The Big Data revolution can revive the planned economy

John Thornhill in the FT:

[I]n his book Homo Deus, the Israeli historian Yuval Noah Harari suggests a more prosaic reason: planned economies (and authoritarian regimes) are rubbish at processing data. “Capitalism won the cold war because distributed data-processing works better than centralised data-processing,” he wrote.

How could any central planner sitting in Gosplan’s offices in Moscow hope to understand all the moving parts of the Soviet economy across 11 time zones?

The lunacy of that system was best explained to me by Otto Latsis, the late Russian economic journalist. He recounted how he once visited a Soviet roof tile manufacturing company, which had big expansion plans. He discovered that all the investment was being sunk into a separate plant to destroy discarded, imperfect tiles to stop them being sold on the black market by the factory’s workers.

As with most Soviet factories, the planners had set demanding targets for the new plant, focusing on quantity rather than quality, creating perverse incentives to smash up near-perfect tiles. It is hard to think of a starker example of the value destruction that wrecked the Soviet economy.

But the explosion of data in our modern world could — at least in theory — inform far better managerial decisions and reduce the information imbalances between a planned and a market economy. Central planners are rapidly acquiring the tools to process data a lot more effectively.

More here.