> Every corporation is a (not so) little pocket of centrally planned economy.
This is confused. Here is how classical economists would frame it: a firm chooses how much to produce based on its cost structure and market prices, expanding production until marginal cost equals marginal revenue. This is price guided production optimization, not central planning.
The dominant criticism of central planning is trying to set production quantities without prices. Firms (generally) don’t do this.
> This is confused. Here is how classical economists would frame it: a firm chooses how much to produce based on its cost structure and market prices, expanding production until marginal cost equals marginal revenue. This is price guided production optimization, not central planning.
That's the case in a healthy competitive market. Once you have a monopoly or an oligopoly, you get into central planning territory.
Ok, but recall the context (see above): I’m saying one can understand how firms operate without making a connection to central planning (setting production targets and investment decisions from the top-down without prices).
Economists have concepts and models for monopolies and oligopolies — and the way they operate are quite different from the practice of central planning.
I’m talking from within the frame of economic concepts, and I’m striving to use words as understood in the field. At times I value metaphorical thinking, but here in the case of economics, we don’t need to bend words when other fitting concepts are readily available and battle-tested.
An example: If someone calls corporate consolidation “central planning,” they’ve lost the ability to analyze it properly. The relevant questions for oligopolies (strategic behavior, barriers to entry, tacit collusion) are completely different from central planning questions (calculation problems, information aggregation, incentive alignment).
When technical fields have already solved a conceptual problem through careful definition and model building, importing loose metaphorical language degrades analytical clarity.
If you want to point to or propose a different model than the usual economic dogma, I’m all ears, by the way.
I agree, that this discussion isn't based on proper economic terms, but on laymen understanding.
The claim isn't that it is exactly like central planning like a state, but very similar through the view on the whole society. You have a powerful caucus, no longer bound by reality (competition), making decisions, that they think are good, which effectively set the pace for the whole economy field. Whether this caucus formed through rigged elections or by inheritance of companies isn't all that relevant. It would be quite a different story, if the state would enforce its monopoly on (political) power and governing, but it refuses to do so now-a-days.
> The relevant questions for oligopolies (strategic behavior, barriers to entry, tacit collusion) are completely different from central planning questions (calculation problems, information aggregation, incentive alignment).
The observation on these oligopolies, that are now larger than some states is, that they seem to lack in their strategic reasoning and are more built on vibes of their leader, which is subject to blindness due to sycophants, much like in an authoritarian regime. Also they tend to treat the whole market as their internal planning problem.
> but here in the case of economics, we don’t need to bend words when other fitting concepts are readily available and battle-tested.
I think a majority of commenters on HN are not as well-versed in Economics as you, so would value elaboration on modern monopolies. I think they differ a bit from classical monopolies in their amount of ties to the government and interference into elections. Not that lobbying isn't typical for monopolies, but modern monopolies seem to not need to lobby anymore, but simply do and dictate.
> The observation on these oligopolies, that are now larger than some states is, that they seem to lack in their strategic reasoning and are more built on vibes of their leader…
Yes, there are several problems with oligopolies and monopolies. You referred to one: a kind of blinkered irrationality. Also, capable and strategic self-interest can threaten free markets.
I don’t expect readers here to have the equivalent of a US bachelor degree in economics (though I think this is likely to be a valuable skillset to learn in one’s free time).
Still, I’m hoping they can recognize when they’re stepping into an unfamiliar realm and pay attention to the feeling of “seems like economists are using certain words in particular ways that I should dig into rather than treat them as known vocabulary.” Achieving this level of self-awareness is probably hard for many. To build a deep sense of intellectual honesty and self-awareness of one’s cognitive limitations, I think one can do worse than working closely and intensely with others who also care about these traits. Mentorship helps.
Back to Econ… It also helps to remember in much of economists, these terms are founded in mathematical models. So the interpretation might be subjective, but the mathematical model (the operations) are formalized.
Company prices resources within itself completely arbitrarily. How much the hour of work of an employee A is worth with the company and and how much using paperclip costs has no relation how much these things actually cost in the real money. Once they are acquired by company they are utilized not according to their value but to central plans instead. This way paperclip might get vastly overvalued and scarce while hour of work can be vastly undervalued and wasted.
To make sure we’re on the same page… In economics, “central planning” refers to a system where a central authority (typically the state) makes comprehensive decisions about production, investment, and resource allocation across an entire economy, replacing market mechanisms. This is associated with command economies like the Soviet Union’s Gosplan system.
And of course I will grant firms use hierarchical coordination mechanisms internally (managers allocate resources by command rather than prices).
I suppose my angle here is to be clear that firms are typically a kind of hybrid entity: they mix various coordination mechanisms (prices and hierarchy). This makes them quite different from centrally planned economies.
I’ve worked at many companies with market mechanisms of sorts in play enough to matter. As one example, product lines that do better (as evidenced by market feedback) get more clout and revenue and command more influence. As another, there are a wide variety of ad-hoc teams that form not because of hierarchy but because people have learned who they like working with and have seen results with. These are closer to markets than C&C or hierarchical decision making.
Next, to avoid a definitional stalemate and talking past each other, let me try a different angle. If you want to predict what a company will do next, what mix of models do you use upon?
If I were to predict a company’s production choices, I would model them as being very sensitive to costs and changing dynamics to maximize profit . I would not do that when modeling a centrally planned economy. For that I would use longer time scales and do long supply chain analysis in the service of a social welfare function. See what I mean? What am I missing from your POV?
Product lines with market sales are downstream of markets. The degree of per-product profit matters.
If you want to add “politics” to your causal map, that’s fine too. Reality is multi-factor. I do not deny that leaders make (to varying degrees) political and-or command-and-control decisions. This was already baked into the conversational context. Please take the conversational history into account.
> Company prices resources within itself completely arbitrarily.
I wouldn’t phrase it this way — to me, this implies unpredictability and/or a lack of rationale. Perhaps you simply mean “internal managers at companies do not necessarily price resources using market mechanisms” which I would agree with.
Many fields of study give insight to the various kinds of distortions that arise from human psychology and negotiation, etc.
This is confused. Here is how classical economists would frame it: a firm chooses how much to produce based on its cost structure and market prices, expanding production until marginal cost equals marginal revenue. This is price guided production optimization, not central planning.
The dominant criticism of central planning is trying to set production quantities without prices. Firms (generally) don’t do this.