Former socialist economist explains why central planning never works

Central planning from the inside—an interview with a Soviet-era economist

In our descriptions of socialism in Poland and Estonia, we often quoted firsthand accounts of Poles and Estonians who lived through the period. These were workers, consumers, victims of oppression and resistance fighters. One voice that we didn’t capture was that of the planner—the government official charged with making the economy work, despite socialism’s enormous handicaps.

To better understand that perspective, I recently interviewed Gia Jandieri, an economist who worked for the State Supply Committee in Georgia from 1984 to 1989.

In 1989 Gia cofounded the very first non-governmental organization in Soviet Georgia (the Association of Young Economists) to push for market economic education. And in 2001 he established a think-tank, the New Economic School, to promote economic freedom. The New Economic School has been a full member of the Economic Freedom Network since 2004.

Here’s our discussion (lightly edited for readability):

Matthew Mitchell (MM):

How did you become an economist and a Soviet planner?

Gia Jandieri (GM):

It was accidental. In 1984 my mother worked at the Gossnab (the State Supply Committee for the Central Planning Authority) and she offered to introduce me to her boss. At that time I was only 23 years old and had graduated from the Georgian Polytechnical Institute. My knowledge of economics was mostly from life and family experience (my parents worked at a metallurgical plant).

But as a student in 1979 I had had what I thought were a few strange discussions with a teacher of political economy. Like most teachers, he was no true believer in socialism (it was hard for anyone to believe at that time). But he was required to teach the propaganda. What surprised me was that he was willing to publicly agree with me about my suspicions that the system was failing and might even collapse. This was rare, and he was taking a risk. But it also inspired me. It is also important to note that he wanted to hide his hesitation about Marxism and the Soviet system and he also wanted me to stop my questions, and/or stop attending his lectures (which was of course not allowed). I recall he told me: “either I report you or someone reports both of us for having prohibited discussions.”

When I finished my university study of engineering, I was already sure I wanted to be an economist. So, when the opportunity arose in 1984 to work at the State Supply Committee, I seized it.

MM:

Tell us a little bit about the job of a planner. What were your responsibilities? And how did you go about doing them?

GJ:

Our department inside of Gossnab was responsible for monitoring the execution of agreements for production of goods and government orders. My task was to verify that the plans had been executed correctly, to find failures and problems, and to report to the higher authorities.

This included reading lots of reports and visiting the factories and their warehouses for auditing.

The Soviet economy had been in a troublesome condition since the 1970s. We (at the Gossnab) had plenty of information about failures, but it wasn’t useful. We knew that the quality of produced goods was very low, that any household good that was of usable quality was in deficit, and that the shortages encouraged people to buy on the black market through bribes.

In reality, a bribe was a substitute for a market-determined price; people were interested in paying more than the official price for the goods they valued, and the bribe was a way for them to indicate that they valued it more than others.

The process of planning was long. The government had to study demand, find resources and production capacities, create long-run production and supply plans, compare these to political priorities, and get approval for general plans at the Communist Party meetings. Then the general plans needed to be converted to practical production and supply plans, with figures about resources, finances, material and labour, particular producers, particular suppliers, transportation capacities, etc. After this, we began the process of connecting factories and suppliers to one another, organizing transportation, arranging warehousing, and lining up retail shops.

The final stage of the planning process was to send the participating parties their own particular plans and supply contracts. These were obligatory government orders. Those who refused to follow them or failed to fulfill them properly were punished. The production factories had no right or resources to produce any other goods or services than those described in the supply contracts and production plans they received from the authorities. Funny enough, though, government officials could demand that they produce more goods than what was indicated in the plans.

MM:

What made your job difficult? Let’s assume that a socialist planner is 100 per cent committed to the cause; all he or she wants to do is serve the state and the people. What makes it difficult to do that?

GJ:

There were several difficulties. We had to find appropriate consumer data and compare it to the data of suppliers (of production goods mostly). I was working with several (5-15) factories per year. I needed to have current and immediate information, but the state companies were always trying to hide or falsify their reports. In some cases, waste and theft could be so significant that production had to be halted.

