Visible Hand?

Someone recently forwarded me an article calling for the disbanding of the Planning Commission. It was a typical libertarian argument that does not trust the government's ability to pretty much do anything of consequence. This line of thought does raise a valid objection - how would you expect the government, which does not have any direct stake in ensuring that scarce economic resources are optimally distributed in societies be expected to do that very function? It is tempting to believe that - especially if you look at the kind of people running our governments. So what is the alternative - you may ask. Do we leave it to the Invisible hand (i.e. the marketplace) to figure this out?

And this brings to a fundamental problem in these extreme political/economic schools of thought - with Libertarians on one side and the Communists on the other. One wants the Invisible hand while the other wants the Visible hand (i.e. the government/commune/labor unions - some organized form) to be the only one around. While the Communist experiment has blown up spectacularly, we are yet to see the Libertarian one at work.

Throughout modern history (at least after the initial euphoria of the industrial revolution settled down), some centralized authorities (king, democratic governments etc) have had to undertake a very visible, redistributive justice role. It has always been clear, even more so in the industrial world, that there is a section of the population that is not fortunate to be equipped with the same set of factor endowments as the remaining, more successful section. The former are almost doomed to be stuck in the vicious cycle of poverty while the latter can aspire to climb up the economic and social ladder. And in the absence of any redistributive function, it is almost inevitable that the poor would be squeezed even further.

And so, should the Planning Commission stay or go? Part of the problem, to me, appears to be the name - it sounds very Fabian Socialist and reminds everyone of the days when the Five-Year Plans tried to dictate the output levels in all sectors (from soaps to scooters to watches). And all they gave us was the Hindu rate of growth ! As to what they do now - it is clearly a mystery, since there is precious little planning that seems to be going on in the governments. Which makes the whole concept straight out of the 'Yes Minister'.

That function has, thankfully, come down significantly - gone are the days when the budgets used to announce the production targets for matchboxes! So what should the Planning Commission do - to start with, they should re-brand themselves as Economic Advisors, which would give them the necessary level of legitimacy while keeping them from causing too much damage in terms of policy making. There is definitely a case for a think tank type of body - so long as they are brave enough to balance diverse economic views and evaluate policy options for the government, which is what an advisory role ought to be doing.