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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.

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About Randall

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

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  • Tom Matulis

    Interesting post that brings back some memories. I too visited eastern Europe for the first time in 1988 and the insights gained have impacted my thinking; however not as much as my first visit to Japan a year later. In fact neither was a democracy at the time, nor are the current versions for that matter. Yet Japan was something of a Mecca.

    The Soviet block was truly a disastrous experiment heavily influenced by crackpots and criminals. I would add that socialism plus crackpots does not equal communism, but I will leave this for another discussion.

    I will aim to read Infotopia based on your recommendation. I will first take advantage of the lazy approach by viewing Mr. Sunstein thanks to Fora and C-Span2 at http://fora.tv/2006/09/12/How_Many_Minds_Produce_Knowledge#chapter_01 . Cheers

  • Great insight!

    My observation was that after the Soviet Union collapsed majority of best educated people fled the countries as they couldn’t find jobs. Many of least educated people formed successful business, formed a coalition and now rule the countries. In result, coutries are still run by small number of people who are not worth being leaders.

    Demoracy in hands of bandits (Ukraine, Gerorgia, Kazakhstan etc) is worse than Communism in hands of honest leaders (China).

  • Thanks for sharing some interesting perspectives Tom and Marianna. I realize that both of you have an even deeper experience of the foibles of 20th Century totalitarianism than I do.

    Although I took a long time to get to the point, it was that research will eventually lead us to the goal of engineering the economy or society we wish to have. Until then, our best approach remains the invisible hand of the market. Yet, some of the areas of research I summarized are already yielding promising results.

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