The planners invested vast sums of money and time in data collection and each had special units of data processing.

This was a technical exercise and had nothing to do with efficiency or usefulness. The collected data was outdated by the time it was printed. The planning, approval, and execution processes could take many years to complete, and by the time plans were ready, demand had usually changed, creating deficits of what was demanded and surpluses of what was not demanded. The planners, no matter how dedicated or intelligent they might be, simply couldn’t meet the demands of the customers.

Central planning was not an easy exercise. The central planners needed to understand what was needed—both production supplies and consumer goods. But, of course, we had no way of knowing what people truly wanted because there was no market. Consumers weren’t free to choose from different suppliers and new suppliers weren’t free to enter the market to offer new or slightly different goods.

One of the more helpful ways to find out what people wanted was to look at what consumers in the West wanted since they actually had economic freedom and their demands were quickly satisfied. The government also did a lot of industrial spying to steal Western production ways and technologies.

MM:

Were most of the planners you encountered 100 per cent committed to the cause? Were they incentivized to serve the cause?

GJ:

Some of the staffers were dedicated to their work. Others were mostly thinking about how they could obtain bribes from the production factories as a reward for closing their eyes to mismanagement and failure. The planners were also involved in more significant corruption to allow the production factories to have extra materials and financial resources so they could produce for the black market or so they could simply steal.

Then the revenue from these bribes would be divided among all personnel from different agencies (like the Price Committee, Auditing (“Public Control”), and several other agencies charged with inspections). So, in fact, the system generated corruption as a substitute for official incentives. If anything was still operating, this was mostly due to these corrupt incentives and not in spite of them.

The planning system was quite complex and involved many governmental offices though the main decisions were made by the Communist Party. Planning authorities would report to the Party leadership what they thought would be possible to produce and Party leaders would inevitably demand higher quantities.

Gosplan was bureaucratic to its core, both in principle and character. Nobody was allowed to innovate other than planned/artificial innovation. Everyone had to work only by decrees and orders coming from the political leadership. The political orders and bribes were the only engines that were moving anything. Market incentives didn’t exist. Bonuses (premia) were awarded according to bureaucratic rules, and, paradoxically, these destroyed the motivation of the genuinely hard workers.

MM:

Moving beyond economics a bit, how did the socialist system affect other aspects of life? Culture, families, relationships, civil institutions?

GJ:

One of the examples is Western pop-music. Soviet propaganda tried to hide Western culture. Music schools mostly taught Russian classical music and some folk music of various Soviet ethnic nationalities, but it was mostly Russian.

Jazz and hard rock were not prohibited but very much limited. That of course encouraged smuggling and illegal dissemination, as in every sector. Soviet music factories were buying some rights to the music (for instance the Beatles, Louis Armstrong and Ella Fitzgerald). But these recordings were only available in limited quantities and were of bad quality in order to limit their influence.

Small illegal outfits would make unofficial and illegal copies of any popular western music (not classical).

Cultural institutions like theatre or cinema were harshly censored and mostly served the propaganda machine. The people involved in these sectors did what all producers of goods did. They needed to lobby their benefactors in the bureaucracy, bribing and currying favour with them in different ways. It was said that only one out of four films produced would be shown in the cinemas. The other three films were only produced so studios could steal the resources and obtain higher reimbursements.

Before Soviet rule, Georgia was a property rights and ethics-based society. We have ancient proverbs that testify to this. The Soviets killed the ethical leaders, the property-owning elite, and confiscated their property. The stolen property was supposed to be held in common. In fact, the bureaucracy took it.

State ownership of property opened the way to waste and theft of construction and production materials, office inventory, fertilizer, harvested agricultural products, etc.

In Georgia, one bright spot was underground education. Georgians succeeded in growing a network of informal tutors who effectively operated despite very harsh efforts by the authorities to quash them. These skillful teachers prepared the young people for university exams. This was so widespread that some successful young people (including my wife and friends, for instance) started offering private (completely illegal) teaching services when they were university students.

