Great insight from Matthew Yglesias:
The thing about this is that if this were generally true — if the CEOs of the Fortune 500 were brilliant economic seers — then it would really make a lot of sense to implement socialism. Real socialism. Not progressive taxation to finance a mildly redistributive welfare state. But “let’s let Vikram Pandit and Jeff Immelt centrally plan the economy — after all, they’re really brilliant!”
But in the real world, the point of markets isn’t that executives are clever and bureaucrats are dimwitted. The point is that nobody is all that brilliant. Nobody really has a reliable method of surveying the scene and accurately gauging What Is To Be Done. But in a market economy, we don’t need anyone to have such a method. Instead, a bunch of people get to do some inquiries into the issue and then give it their best shot. And the ones who are wrong will fail. And the ones who are right will succeed… The world is just too complicated and too weird, the future too uncertain, for economic decision-making to be put in the hands of planners and visionaries. That’s why you have capitalism. But it also means that the people who control the firms operating in the market economy probably aren’t brilliant planners or visionaries either. They’re imperfect people making imperfect decisions based on imperfect information, and the ones who rise to the top are the ones whose bets pay off.
It should be said as a point of criticism that as bet-after-bet pays off in the long term, free markets do tend to select more talented and competent individuals and shift them into positions of power. So maybe, to some degree, executives tend to be more clever and high-level bureaucrats tend to be less competent, motivated, and resourceful, because they haven’t been exposed to as many chances to fail.
But then on the other hand, exactly what kind of competence is necessary to become a successful, high-level executive? What is it that people prove themselves so good at on the way up the ladder? Are corporations much different from bureaucracies?
I’ve been thinking about this notion– that huge capitalist organizations are guilty of some of the same flaws that make communist governments so unviable – since people started blaming the financial crisis on capitalist free markets. The problem isn’t free markets, the problem is corporations like General Motors and Citigroup that get so large they turn into quasi-socialist regimes, ruled by insulated and spoiled leadership cadres and populated by hundreds of thousands of complacent serfs.
This is still just the early phase of this line of thought. I’m almost sure there are a lot more substantial insights to be generated from this.
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