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You Can’t Plan a Market

A fully functioning free market in Russia. A non-corrupt government in Sudan. A stable democracy in Iraq. A bustling economy in Afghanistan.

Each has been thoroughly pondered and promoted by “experts” across the world, with the respective countries each enduring a hodge-podge of outsider efforts to tweak and toy with their systems. But even for those who believe such prospects have been made into realities, can we really say that the original efforts achieved the idealistic outcomes they proposed?

I am no cultural relativist, and believe that certain fundamental truths embraced by the West should be harnessed and spread as best as they can, yet even when one grabs a hold of such truths—freedom is good, markets work, democracy is messy but workable, etc.—it’s a much different task to determine precise solutions and applications for particular cultures and communities. For lest we forget, even the best systems are still systems: faulty, imperfect human institutions made up of faulted, imperfect human beings.

But alas, although many of the West’s ineffective development efforts flat-out ignore the structural factors (*cough* Jeffrey Sachs), even the “pro-market” and “pro-democracy” reforms still don’t get the structural factors right. Such top-down, “market-based” measures certainly vary in degree and type, but on the whole, the primary problem seems to come from a subtle rejection of what should otherwise be a not-so-subtle truth: spontaneous order is not spontaneous order unless it is spontaneous.

Or, as development economist William Easterly puts it, “You can’t plan a market.”

The West may have conceived an optimal system for leveraging potential and channeling human behavior, but the resulting prosperity of such a discovery seems to allow many of us to forget the “human” element altogether (i.e. what are we leveraging in the first place?). Particularly in America, we seem to forget that there ever was a moment of economic chaos and disorder on our own soil. We forget that even in bustling, well-oiled America, property rights were not always established by your friendly community bureaucrat. (Wild West, anyone?)

In our modern, polished system (with the wear-and-tear steadily increasing), we are tempted to look at other countries and think that their problems are simple enough to be fixed by scribbling a couple solutions on paper and circulating it through the right hands. Even for free-market types, there is a rash assumption that all it takes is a magical structural concoction and a semi-functional government to get a poor country in motion. Forget the individual habits and beliefs of the people on the ground.

Forget the spiritual and cultural factors that limit or propel that society forward. Forget the psychological damage caused by previous (or current) totalitarian rule. “Just give them a market,” we say, “and let them be.”

For Easterly, whose book, The White Man’s Burden, contains an entire chapter on the subject, the evidence flatly rejects such an approach. If post-Cold War Russia is any indication—among plenty of similar examples—markets and democracy cannot be successfully implemented via “shock therapy” from the “planners,” whether administered by the World Bank, the U.N., the U.S. government, or saintly, omniscient Obama himself.

As Easterly explains:

Markets everywhere emerge in an unplanned, spontaneous way, adapting to local traditions and circumstances, and not through reforms designed by outsiders. The free market depends on the bottom-up emergence of complex institutions and social norms that are difficult for outsiders to understand, much less change.

To demonstrate this point, Easterly points to a variety of market fundamentals, many of which include what AEI’s Nick Schulz might call “intangible assets”: trust, social relationships, peace, local customs, property rights, etc. Yet although it might seem that the rules for exchange and other necessary market components would require a simple government edict, Easterly examines how such features are not so easily administered from the top down.

Every market (and democracy) needs checks and balances to prevent exploitative, opportunistic behavior, and the government will eventually need to enforce and cement those necessary rules (through land titles, contract reinforcement, etc.). But how exactly does one begin to develop and gain support for them in the first place? For each distinct culture and community, how does one find the necessary community impetus for embracing the core features of the market? How does one transform the culture to the point where it can properly invigorate and sustain it?

The most simple answer, for Easterly, is in locating, training, and empowering the searchers on the ground, or, more reliably, being one yourself—pushing toward the proper actions and reforms incrementally and persuading others around you in the process. For many, this will surely appear to be a non-answer (“Can’t I just buy a red t-shirt or something?”).

For me, I cannot help but notice that there is a spiritual component as well. This, I believe, should be our primary focus.

Individual transformation? Check.

Cultural transformation? Got it.

But spiritual transformation aside, Easterly points to some striking examples of the successes certain individuals have had by simply pushing in the right directions and sticking to their guns. When it comes to property rights—a feature typically assumed to stem from non-corrupt, well-functioning governments—Easterly says the following:

Property rights are more complicated than the state enforcing them from the top down (and the state itself may be a thief) … Property arises from a decentralized searching for solutions, just like the other complexities of markets. Your right to your property is only as strong as those around you are willing to acknowledge.

Easterly offers several examples of this, but the most striking example comes from the last place you’d expect: Communist China.

In 1978, millions of Chinese were starving to death due to the typical misaligned incentives that come along with centralized economic control (accelerated, no doubt, by the extra-wacko Maoist version). “You got your rice share whether you worked hard or not,” Easterly explains, “and as a result people hardly worked.” Yet in a rebellious act of Pilgrim-esque ingenuity, one community, Xiaogang, decided to illegally subvert the Communist regime, privately agreeing to divide the land up among themselves, with each keeping the output of his own (a novel idea!).

The outcome: “Rice production in Xiaogang shot up …. [and] the results were too spectacular to stay secret for long.” Neighboring villages soon mimicked Xiaogang’s approach, and in what Easterly calls a “spontaneous outbreak of property rights,” the adopting villages followed in emerging as prosperous beyond the norm.

Unable to deny the positive economic impact of individual farming, the planners at the top were forced to give way. In 1982, the Communists finally made the approach official, approving individual farming for all of China. Within only two years, every single commune across the country had disbanded voluntarily. (But what about all of those “authentic communities?!”)

Easterly connects the dots:

Gradualist, homegrown reform in China did much better than did outsiders’ fantasies of shock therapy in Russia. Piecemeal reformers, foreign and domestic, can try to move toward better systems that are sensitive to local conditions and that unshackle the dynamism of individuals everywhere. The dynamism of the poor at the bottom has much more potential than plans at the top.

In our efforts to promote the truths and hope of the free market across the world, we mustn’t forget that the success of those markets is fundamentally about the triumph of people. Such a triumph cannot be elevated without discovering and harnessing the proper values, cultural outlook, and (I believe) spiritual transformation, and such features cannot be invented or sustainably implemented by lofty, unknowing outsiders.

It is we—the searchers—who can make the real impact, and I say “bottoms up” for that.