MM:

To this day, socialism remains alluring to many in the West, especially young people. What do you have to say to the 46 per cent of Canadians aged 18-34 who support socialism?

GJ:

Very simply, it is a mistake to think socialism fails because of the wrong managers. This mistake allows people to think that it’ll work the next time it is tried, if we just have better people. In fact the opposite is true—socialism invites the wrong managers. It doesn’t reward a great manager who tries to improve the system but a person who can adapt to and accept the corruption, waste and theft. Socialism also encourages corruption. When more resources are in the control of politicians and the bureaucracy, there is more favouritism, privilege, and discrimination. Jobs and business opportunities are based on privilege rather than market competition. This means naïve people will always be cheated by brazen liars and manipulators.

Poor people are told that the state is under their control but in fact the bureaucracy and political hierarchy control everything.

In socialism, nature and natural resources are abused and wasted. The Tragedy of the Commons runs rampant without private property, voluntary cooperation, and ethics. The government tries to manage everything centrally and totally fails because it lacks dynamic information, competitive discipline, and proper incentives.

Author:

Matthew D. Mitchell

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Ford and Trudeau are playing checkers. Trump and Smith are playing chess

Published on December 19, 2024

Dan McTeague

By Dan McTeague

Ford’s calls for national unity – “We need to stand united as Canadians!” – in context feels like an endorsement of fellow Electric Vehicle fanatic Trudeau. And you do wonder if that issue has something to do with it. After all, the two have worked together to pump billions in taxpayer dollars into the EV industry.

There’s no doubt about it: Donald Trump’s threat of a blanket 25% tariff on Canadian goods (to be established if the Canadian government fails to take sufficient action to combat drug trafficking and illegal crossings over our southern border) would be catastrophic for our nation’s economy. More than $3 billion in goods move between the U.S. and Canada on a daily basis. If enacted, the Trump tariff would likely result in a full-blown recession.

It falls upon Canada’s leaders to prevent that from happening. That’s why Justin Trudeau flew to Florida two weeks ago to point out to the president-elect that the trade relationship between our countries is mutually beneficial.

This is true, but Trudeau isn’t the best person to make that case to Trump, since he has been trashing the once and future president, and his supporters, both in public and private, for years. He did so again at an appearance just the other day, in which he implied that American voters were sexist for once again failing to elect the nation’s first female president, and said that Trump’s election amounted to an assault on women’s rights.

Consequently, the meeting with Trump didn’t go well.

But Trudeau isn’t Canada’s only politician, and in recent days we’ve seen some contrasting approaches to this serious matter from our provincial leaders.

First up was Doug Ford, who followed up a phone call with Trudeau earlier this week by saying that Canadians have to prepare for a trade war. “Folks, this is coming, it’s not ‘if,’ it is — it’s coming… and we need to be prepared.”

Ford said that he’s working with Liberal Finance Minister Chrystia Freeland to put together a retaliatory tariff list. Spokesmen for his government floated the idea of banning the LCBO from buying American alcohol, and restricting the export of critical minerals needed for electric vehicle batteries (I’m sure Trump is terrified about that last one).

But Ford’s most dramatic threat was his announcement that Ontario is prepared to shut down energy exports to the U.S., specifically to Michigan, New York, Wisconsin, and Minnesota, if Trump follows through with his plan. “We’re sending a message to the U.S. You come and attack Ontario, you attack the livelihoods of Ontario and Canadians, we’re going to use every tool in our toolbox to defend Ontarians and Canadians across the border,” Ford said.

Now, unfortunately, all of this chest-thumping rings hollow. Ontario does almost $500 billion per year in trade with the U.S., and the province’s supply chains are highly integrated with America’s. The idea of just cutting off the power, as if you could just flip a switch, is actually impossible. It’s a bluff, and Trump has already called him on it. When told about Ford’s threat by a reporter this week, Trump replied “That’s okay if he does that. That’s fine.”

