The continued rise and effectiveness of Information technology makes centralized economic planning highly possible

A Thread.

After the fall of the Soviet Union most economists concluded that central economic planning is highly inefficient and given to suboptimal performance due to their inherent information problems. Nobel prize winning economist Friedrich von Hayek in 1945 wrote two major

problems when it comes to centralized economic planning: the problem of local information such as knowledge about individual preferences and the
problem of global information including an accurate knowledge of relative scarcities

Let's look at the first problem. Hayek asserts that a centralized planning system would have to make assumptions about the needs and preferences of individuals since a central planning board would
not have access to localized, individual information. Let's look closely at this.

While individual knowledge and interests may initially be known only to the individuals themselves, these individuals reveal their preferences
through their marketplace and online behaviors. For example, when an individual makes repeated purchases through Amazon, the

transaction history of the individual is collected and processed through data mining tools that enable Amazon to profile the interests of the customer in such a way as to enable the recommendation of products that the customer might not have considered purchasing

this kind of mechanism requires intimate knowledge of a given customer's interests and needs. To facilitate this business model, Amazon employs analytical algorithms run against a wealth of data it collects on its customers such as previous transactions, interactions with

Amazon such as clicks and searches, wish lists, and a variety of other factors. Business models such as these are predicated on the notion that individual information can be known to organizations at least as well as it is known to the individuals themselves.

Online companies such as Amazon by no means have a monopoly on these kinds of techniques. These examples highlight the growth in the trend of collecting personal information and selling it as a commodity. Many of the most dynamic and profitable companies such as Google and

Facebook base their business
models on this notion. Rather than paying these companies for their services, consumers allow
them to harvest information revealed through their interactions with these information systems. So we can clearly see that despite the fall of communism

most economies are in fact planned by large multinational corporations. Let's look at the second problem. Hayek asserts that that central planning would be inefficient due to the rapidly changing nature of economic conditions and the inability of centrally-determined plans to

adjust to the changes. Hayek stipulates that central planning would be possible if economic
conditions did not deviate much from the conditions that were factored into the creation of the
plan.Hayek also argues that plans which do not take into account changing dynamic market

conditions would inevitably fail to be efficient. Let's look at this problem closely. While such a centrally planned economic system may have been possible only in the realm of theory at the time Hayek was writing, several developmental changes in information technology

make the promise of making such a system a reality. For example,
real-time information about supply and demand conditions is currently being made available through modern inter-enterprise systems such as supply chain management systems. A supply chain is the network of actors

and activities that are responsible for moving a product along its
distribution channels from production to retail. The supply chain consists of the
producers of the raw materials that go into the components of a product, the manufacturer who
assembles various components

into a single product. the wholesalers who distribute the product to retail stores and the retailers themselves who sell products to consumers. Supply chain management systems track, manage and optimize the movements of goods along these
distribution networks.

However, in order for a
central planning system to be efficient, all the information in all these individual supply chain
management systems would need to be integrated and aggregated to represent the supply and
demand conditions for all products in the economy.

This is indeed possible through the idea of the internet of things(IOT) in which everyday objects should have a presence on the Internet. In the IoT paradigm, everyday
objects would be equipped with identification, sensing, processing and communication
capabilities that would

enable them to have a presence on the Internet and share data about their status with online web servers. This sounds like science fiction but it is already happening as we speak. It is can therefore be clear that the rise of development of information technology makes the

possibly of economic central planning possible.

Research PDF source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2524877

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