In this, the second of four postings on central planning (here is the first), I take a closer look at one of the basic questions that has to be answered by planners, whether they work in a communist country or a primarily market-oriented one; that is, the question of WHAT should be produced.
Specifically, I will concentrate on two aspects of this issue: how do planners determine what consumers would like them to produce? And how do planners ensure that producers make and distribute the goods that the planners have ordered from them?
A simple answer to the first of these questions would be: “just phone people and ask them.” But this fails for the fundamental reason that respondents will answer “yes” to virtually any question about their “wants.” If the planner in charge of transportation asks people whether they would like a new car, of course they will say “yes.” And would you prefer a sleek, new luxury car with a six cylinder engine over an old, four cylinder banger? “Yes.”
There are two problems here. The first is that when consumers are provided with additional or more expensive automobiles, planners will have to produce less of something else. Before consumers can decide whether they want that extra car, they need to know what they will be giving up. Does the production of additional cars imply reduced production of: housing? clothing? restaurants? schools?
Furthermore, the issue is complicated by the fact that the items that respondents are willing to “sacrifice” will vary according to respondents’ preferences for those other items. Whereas one respondent may be willing to give up a TV in order to get a better car, another may prefer to accept a smaller apartment.
And even further levels of complexity are added when it is recognised that the order in which questions are asked will influence the answers that are received. For example, the value that a consumer will place on a bicycle will be much lower if he has a car than if he does not. So the planner will receive a much different response to a question about bicycles if he asks that question before consumers know whether they will be receiving cars than if he asks it afterwards.
The second set of problems when determining WHAT to produce concerns the ability of the planner to confirm that production has occurred as planned. A chronic problem in communist countries was that, long after planners had ordered an increase in production of a certain quality of goods, such as steel or bread, they would discover that insufficient quantities or qualities of those goods had been received – despite the earnest assurances of producers to the contrary.
These problems all have their counterparts in environmental planning. Most importantly, government agencies can only determine which environmental policies voters would like them to adopt if they are able to signal to voters what will have to be given up when those policies are adopted. In some cases, it is possible to do this by putting a price tag on the policy in question. For example, survey respondents can be asked “would you be willing to vote for construction of a fish ladder to protect salmon if your taxes would have to be increased by $2.00 per year?”
But in many cases, government policies require reallocation of non-market resources. In these cases – for example, when a hiking trail is closed in a national park, or a government-owned dam is breached in order to protect aquatic species – voters are being asked to weigh the value of one use of government resources against another. And, as was argued above, this becomes particularly difficult when there are multiple alternative ways of reallocating resources; or when the order in which questions are asked influences the answers that consumers provide. (For example, they might be less willing to close a trail to protect wolves if other, similar trails had already been closed than if no such other closures had occurred.)
Finally, even the “confirmation” issue has its counterparts in environmental policy. It is one thing, for example, for governments to order logging companies or ranchers to act in “environmentally friendly” ways; it is another thing altogether to ensure that these orders are followed.
To conclude, the purpose of this posting has been to argue that it is useful to draw an analogy between the environmental agencies found in “western” economies and the central planning departments found in the former communist block. Just like the latter, the former face the problem of determining the willingness of consumers to trade off one good against all others; and also the problem of confirming that plans are converted into actions.