And Ford’s calls for national unity – “We need to stand united as Canadians!” – in context feels like an endorsement of fellow Electric Vehicle fanatic Trudeau. And you do wonder if that issue has something to do with it. After all, the two have worked together to pump billions in taxpayer dollars into the EV industry. Just over the past year Ford and Trudeau have been seen side by side announcing their $5 billion commitment to Honda, or their $28.2 billion in subsidies for new Stellantis and Volkswagen electric vehicle battery plants.

Their assumption was that the U.S. would be a major market for Canadian EVs. Remember that “vehicles are the second largest Canadian export by value, at $51 billion in 2023 of which 93% was exported to the U.S.,”according to the Canadian Vehicle Manufacturers Association, and “Auto is Ontario’s top export at 28.9% of all exports (2023).”

But Trump ran on abolishing the Biden administration’s de facto EV mandate. Now that he’s back in the White House, the market for those EVs that Trudeau and Ford invested in so heavily is going to be much softer. Perhaps they’d like to be able to blame Trump’s tariffs for the coming downturn rather than their own misjudgment.

In any event, Ford’s tactic stands in stark contrast to the response from Alberta, Canada’s true energy superpower. Premier Danielle Smith made it clear that her province “will not support cutting off our Alberta energy exports to the U.S., nor will we support a tariff war with our largest trading partner and closest ally.”

Smith spoke about this topic at length at an event announcing a new $29-million border patrol team charged with combatting drug trafficking, at which said that Trudeau’s criticisms of the president-elect were, “not helpful.” Her deputy premier Mike Ellis was quoted as saying, “The concerns that president-elect Trump has expressed regarding fentanyl are, quite frankly, the same concerns that I and the premier have had.” Smith and Ellis also criticized Ottawa’s progressively lenient approach to drug crimes.

(For what it’s worth, a recent Léger poll found that “Just 29 per cent of [Canadians] believe Trump’s concerns about illegal immigration and drug trafficking from Canada to the U.S. are unwarranted.” Perhaps that’s why some recent polls have found that Trudeau is currently less popular in Canada than Trump at the moment.)

Smith said that Trudeau’s criticisms of the president-elect were, “not helpful.” And on X/Twitter she said, “Now is the time to… reach out to our friends and allies in the U.S. to remind them just how much Americans and Canadians mutually benefit from our trade relationship – and what we can do to grow that partnership further,” adding, “Tariffs just hurt Americans and Canadians on both sides of the border. Let’s make sure they don’t happen.”

This is exactly the right approach. Smith knows there is a lot at stake in this fight, and is not willing to step into the ring in a fight that Canada simply can’t win, and will cause a great deal of hardship for all involved along the way.

While Trudeau indulges in virtue signaling and Ford in sabre rattling, Danielle Smith is engaging in true statesmanship. That’s something that is in short supply in our country these days.

As I’ve written before, Trump is playing chess while Justin Trudeau and Doug Ford are playing checkers. They should take note of Smith’s strategy. Honey will attract more than vinegar, and if the long history of our two countries tell us anything, it’s that diplomacy is more effective than idle threats.

Dan McTeague is President of Canadians for Affordable Energy.

Business

Canada needs to get serious about securing its border

Published on December 19, 2024

Todayville

From the Macdonald Laurier Institute

By Todd Hataley for Inside Policy

US President-elect Donald Trump has made clear his intention to call out Canada on weak enforcement on migration, money laundering, and the cross-border trafficking of narcotics, especially fentanyl.

Until just very recently, Canada has remained largely silent on these issues. Security agencies, such as the Royal Canadian Mounted Police (RCMP), Ontario Provincial Police (OPP), Sûreté du Québec (SQ) and the Canada Border Services Agency (CBSA), have tried to secure the border via memorandums of understanding, framework agreements, and legislated agreements that allow them to share information and even work together.

However, resources are limited for cross-border law enforcement co-operation. CBSA remains understaffed and RCMP Integrated Border Enforcement Teams (which work with US security agencies) have limited geographic reach, leaving much of the enforcement between ports of entry left to police of jurisdiction, who already are hard pressed to provide services to the communities they serve.

