It destroys countries that were on their way to being prosperous. The reason for this is simple, central control induces inefficiencies that are corrected by decentralized control. If I am a shop owner and something goes out of stock, I raise the prices. If that has to go through a bunch of bureaucracy that can take months, then the prices may not be raised and I am continuously out of stock on that stuff.
Central control of the economy is too slow and ignores certain facts as their is a lack of a profit motive to get things right. China’s solution to this, as it industrializes, was to allow for some entrepreneurs who would be given mandates on what to do, but else wise could enjoy profits. If they don’t follow the mandates they get replaced or beat up until they do.
This system, however, induces inefficiency and reduces innovation. Certain mandates can cause massive issues, such as everyone in China owning tons of houses and making cities with no one living in them across the nation because it is a more stable investment than their stock market, government bonds, or banks for their currency.
Central Mandates can cause people to act in rational ways that from the outside seem crazy. These induced inefficiencies ultimately hamper growth.
China like the Soviet Union before it has the strength of industrialization on its back with tons of foreign investment into its cheap work force, which causes it to grow faster than the US. But ultimately, an overbearing government that controls the economy will dramatically slow in down in the long-run as massive induced inefficiencies eat away at what good industrialization brought. Only once their is an abandonment of control can true hyper-growth occur.
It destroys countries that were on their way to being prosperous. The reason for this is simple, central control induces inefficiencies that are corrected by decentralized control. If I am a shop owner and something goes out of stock, I raise the prices. If that has to go through a bunch of bureaucracy that can take months, then the prices may not be raised and I am continuously out of stock on that stuff.
Central control of the economy is too slow and ignores certain facts as their is a lack of a profit motive to get things right. China’s solution to this, as it industrializes, was to allow for some entrepreneurs who would be given mandates on what to do, but else wise could enjoy profits. If they don’t follow the mandates they get replaced or beat up until they do.
This system, however, induces inefficiency and reduces innovation. Certain mandates can cause massive issues, such as everyone in China owning tons of houses and making cities with no one living in them across the nation because it is a more stable investment than their stock market, government bonds, or banks for their currency.
Central Mandates can cause people to act in rational ways that from the outside seem crazy. These induced inefficiencies ultimately hamper growth.
China like the Soviet Union before it has the strength of industrialization on its back with tons of foreign investment into its cheap work force, which causes it to grow faster than the US. But ultimately, an overbearing government that controls the economy will dramatically slow in down in the long-run as massive induced inefficiencies eat away at what good industrialization brought. Only once their is an abandonment of control can true hyper-growth occur.