Wrong products in wrong markets

Our book club, NoDueDate, has been reading the historical novel Red Plenty, written by Francis Spufford. With well-documented historical references (which the reader can follow in the Notes at the end) the author details how a planned economy painfully fails its participants.

The following exchange occurs at the first business lunch between Chekuskin, a middle man between business and the black market, and a business executive. He’s explaining how his services may come in handy. But the naive Stepovoi points to the Soviet’s central Plan to verify his firm’s goods are all in the pipeline.

‘You’re right, you’re quite right. Indeed they do have to give you the goods. But when, that’s the question, isn’t it? You want them now, toot sweet, because your line is waiting; but why should they care? They’ve got a whole fistful of purchase orders to fill, this time of year, and why should they care about yours? What makes you so special that they should want to serve you first, or at least, serve you soon?’
‘You do?’ said Stepovoi.
‘Correct, old son. But there’s a little more to it than that.

Red Plenty, Chapter- Favours 1964

What Chekuskin illuminates in this brief conversation is that the terms of delivery are at least as important as having access to the goods. A manufacturer is hard-pressed to meet the Plan’s production goals if not adequately supplied with the inputs necessary to run their lines. Yet the bureaucracy has little incentive to respond promptly, to bow to the producers. The power to give and take lies within their books. The firms are at their mercy.

Some goods respond well to a network of supervision. Products that can cause bodily harm, such as drugs, benefit from bureaucratic supervision to ensure their safe consumption (the degree to which is of course always under debate!). People want to know the bridges they drive their cars across won’t collapse and that the food we eat at restaurants won’t give us food poisoning. These types of goods and services interface with the public to a degree that makes a bureaucratic overlay advantageous to the enjoyment of the products.

The widgets needed in the manufacturing example given in Spufford’s story are at the opposite end of the public versus private function gradient. The fixer, Chekuskin, is successful because the products he pushes here and there are completely interchangeable. They are not enhanced by a social overlay. They are fungible. And that is why they are ideal for a capitalist pricing system. Let the price procured from a dynamic trading system of all the suppliers and all the buyers at any point in time, and the resource will gravitate to where it is needed most.

Some goods tend toward the private, and some towards the public. But when they are forced into the wrong market, corruption inevitably occurs to allow an interface with a shadow market.