The Canadian government’s apparent strategy of largely ignoring the problem is becoming more difficult to maintain. With the United States Border Patrol intercepting increasing numbers of illegal migrants crossing into that country from Canada, it’s clear the porous border is a concern. Exacerbating the situation is the recent discovery of illegal narcotic super labs in Canada – where production far outstrips the market – and Canada’s unfortunate, albeit well-deserved reputation as a haven for global money launderers.

Thanks to Trump’s 25 per cent tariff threat, the crisis is now endangering Canada’s relationship with its largest and most-important trading partner. This announcement sent all sectors of government and the private sector into a frenzy, prompting Prime Minister Justin Trudeau to fly to Florida to seek out an early audience with Trump at his Mar-a-lago resort home. Trudeau’s team spun the trip as proof that the federal government is serious about working with the US to address its border security and public safety concerns.

But with political crises piling up, it will be difficult for Trudeau to also manage the political optics of kowtowing to Trump, who is widely unpopular among Canadians. Spending extra money to appease Trump during the ongoing housing, immigration, and health care crises could make the Trudeau’s popularity nosedive even further. Adding insult to injury, Trump is essentially demanding that Canada do America’s work by stopping illicit goods and people from entering the United States: customs and border security officials generally work on the principle of stopping goods from entering their country.

Trudeau faces many practical challenges, including the need to ramp up the number of border and law enforcement agents who have the skill sets and training required to police offences such as drug production, money laundering, and the cross-border smuggling of goods and humans. Purchasing helicopters and drones to conduct surveillance will do little to aid enforcement, since most goods smuggled across the border pass through legitimate border crossings. RCMP Commissioner Mike Duheme even suggested putting RCMP cadets along the border – a challenging proposition since vast swathes of the border are either wilderness or water. Surveillance is one thing, but the act of enforcement takes skilled people with the capacity to investigate, gather evidence, and articulate that evidence into something that can be used by the courts for convictions. These concerns are not being addressed in this current frenzy to spend money on border security.

There is also good evidence that fortifying the border, or what has become known as forward deployment along the border, does nothing to stop the cross-border transit of contraband goods and people. One need only look as far as the United States-Mexico border to see the failure of forward deployment.

As authorities increase border enforcement activities, the costs of smuggling goods and people mounts for criminals. Eventually, it drives out amateurs, leaving only the professional, skilled, and well-equipped criminal groups. This, in turn, often leads to increasing levels of violence along the border, making interdiction and disruption far more difficult for law enforcement agencies.

Canada has several clear options to address Trump’s border concerns. It can increase the staffing of frontline CBSA officers, including border agents, inland enforcement units that actively investigate and remove individuals from Canada, international liaison officers, and customs processing staff. It can also create a plan for CBSA to take over enforcement between ports of entry. Currently, CBSA enforces entry into Canada at the ports of entry and the RCMP are responsible for the areas in between. Having a single agency manage the border builds capacity and expertise, avoiding inter-bureaucracy competition and confusion.

Canada can also work to better integrate law enforcement, intelligence units, and border services at all levels of government and across international boundaries. Cross-border crime operations are often planned and execute far from the border.

Some of this already takes place, as noted above, but it needs to go much deeper and be more supportive at both institutional and individual levels. This process must also include private sector stakeholders: companies such as FedEx, UPS, and Amazon, as well as freight forwarders, trucking companies, and customs brokers, are all involved in cross-border trade. Their participation as partners in reducing cross-border criminal activity is essential.

Finally, the government needs to designate laws specific to cross-border crime and include meaningful penalties as a means of deterrence.

Hyper-focusing on the border while ignoring other aspects of cross-border crime may be good political optics, but it is a bad strategy. What we really need is functional enforcement – including an integrated process extended vertically and horizontally across all sectors of border stakeholders, at and away from the border, supported by strong policy and legislation. This is the path forward to better cross-border crime enforcement.

Dr. Todd Hataley is a professor in the School of Justice and Community Development at Fleming College. A retired member of the Royal Canadian Mounted Police, he worked as an investigator in organized crime, national security, cross-border crime, and extra-territorial torture. He is a contributor to the Macdonald-Laurier Institute.