31 Oct Planning: the Devil Is in The Details
The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers. I am sharing it here today because I thought it might be useful to some of you.
The Central Planning Paradox
A couple of weeks back, in a piece about AI and its increasing energy demands, I discussed the “planning paradox,” which I described this way: “when applied to business, [the paradox] notes that while planning is necessary and important, it is hardly sufficient for business success; rigid adherence to prior plans can cause businesses to miss opportunities and engage in poor decision-making.” I went on to note that the planning paradox also applies to investments. While it is necessary to have a general idea of the type of investment scheme you wish to pursue, “flexibility and open-mindedness are critical to success. Rigid adherence to theories advanced ten, five, or even two years ago can result in disaster. It is far better to be prudent and reflective about the future.”
The truth of the matter is that everyone plans. I plan. You plan. All individuals plan. All families plan. All organizations plan. All governments plan. It’s what we do, and for good reason.
Of course, by extension, then, we are all subject to some version of the planning paradox as well. All must do what they can to chart the probable future, but all must understand that, simply by virtue of charting that future, they jeopardize their ability to navigate changing circumstances successfully.
The government version of the planning paradox is, perhaps the most complex of them all. Both generally, under the theoretical social contract, and specifically, in their proclamations and policies, governments promise their citizens a certain type of existence. To achieve their goals and to realize that existence, governments must handle their “common problems as rationally as possible…[and] in so doing…should use as much foresight as [they] can command.” In short, they must plan. Even if they’re not able to achieve their goals, they must plan. Again, this is simply a fact of life, the way things work. Not surprisingly, the difference between those governments that do and those that do not achieve their goals is largely found in the type of planning they utilize, as Hayek explained just over eight decades ago:
The dispute between the modern planners and their opponents is, therefore, not a dispute on whether we ought to choose intelligently between the various possible organizations of society; it is not a dispute on whether we ought to employ foresight and systematic thinking in planning our common affairs. It is a dispute about what is the best way of so doing. The question is whether for this purpose it is better that the holder of coercive power should confine himself in general to creating conditions under which the knowledge and initiative of individuals are given the best scope so that they can plan most successfully; or whether a rational utilization of our resources requires central direction and organization of all our activities according to some consciously constructed “blueprint.”
While Hayek is anything but universally revered in contemporary Western government and is, more often than not, cast aside for the likes of Keynes, his description of and warnings about planning remain largely unassailable. “Planning” done by multitudes of individuals in free and transparent markets produces inarguably superior results to planning done by managing the “central direction of all economic activity according to a single [blueprint], laying down how the resources of society should be ‘consciously directed’ to serve particular ends in a definite way.” Free and fair markets beat centralized planning. Every time.
Those who doubt this might want to look at developments this week in the world of automobiles. First up is the bad news, from Volkswagen and Ford:
Volkswagen plans to close “at least” three factories in Germany, lay off tens of thousands of staff and downsize remaining plants in the country, the company’s employee group said Monday.
The domestic factory closures would be the first in Volkswagen’s 87-year history, and they lay bare the challenges facing Germany’s largest manufacturer. The plans are already facing pushback from labor unions in the country, where Volkswagen employs 295,000 people, setting the stage for possible strikes in the coming weeks.
Volkswagen has been locked in negotiations with unions for weeks over its plans to cut costs and restructure business operations.
As the inimitable Andrew Stuttaford notes in a long and detailed note on the car giant’s troubles, “VW’s problems are not solely due to EVs.” Nevertheless, the transition from gas-burning to electric vehicles forced upon it (and all European manufacturers) by the EU is a huge part of what is going on here – and it is compounded significantly by the mandatory energy transition throughout the rest of society as well.
As for Ford, well, it continues to be the case that no one wants an electric pickup truck:
Ford Motor is pausing production of its electric F-150 Lightning truck for several weeks, as the outlook for electric vehicles remains downbeat, with car companies confronting slumping demand.
The Dearborn, Mich., automaker said Thursday that it would idle the assembly factory that makes the battery-powered truck from mid-November to Jan. 6. The Lightning, a centerpiece of the legacy auto manufacturer’s EV strategy, has been the victim of steep price cuts and waning interest from consumers….
Automakers in the past year have scrambled to adjust plans for their EV models after finding weaker-than-expected demand from car buyers.
Finally, we have some hilarious news from Porsche – or at least, news that would be hilarious if weren’t so darned predicatble :
Having already pivoted its highest-volume model to run on all-electric power, Porsche is now considering building internal combustion variants of EVs. We appear to have come full circle on electrification in roughly the same time frame the industry previously assumed they’d become the dominant mode of transportation.
Aggressive regulatory mandates in Europe and increasingly stringent emission requirements have encouraged the brand to end sales of the combustion Macan and 718 on home market early. But it was previously committed to pivoting toward EVs as part of its current corporate ethos. Porsche already builds an all-electric version of the Macan and the brand has the Taycan EV — not to mention a slew of hybridized models — with an electrified version of the 718 soon to follow.
However, the business has noticed that plug-in vehicles aren’t seeing the same kind of demand as vehicles that continue to rely on gasoline. This came up during the Q3 call for investors, with leadership hinting that one future strategy could be to build combustion variants of electric models.
The so-called “energy transition” is, perhaps, the most centrally planned public policy in human history. Word came down from Turtle Bay that everyone, everywhere would switch from fossil fuel-produced energy to renewables and, more to the point, that they would be happy about it. Outside of a handful of extremists and oligarchs, however, no one actually was happy about it – largely because the transition was not a practical plan but a utopian fantasy. Governments complied, but reality resisted. And that is the story, in general, with central planning. It doesn’t work. It can’t work. The energy transition, the so-called sustainability movement, ESG, stakeholder capitalism, and all the rest are all species of central planning, ideas that sound noble in principle but are unworkable in practice.
Planning is good, necessary even. Central planning, by contrast, is destructive – as workers at Volkswagen and Ford can attest this week.
