The folly of economic planning

Martin van Staden / Midjourney
Martin van Staden / Midjourney

This article was first published by City Press on 7 February 2024

The greatest economic plan is to not plan the economy at all. As South Africans prepare to vote in the upcoming general elections, plans from politicians about the economy should they be voted in will be abound. If we are prudent, we would not fall for them.

The nature of the political theater that plays itself out every four years lends itself, naturally, to its biggest Achilles heel through the planning or the advocacy for planning, in the economy. To make the case to be voted into power, political parties feel that they must present grandiose economic plans right down to predicting future growth rates.

This approach to thinking about the myriad of actions and relationships that make up what is known as an ‘economy’ as responding to the inputs of political decision makers is misguided. Although economic planning has been thoroughly debunked by theorists like Ludwig von Mises and by the experience of freer economies just being better, there still exists this belief that what the economy needs is a plan.

One would implore the reader to think of any economic action they took. An economic action being one wherein you were conscious of the commercial nature of your activity, i.e. buying or selling something. When conducting this activity, did the plan that an executive in Pretoria or a Legislator in Cape Town devised have an impact on your decision?

The answer is most likely no. In normal and day to day economic activity, the plan of politicians plays no role if any at all in the actions taken by individuals. At its core, an economy, which is more aptly called a catallaxy, is the expression of the subjective valuations of various individuals. What particular plan a certain political party has hardly ever features as a central idea in the minds of most economic actors.

Given the number of economic plans the reader has read about or heard of, one would think those who make up the economy, use said plans as their guides. Alas, this is not the case. You can have the most grandiose of plans, yet the agency and actions of individuals themselves is the only determining factor of the success of any economy and subsequently those plans.

Individuals will act in accordance to their value preferences irrespective of what a politician wants for them, as his or her ‘people’. This phenomenon is well documented in the historical fact of black markets existing in planned Communist economies. This shows that even after the state which purported to be acting in the interest of citizens had done so, people still wanted their preferences satisfied through trade. In clear defiance of their best interests the Communist leaders would say.

In South Africa we have the most glaring example of the uselessness in reality, of economic plans. The National Democratic Plan (NDP) is one such example. In that document you will find the grandest of visions for society the ruling party has for South Africans (One wonders whether we can’t plan our own lives ourselves but I digress).

Ever since the adoption of the NDP in 2012, it is safe to say that most if not all of its goals, the ends it envisioned were not met. The NDP and its adopters had ambitious aspirations, from lessening corruption to achieving full employment spurred by an economy that grew/had to grow at 5.4% every year.

Since then, the South African economy has not come close to a 5.4% growth rate per year with an average growth rate during that time of 1%. Unemployment has consistently risen if looked at from 2012 (21.79%) to 2024 (31%). It is like South Africans went the opposite of the plan envisioned for them, almost as if they had agency to determine their own economic destinies.

The only viable economic plan is to allow people to be free to make their own decisions. On principle, given the subjective nature of value, the best way to maximize it for society, would be to allow the individuals that make up that society to maximize their own.

The only way to maximize a valuation or preference that is inherently subjective is to have the latitude, as an individual, to define what is valuable to you through actions. The more latitude an individual has for this definition of what they find valuable, the more value will logically be there in that society – The latitude to define value. Liberty is the principle behind indexes like the Economic Freedom of The World Index and many others consistently showing that freer economies, are richer economies. Whilst those with the most ardent of plans, tend to be less successful.

Therefore, when politicians mention their economic plans this year in their attempts to goad you into voting for them, remember that economic success boils down to the actions taken by individuals like yourself. Not the plans of politicians and their academic scribes. Lest you be fooled perpetually by those who are marching you down the road to serfdom.


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The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. This article may be republished without prior consent but with acknowledgement to the author.




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