Wojtek is basically correct about the role of big government in generating technological innovations. In the US, the Pentagon has long played a major role in spurring technological innovations which would then be later applied by the private sector to consumer products. The invention of the Internet is one notable example of this. Also, during the 1960s and 1970s the space program played a similar role as well.
It's also forgotten that in the US during the 19th century, the Federal government played a very active role in promoting industrialization. High tariffs were imposed to protect infant industries in the US. The Federal government, starting with the Lincoln Administration subsidized the railroads, which led to the creation of the transcontinental railroad a few years after the Civil War. The Lincoln Administration also promoted agricultural development with the Homestead Act and provided Federal support for the development of public colleges with the Land-grant Act.
Other countries that industrialized rapidly like Germany and Japan pursued not dissimilar policies.
Jim F.
-- Wojtek Sokolowski <swsokolowski at yahoo.com> wrote:
----- Original Message ---- From: Chris Doss <lookoverhere1 at yahoo.com>
Central planning is very good at big, well-defined projects. It's not very good at distributing the end product.
[WS:] Central planning was not really designed for surplus distribution but for surplus creation - or the socialist version of capitalist primitive accumulation if you will. You need to take thing in their historical context - Russia (an most of Eastern Europe) was economically backward comparing to Western Europe, and their main objective was to reduce that development gap by boosting production. Distribution was not really the most pressing issue at the time, to say the least.
In that situation, you do not really have many options other than boosting domestic investment (reliance on foreigbn capital is not at option for obvious reasons.) And if the level of domestic savings is low (due to economic backwardness and economic predominance of landowners whose methods of surplus extractions are very primitive and ineffcient and who lavishly overspend to maintain their social standing) - then the only source of that domestic investment is the state. There is no alternative.
Obviously, central planning is the most rational way of allocating state investment, given th erelative absence of financial infrastructure that developed when the level of doemstic savings is high (e.g. in Western Euroepan countries.) The added benefit of planning is the ability to controlt the nasty effects of massive government investmenst - hyperinflation (they did it through price control.)
Of course, price controls are bad for efficient distribution of surplus, but when that surplus does not exist and needs to be produced quickly, that is not a very serious problem. You may think you will be able to handle that problem somehow, when you actually have the surplus - and that was the line of thinking of state planners.
Centrally planned economies of Eastern Europe started to "marketize" i.e introduce price flexibility since 1956 - albeit it varied from country to country, and also met varying degree of opposition from both entrenched bureaurcracy and population.
I think what killed their distribution system i.e. produced shortages was not the planning system, but foreign credits. They had to pay them back in hard currencies, and to get those currerncies they had to export, mainly foodstuff, but they ag sector could not produce enough surplus to satisfy both domesting markets and export.
Another issue - - the alleged "innovation" of the market system is a buch of crock. Most of the inventions attributed to market economies were made by governmetn funded research projects and then handed down to capitalists so they can sell it back with profit to the public who piad for it in the first place. Without governmetn support, "the markes" could not invent anything for a very simple reason - research is, for th emost part, public good, and markets are not good at supplying such goods. This is Econ 101 - even Chicago boys would agree with that.
The only way "markets" can innovate is to apply knowledge already produced by the public sector to their own operations to boost thier profitability.
Wojtek
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