by Brian Balfour
Senior Vice President of Research, John Locke Foundation
All economic activity is planned. Buying, selling, saving, investing, and all other activities are the result of someone’s plan.
Perhaps the most impassioned, and at times violent, debate of the past two or three centuries has been over who is to do the planning.
As Friedrich A. Hayek wrote in his 1945 essay “The Use of Knowledge in Society”:
This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.
Violent revolutions have been waged over this question, so it is a matter that digs far deeper than just economic efficiency (although that question is not to be taken lightly because it can determine whether or not a society’s people are fed).
As Hayek pointed out, at one end of the spectrum is what is commonly referred to as central planning — an economy in which a centralized authority figure or group decides what goods and services are to be produced, and often times how they are to be distributed and at what price.
On the other end is an economy in which individuals, be they buyers or sellers, make their own production, pricing, and consumption decisions free from government interference or influence.
There is no doubt that the latter is characteristic of a free society, while central planning is an attack on freedom.
Free people should be able to make and execute their own economic plans without being compelled to obey commands from a state planning commission or limited to buying only what some government bureaucrat has determined will be produced.
Indeed, in a free, competitive, market-based economy, it is the will of the people that determines what goods and services are produced. The buying preferences of the masses directs how society’s scarce productive resources, like land, labor, and capital goods, are deployed.
Conversely, in centrally planned economies it is a small group of politically powerful people directing the use of such resources.
Clearly, when economic planning power shifts into the hands of government agents, it comes at the expense of the people’s right to make and execute their own plans.
As such, every public policy decision pushes society in one of two directions, closer to determining who is to do the planning.
Which brings us to the latest massive “economic incentive” package announced in North Carolina. The state government, along with Chatham County’s, has pledged $1.25 billion worth of tax breaks and incentives across 32 years to a Vietnamese electric vehicle manufacturer. This marks the continuation of a disturbing trend of eye-popping corporate welfare deals made by the state over the last couple years.
Defenders of the deal will claim that it’s purely a “win-win” scenario because the manufacturer will only receive the tax breaks or incentives if they “create” a certain amount of jobs.
If they don’t meet the hiring goals, no more tax breaks or incentives will be granted. No harm, no foul, right?
Recall the key dispute Hayek emphasized over who is to do the planning.
The car manufacturer is expected to invest more than $4 billion worth of resources into the plant, including 2,150 acres of land.
That means $4 billion worth of scarce productive resources, like steel, cement, computers, labor, and machinery will be directed to the production of electric vehicles based not on consumer demand, but political preferences.
A small group of government bureaucrats determined for us that this would be the best use of those resources and made a deal to make it happen.
Whose plan is being carried out? Not the people’s.
The wannabe central planners used their political clout to ensure their preferred plan for these scarce resources override the plans of individual consumers and entrepreneurs, whose plans would very well have employed those resources elsewhere.
Consumers’ choices will be shaped by this decision. The options for workers will be shaped by this decision. The resources used by this manufacturer will no longer be available for other businesses and entrepreneurs to use to fulfill their plans.
Every economic public policy decision pushes us closer to either central planning or a free market.
Freedom recedes as the needle moves toward central planning.
All economic activity is the result of someone’s plan. Government economic incentives serve to override the people’s freedom to pursue their own economic plans with the plans of the political class.