but illustrates the point nicely, I think. Take the Flu Vaccine problem in the U.S. this year: No drug maker wants to make flu vaccine because there is more money in making Erectile Dysfunction meds, and other stuff. Think about what the inefficiency of this system for a second. The free market system resulting in a situation in which the U.S. has enough Erectile Dysfunction pills for every man in the country, ten times over, but we only have enough flu vaccine for about 1/10 of the population. That allocation of resources makes no sense. I am certainly not advocating for a communist system, but the situation in this circumstance suggests that unregulated laizzes faire capitalism doesn't always produce the best outcome. Like most things, too much of *anything* can be have negative consequences.

I look forward to your next posts.

[Tim Haab]

You have to be careful about what you are arguing is "the best outcome." Many economists argue for market based outcomes because they provide a defensible objective: achieve an outcome at least cost. This doesn't necessarily mean a 'fair' or 'equitable' or 'just' outcome. In your vaccine example you seem to be arguing that the economically efficient outcome doesn't seem to gel with your sense of what is right. 'We should put more weight on preventing flu than on preventing erectile disfunction.' That's not an economic question. The question for economists is whether the market mechanisms exist to produce the efficient outcome. The market will then determine whether society wants less flu or less erectile disfunction. Whether that outcome is better or worse than what others perceive as right is a question for philosophers (in abstraction) and politicians (in reality). Scary thought, huh?

[dude]

I didn't make it clear, but I wasn't trying to make a value judgment. I think its pretty clear that preventing millions of workers from missing work and thus decreasing productivity due to a flu epidemic is definitely an economic issue and unquestionably in the public interest. I have no moral or ethical judgment about ED drugs versus flu vaccines. Its just a matter of common sense. I doubt that the nation experienced a huge surge in productivity after the introduction of all these ED drugs, but its an interesting question to say the least. No question that ED drugs directly contribute more to the GDP than would flu vaccines in terms of sales, but the opportunity cost of a flu epidemic like the one in 1918 that killed 10 million worldwide is incalculable, so the flu vaccine turns out to be cheap insurance. Public health officials have been saying for decades that we are way overdue for another huge flu pandemic like the one in 1918. If the flu vaccine supply of 2004-2005 is the new status quo, then we will certainly be victims of our own success. We place low importance on flu vaccine today because our use of the vaccine in the past has made us forget what the 50-year pandemics are like. Hopefully, we won't have to be reminded.

[Chris Bruce]

In response to "Dude," I am not arguing that the market system offers an efficient way of resolving environmental issues. Rather, my point is that we need to recognise that there is a large section of our economy - much of which is involved in making environmental decisions - that does not respond to market forces. I think we can learn a lot by thinking about the similarities between environmental decision-making and the decions that faced central planners in eastern Europe. It is not correct to conclude from recognising that similarity that we should use markets to resolve environmental questions.

[joshua corning]

Dude,

I would like to point out to you that erectil disfuction pills are not paid for by medicare, heavily regulated private health care plans, and perhaps state health care. Erectile disfuction pills are produced and sold cheaply becosue of free market capitalism. Flu vaccine on the other hand is paid for by medicare, regulated health care insurance and state health plans and the production of said flu vaccines are ordered in one big chunk by the good ol federal government and it is the federal government who finds all the viruses out there and it is the US government which chooses which vaccines to put in the shot each given year. The flu vaccine that is put out every year is no more a product of the free market then National Public Radio is. And in fact by comparing the failure of a socialist program to produce sufficiant vaccine and the the ease at which a free market can produce erectile disfunction pill actually proves the exact opposite of your point. Free market capitalism is more efficiant then socialiszed command and control production.

[bernadette]

your information is empty can please say about what is laizzes faire???i do not understand what u mean point!!!can u please answer my question??,,,,