That's what Oskar Lange thought about prices. The math worked. The practice was a bit different.
And of course we do have 70+ experience of socialist (nonmarket) entrepreneurship and attempts at innovation in a variety of countries -- some fairly advanced industrially, like the DDR and Czechoslovakia. The results are not quite as grim as Hayek predicted but they are not promising. Janos Kornai have a revealing char comparing innovations introduced by state socialist vs. capitalist counties. I don't have the book here, but I think of of 15 important ones the SSC got two, the satellite being one, if I recall.
Three problems seem to have faced central planners in this area in this are -- here I rely on the analyses of former or then current central planners and analysts in the FSU and the ex-block, like Kornai, Brus, Lange himself, the Gorbachovniki when they believed:
1. Innovation is disruptive to the plan, so it is hard to get something new into the stream of commerce that calls for reorganizing a while five year plan or lots of it, a change in inputs here affects things all over. In addition, a connected point, innovation is risky, and bureaucracies are conservative. You may not get fired (almost nobody got fired) but you could be sent to manage the research branch in Novosibirsk if you got an innovation through that (like most innovations) flopped). The best innovative work was when something was given top priority (build us an a-bomb), so the inherent conservatism if the system, was politically disrupted. Then the system worked well -- there and here.
2. Planning targets create irrational incentives because you get reward for meeting the targets, not delivering something someone actually wants. If the targets call for X many TV sets, it doesn't matter if they tend to explode (as Soviet TV sets did), you are successful if you meet the plan, Innovation itself is not rewarded because it can't be built into a plan target except as improvement, innovation being, after all, by definition something new.
3. Innovation that has any chance of being accurate requires accurate market research and correct knowledge of the the availability of inputs -- two things that central planning active discourages. Planners and producers and markers -- everyone in the biz -- has an incentive to underestimate demand and demand for new products and services rather than turning out the same stuff year after year, because that way targets are more easily met. At the same time everyone in the production and distribution system has an incentive to overstate their needs for materials, labor, etc. and understate their capacities, same reasons, each unit is surer of meeting plan targets. Problem is this leads to shortages and bottlenecks as well as reducing the availability of resources and time for innovation.
This is what Hayek predicted, but you can read (as I once did) tons of statements by FSU and ex-Bloc factory managers who never heard of Hayek, Kornai, Brus, or Lange and just wanted to do the job, and they all pretty much say the same thing.
I don't say that similar problems don't occur in large organizations here -- the of US auto. Or that planned nonmarket organizations can't be innovative. The computer and the internet are government inventions. And I'm not going to get into a debate about whether innovation is a good thing. I'm just pointing out that saying "the planners can do it too" is not something we can say blithely without ignoring historical experience.
--- On Wed, 3/4/09, Doug Henwood <dhenwood at panix.com> wrote:
> From: Doug Henwood <dhenwood at panix.com>
> Subject: Re: [lbo-talk] IT innovation and "the Markets"
> To: lbo-talk at lbo-talk.org
> Date: Wednesday, March 4, 2009, 9:00 PM
> On Mar 4, 2009, at 9:42 PM, John Thornton wrote:
>
> > I'm curious how central planning can gauge demand
> and price.
> > Seems to me markets do that fairly well.
>
> There are a lot of misses in markets. Products flop.
> Managers spend a lot of time trying to figure out how to
> price things. They see what sells and what doesn't.
> Theoretically planners could do the same. Maybe practice is
> more complicated, but "markets" conceal a lot of
> messy behavior under a shiny image of a self-adjusting
> machine.
>
> Doug
> ___________________________________
> http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk