anticipation of demand

Steve.Keen at unsw.EDU.AU Steve.Keen at unsw.EDU.AU
Wed Nov 2 01:22:17 MST 1994

Paul Cockshott made a good point about the extent to which Japanese
(and northern European) firms planned the development and introduction
of new technologies--laser discs, video cameras, etc.

The question is, however, why did they? Was this introduction of new
technologies a product of planning, of markets, or of some combination
of the two? Would a system of (a) pure planning (b) pure markets do
better than the system which manifestly applies, of a mixture of

Kornai's analysis of demand-constrained v resource-constrained economies
presents a post-keynesian perspective on this (I'm sure I can rely on
Chris Sciabarra to provide an Austrian view, and Justin for a market
socialism one -:>!).

Briefly, Kornai argues that the incentives which existed in actual
socialist economies (stylised to remove the impact of Stalinism)
discouraged innovation, while those which exist in stylised capitalism
promote innovation.

Stylised socialism has a bias towards high wages, tries to grow as
quickly as possible (to overcome scarcity), and plans investment
at the country-wide level. It attempts to employ all resources.

Stylised capitalism has a bias towards low wages, has no per se
interest in growth, plans investment at the firm level. Resource
employment is constrained by the main motive of making a buck, but
a key element of making a buck is being able to take advantage of
market openings as and where they arise. A capitalist firm thus
builds in significant excess capacity--of capital, but coincidentally
there is excess supply of labor (a reserve army).

The consequence is that the socialist system's output is resource
constrained, whereas the market system's output is demand constrained.

That looks good for socialism, which in a static sense, it is (less
waste, no unemployment). But in a dynamic sense, the former system
provides no incentives to innovate--why design a new motorbike, when
(a) everyone in the system deserves a motorbike, and resources which
could otherwise provide more bikes would be diverted into R&D designing
new and better ones if we actually changed the blueprint; and (b)
since there's only one model anyway, and workers have plenty of
money in their bank accounts, yesterday's model will still sell.

Under capitalism, there's no guarantee that demand will be forthcoming
for last year's model; and one way to get the jump on competitors is
to produce a new model, or better still, develop a whole new product
line in which, for a short time, you will have a monopoly.

There's a lot more to Kornai's analysis than the above, but the
outcome is that a capitalist economy grows in fits and starts, but
generally at a higher rate (because resource-constraints generally
aren't met, and innovation is higher), and with a greater diversity
of goods.

So I don't see the planning components of Japanese behaviour as
exclusively the reason why they have innovated more. If you are
going to suggest that a planned, non-market system, could innovate
more rapidly than the semi-planned, market system we actually have,
then you are going to have to suggest some mechanism by which
the level of innovation can be maintained.

On that note, a fictional reference is apposite. How many "here"
have read Ursula le Guin's _The Dispossessed_, which portrays an
anarchist society? Her mythical world ended up stifling innovation
in a very "Stalinist" fashion, until such time as a group of
dissidents (to anarchism!) formed a "Syndicate of Spontaneity".
And really, what this debate amounts to is a challenge to those
advocating planning to show how Spontaneity can be planned.
Steve Keen


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