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Meeting Productivity: Central Planning Versus the Market

by Randall on March 21, 2009 · 3 comments

Posted in: Economics,General,Management,New Media,Public Policy,Randall Howard,Social Media,Society

Berlin WallThe 20th Century was defined by an ill-fated search for a better world, inspired by late 19th Century, Victorian thinking. The irony, then, is that the 20th Century turned out to be probably the most destructive in human history, based on often misguided applications of powerful new technologies.

If you define a utopian society as one where governments plan to have zero unemployment, stable economic growth and high personal well being, how have we done in planning for this world? Up to now, in a word, wretchedly.

A personal defining moment was when I journeyed behind the Berlin Wall to East Berlin in 1989. This was just before the Soviet Bloc, along with its vassal state the German Democratic Republic, spectacularly imploded on 9 November, 1989. While I had previously sympathized with the notion that a socialist government could plan to make the world a better place, the dismal comparison of the East and West that I saw then graphically disabused me, forever, of that notion. East Berlin was a drab, grey, unpainted city in which even the prominent public buildings still had 45 year old bullet holes from World War II.

Communism, coupled with its less extreme relation socialism, and fascism were the defining, centrally planned ideologies of the 20th Century. Then, everything was planned and and organized from the top down, from prime time television, to the Stalinist 5 year plan to the Nazi Thousand Year Reich. With that hopeless track record, will we ever figure out how to move closer to a utopian reality?

Today I will explore some of the innovations in our understanding that might lead to that end.The book Infotopia, by Cass R. Sunstein is a truly outstanding study of the power of democracy in decision making for our internet age. Rather counterintuitively, this insightful book presents a well-researched argument that in group decision making, Deliberation (or central planning) almost always produces inferior results to Democracy (the wisdom of many people, driven by markets, to reach the truth).

Some key insights are:

  • The Condorcet Jury Theorem, which says “that the probability of a correct answer by a majority of the group increases toward 100 per cent as the size of the group increases.”
  • Two key sources of failure by Deliberating groups are informational influences and social pressures, which might be paraphrased as browbeating and peer pressure, which among other things, tend to amplify, rather than remove, errors.
  • Polarization is a particular risk of digital media in which political (or other) views tend to be reinforced by people filtering out any information which contradicts their existing world view. Thus, rather than reaching consensus, digital technologies can make the right wingers more right wing and left wingers more left wing, leaving little middle ground.
  • Prediction Markets are a new paradigm which harness price signals of the market to help in decision making, based on the insight that people tend to make better decisions when price signals are involved.
  • The Web 2.0 trends of Wikis, Blog, and Open Source Software all provide great evidence for this new paradigm of the wisdom of the crowd which Sunstein has so ably analyzed.

This book should be mandatory reading for politicians, business leaders and anyone wanting to shape the world of the 21st Century. From how to conduct better meetings to how to make the world a better place, Infotopia provides a solid foundation of how to harness better decision making for the future.

About Randall

Randall Howard is a serial entrepreneur and long term technologist with a passion for social innovation.

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