Inside me last post I have described just a few of the many terrible planning decisions described in Alexander Field's book. Economic impact of US mobilization into World War II. I concluded by saying that while some of the blame may lie at the feet of political corruption and incompetence, I don't think that is the main problem. In this post, I will use the example of another problem area of war planning, logistics and distribution, to explain what I think the main problems were.
After reviewing the data, Field concludes that „the productivity record of military manufacturing and other military rationing industries has often been disappointing.“ In both cases, impressive production indicators reflect the deployment of even more impressive amounts of labor and physical capital, much of which is intermittently idle or inefficiently used. ”
He cited case after case of supplies being lost, wasted, shipped to the wrong location, or taking too long to reach their destination. But he also points out that there are a surprising number of constraints and factors to trade off against each other, and there are no clear answers on how to deal with the situation.
Wartime military allocation requirements posed optimization challenges that were far from simple. The objective function to be maximized had multiple arguments instead of one or just a few arguments. (During the war, no one used such words or raised issues with such terms.) Ordering port managers to load ships and making this a desirable experience It may seem obvious that promoting logistics as a rule will improve logistics efficiency. However, this may not be the case if, as a result, the vessel remains in port for an extended period of time. It may not take long for important goods to reach their destination. If the result is more goods being sent to the wrong destination, that may not be true. Whether that means ships have to spend more time and fuel delivering cargo to multiple locations may not be true. Did that lead to more items being damaged in transit, or did it mean that the items were buried at the bottom of the hold and higher priority items took longer to reach the combat units? That may not be true.
Alternatively, it may be more efficient to maintain the ship as a maritime warehouse at sea than to unload the ship in a location where port and storage facilities are inadequate and there is a risk of spoilage, theft, deterioration, or other forms of disposal. Some things may seem obvious. However, this may not be true if this practice effectively removes cargo ships from the available convoy fleet for weeks or months.
What rule of thumb should port officials and port planners follow in such situations? Do they shorten ship delivery times? Do they pay the price of carelessly loading and sending out half-full ships? Will the product be damaged in transit or make multiple mistakes at the destination? To make the process more efficient, we certainly needed personnel trained in logistics who could analyze operations at a macro level, rather than just piecemeal analysis of individual components. But more was needed. These officers will have the means to systematically and quickly evaluate a vast number of potential programs (coordinated or ordered levels of activity) based on how well they achieve identified goals. I needed it.
Unfortunately, planners lacked „the means to systematically and quickly evaluate“ how to make these tradeoffs. As a result, military deployments were frequently conducted in a messy, inefficient, wasteful, and counterproductive manner.
All the blame can be placed on the stupidity of trying to plan or reason out how to trade off all these margins against each other. However, that would be a misleading and incomplete answer. Markets require individual companies to plan and make decisions about how to trade off margins with each other. I believe that an important difference can be identified from the ideas in Vernon Smith's book. Rationality in economics: ecological and constructivist forms.. While wartime planners relied solely on constructivist rationality, in the market individual firms not only rely on constructivist rationality, but also use more environmental considerations in the form of prices, profits, and losses. We also get feedback (and incentives to respond to that feedback) from friendly rationality. Smith states succinctly:
The two concepts are not inherently opposed. The problem is: do not have About constructivists versus Ecological rationality, as some might speculate or like, and the fact is that the two can and do work together. For example, in the process of evolution, constructivist cultural innovations provide variation, while processes of ecological fitness act as selection.
Modern shipping, transportation, and distribution companies need to figure out how to adjust the same kinds of margins that Field identified as confusing to wartime planners. However, there is important feedback in the market that is not available to central planners. One company may decide to prioritize turnaround time based on a very convincing argument from executives, while another company may decide to prioritize turnaround time based on a very convincing argument from executives, while another company may decide to Based on your discussion, you might focus on optimizing different margins. But prices and profits indicate which of these tradeoffs was actually the best, giving both companies information and an incentive to adjust. The market process provides endless opportunities for countless iterations, optimizations, and alternatives to be tried, tested, filtered, selected, and optimized.
Modern distribution is a true marvel of economic development, working in a much better way than what was done during World War II. But this difference in performance is not due to the fact that wartime planning was done by incompetent and corrupt bureaucrats, whereas business was run by wise and well-meaning saints. The main problem is that central planning necessarily lacks a feedback method to evaluate the different variations that may be adopted, whereas market operations always have that feedback from prices and profits. There is also a strong incentive to receive feedback and respond quickly to that feedback. The constructivist rationality of market actors is also tempered and guided by the ecological rationality of market processes. And planners, no matter how well-intentioned, can't replicate that.