Free Markets (Networks) vs Central Planning (Hierarchies)

Debates on the ideal way to organize an economy fall along a spectrum. On one end you have free markets, free from government interference. On the other, you have central planning, where the government dictates all aspects of the economy. Between each end of the spectrum you have mixed economies. Some with far more government involvement than others and some with far less.

The real difference is how much power to make decisions is concentrated. When power is concentrated, even in a benevolent leader or government, that society is relying on a few people to make decisions for many. Even if these are the smartest people on earth and they have the best intentions, they will never have enough information to make the best decisions for all of us. Now we throw in the fact that these are human beings with human frailties and even benevolent, well intentioned politicians and bureaucrats will soon be replaced by people seeking power and influence, and we quickly see how they could not make the best decisions for all of us.

In a free market, that power is dispersed between you, me, our neighbors, corporate executives, small business owners, the little girl with her lemonade stand on the corner, charity groups, and the list goes on. We are all trying to make the best decision for ourselves, based on the information we know and have learned over time. Sure, we might make some bad decisions sometimes. But it was our decision to make, as a free individual, and we learn from those mistakes. When things are top-down driven, the top doesn’t learn from their mistakes, because they are so far removed from it and they have different objectives.

The military is a great example of this. I have seen two different sides of the US Army. As an infantry officer in what we would refer to as “The Big Army” it is very bureaucratic and top-down driven. Even something as simple as a foot patrol along an empty and secluded stretch of an Iraqi highway was met with dictates from superior officers on what you could and couldn’t do. What this basically meant was, we were told to walk down a predetermined path, by people who had never been there before, people who weren’t going to be their if things went wrong, and people who were going to grill you on anything that didn’t go exactly as they had preplanned.

As a Green Beret, we were given far more latitude to make extremely tough and strategic decisions on the ground. This is largely because there are so few of us, we are spread out all across the globe, and there isn’t always time, or the means, for superiors to contact us with directives. This decentralization is largely what makes Green Berets more effective. Yes, we have had special training and we go through a rigorous selection process. But this stuff is not rocket science. The difference between most of us that earned the Green Beret and your average guy on the street is just that we showed up and tried out. What makes us more effective is we are the ones on the ground, talking with the locals, asking them what they need help with, figuring out when they are lying to us just to get more resources or when they truly need assistance, and making those decisions without asking some one thousands of miles away who’s life isn’t at risk if they make a bad decision. Green Berets on the ground can innovate and think of creative ways to handle a problem. That’s all that a free market is. Individuals on the ground, figuring out what people need and want, or inventing something that people didn’t even know they needed but makes their life easier.

Now, maybe the military isn’t the best analogy for a lot of people since they may not completely get the nuances that I have experienced first hand. But a lot of people like music, so that should relate to a lot more people. The music industry used to be very top-down driven. The few record labels dictated everything. Power was concentrated in the hands of the few. The struggle in music has always been between tradition and innovation. Those in power know what worked to make them successful, so they just want to keep doing that. Anything new and innovative is dangerous because people might not like it, it might fail, and its simply an unknown. I picture the radical musical notes and dancing that Elvis Presley shocked the world with. How dangerous that was! But wouldn’t you know it, most people, especially younger people, just didn’t like the old traditional music. They liked something that was new, fresh, and theirs. As more bands started to buck the system and go it alone, the record labels had to reorganize and let the “guys on the ground” figure out what people were interested in. Because they were ultimately the ones who were going to fail or succeed based on their efforts.

Certainly there are higher concentrations of power and information in some areas, such as banking and finance, because those fields require specific training and skills. You need very specialized people with the necessary knowledge and the drive to seek out more information to make informed decisions. Just like Green Berets have specialized training and skills, and are given more flexibility in the decisions they make. But even in these industries with higher concentrations of power, when they operate in a free market, they operate as part of a network that is interdependent. The bankers and financiers need everyone else to want loans. They will only continue to flourish if entrepreneurs are looking for new ways to do business, and they in turn only flourish if individuals choose to buy their products. There are inherent checks on power in the free market, because everyone gets a vote and they get a vote everyday, with every dollar they spend. All the individuals in the free market network have more power than any one node, and when the market moves, people listen.

Hierarchies concentrate power and information. When one part of the hierarchy has a bad actor or makes a bad decision, everyone is effected by it because it is the law of the land. Networks disperse power and information and allow different nodes and individuals to make their own decisions. If there is a bad actor or a poor decision made, it only effects those people associated with that node of the network. Meanwhile, every other node and individual learns from that lesson, and the network as a whole is strengthened. Networks are freedom and the power of the individual unleashed to work cooperatively with others. Voluntary cooperation is inherently a win-win scenario. When allowed to operate in the network of freedom, those little win-win scenarios multiply and reverberate throughout the system, lifting up and improving everyone. Its a good time to live in the Networked Age.