Freedom in Our Lifetime

A successful implementation of an idea in a particular time and circumstance may not produce the same results elsewhere. This recognition of the indispensable role of local knowledge is critical to understanding why top down solutions are dangerous. When an unsuccessful top down solution is forced upon a people through government, the accountability feedback mechanism does not function well. Instead of trying something else, politicians save face and ask for more funding.

A classic example of a government top down action that had horrible consequences is Chairman Mao’s furnace mandate as part of the Great Leap Forward. From Wikipedia:

With no personal knowledge of metallurgy, Mao encouraged the establishment of small backyard steel furnaces in every commune and in each urban neighborhood. Huge efforts on the part of peasants and other workers were made to produce steel out of scrap metal. To fuel the furnaces the local environment was denuded of trees and wood taken from the doors and furniture of peasants’ houses. Pots, pans, and other metal artifacts were requisitioned to supply the “scrap” for the furnaces so that the wildly optimistic production targets could be met. Many of the male agricultural workers were diverted from the harvest to help the iron production as were the workers at many factories, schools and even hospitals. Although the output consisted of low quality lumps of pig iron which was of negligible economic worth, Mao had a deep distrust of intellectuals and faith in the power of the mass mobilization of the peasants.

If an entrepreneur tried a backyard furnace and failed it would not be a big deal. Innovators are constantly experimenting and trying to figure out ways to create value for other people. A positive profit means the entrepreneur is creating more benefits than the costs he is incurring. The profits signal to other individuals that they should consider doing something similar. No profits, and the business venture isn’t worth it. Read More »