The Importance of Being Wrong

Why does capitalism produce such economic wonders while communism flops miserably on the same front? Note I just asked about the economic aspects, not the political side of things. I’ll pre-empt the wrongly cited counter-example: China. Sorry, but China is not a communist country in economic terms.

Rory Sutherland dismisses efficiency as the critical difference between the two systems. Rather, he says:

“Truly free markets trade efficiency for a costly process of market-tested innovation heavily reliant on dumb luck. The reason this inefficient process is necessary is that, though we pretend otherwise, no one knows anything about anything: most of the achievements of consumer capitalism were never planned; they are explicable only in retrospect, if at all.”

And in contrast, he says:

“The reason to avoid communism is not because it is inefficient, but because it tries to be too intelligent.”

Too intelligent? Sutherland elaborates that communism thinks it knows what is needed and what will generate future employment. But which rational government agency with public money to spend, even if it were sincere and honest, could possibly guess that something as insane as energy drinks (like Red Bull) would become the next big money spinner?

Besides, any government controlled system requires a huge bureaucracy. And as Bill Bonner asks:

“You don't really think bureaucrats could improve the quality of teaching, do you? Of course not. What do they know about teaching? Or agriculture? Or selling stocks? Or banking? Or anything else? What improvements have bureaucrats ever made? Name one! Who invented indoor plumbing? Who invented the repeating rifle or rolled the first cigarette? Who created Facebook?”

Scott Adams agrees. He says it takes multiple wrongs (not just two) to make a right:

“Capitalism is another example of individual failures that gets transformed into value. Most small businesses fail. Most people don’t get the job they want, at least not on the first try. Most patents are useless, most products are unsold, and half of corporate America is in “Wally” mode. Still, the economy steams ahead as if everyone is doing all the right things.”

As Tim Harford said in his book, Adapt, capitalism is all about survivable failures. Communism can’t afford either: failure won’t be accepted; and the pet project of the Supreme Leader won’t be small. And thus less likely to be a survivable failure.