What fails better?

David Henderson on private companies like Walmart filling the gap while Flint, Michigan’s government flounders to provide safe water to its citizens.

The point I’d add is that failure happens in government and private companies. That’s a fact. There’s no getting around it. That’s why Walmart is closing 100+ stores.

There never has been an organization of humans that only produces successes. We live in a trial-and-error universe.

The question then becomes what handles failure better?

I wrote about this in a series of three posts that can be accessed here. In short, I think there are 3 things to look for in systems that handle failure better:

  1. Lots of independent trials. In a trial-and-error universe you can never predict what works and what doesn’t, so it helps to try lots of stuff.
  2. No single point of failure. Think Death Star. And, yet the First Order didn’t learn from the Empire’s mistakes! Just like one generation of central planners don’t learn from previous generations. They believe they will do it better.
  3. How far away the decision-makers are from the benefits and cost of their decisions. The further removed they are, the less careful they will be in their decisions.
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3 thoughts on “What fails better?

  1. Perhaps the real danger of central planning is not so much the issue of information as Hayek argued, but that of a bureaucratization of economic life. What is missing in government bureaucracies is not always the information as it is the motivation to act on information. What is missing is the willingness – or the necessity – to respond to market signals. A capitalist firm responds to changing prices because failure to do so will cause it to lose money. A government agency ignores signals because bureaucrats learn that doing something is more likely to get them in trouble than doing nothing (unless and until that doing nothing will – or already has – resulted in absolute disaster).

    • No disagreement there. As Russ Roberts likes to say, “Capitalism is a profit and loss system. Profits encourage risk-taking. Losses encourage prudence.”

      I think that’s profound. What happens if you reduce or remove losses (at least, for awhile)? You get risk-taking, with less prudence and bad things happen.

      What happens if you reduce or remove profits? You get less risk-taking and we discover far fewer good things.

      Bureaucrats tend to want to have their cake and eat it, too. I know I have worked for a few such bureaucrats. One sticks out in my memory as wanting to chase high-reward projects for the firm, but only those high-reward projects without the associated risks.

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