Dynamic Efficiency in a Planned Economy: Innovation and Entrepreneurship Without Markets

Abstract

A common Austrian criticism of socialist economic planning points to its supposed inability to boost the dynamic efficiency of an economy, given that adequate business innovation and efficient social coordination cannot be achieved in the absence of private property and market processes. This conception presents two main failures. On the one hand, it is based on a circular argument: dynamic efficiency requires free exercise of the business function and the market, given that said efficiency is defined as that same business function and market. Besides, new information and communication technologies can mobilize dispersed information without markets. On the other hand, planning is compatible with diverse means of decentralization at the decision-making stage. There are institutional formulas that allow fostering decentralized corporate innovation and entrepreneurship in a framework of social ownership. Thereby, Investment Councils in different branches can be responsible for selecting new business projects from among all the proposals received from entrepreneurs, within an adequate system of incentives.