How Do You Like Those Tomatoes? — Crooked Timber: Tim Lee takes exception to my post of a couple of weeks ago on James Scott and Friedrich von Hayek, suggesting that I construct a ‘curious straw-man’ of Hayek’s views. Unfortunately, he completely misreads the post in question. Nor – on serious investigation – do his own claims actually stand up.... This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals. Planning in the specific sense in which the term is used in contemporary controversy necessarily means central planning--direction of the whole economic system according to one unified plan. Competition, on the other hand, means decentralized planning by many separate persons. The halfway house between the two, about which many people talk but which few like when they see it, is the delegation of planning to organized industries, or, in other words, monopoly....
Hayek is claiming that markets are superior to planning (which must necessarily be done through a single centralized planner) or organized monopoly (which no-one actually likes). One could perhaps defend Hayek by arguing that there were indeed many people who argued for centralized planning at the time he wrote this essay. But one would then have to contend with the notorious contortions he got into about how Labour’s efforts to introduce planning into the economy would ineluctably lead to totalitarianism. The straw man is baked into the theoretical cake (which as a result tastes pretty godawful)....
When Scott says:
It seems to me that large-scale exchange and trade in any commodities at all require a certain level of standardization.
and later refers to Polanyi’s The Great Transformation as ‘the most important book I’ve ever read.’ he seems to me to be building on Polanyi’s crucial distinction between small scale and large scale markets. Roughly speaking, Polanyi sees local markets as fine, because they are ‘embedded’ in society, and hence do not threaten it. But when long distance trade first becomes unmoored from societies, and then to restructure them along its own principles of order, we start to get into trouble.
Scott’s specific twist on Polanyi’s thought is to identify standardization as a key facet of this unmooring. Local markets are embedded in local structures of knowledge, and rely upon them extensively – people know that Giovanni’s tomatoes usually taste better than Luigi’s, even if they are less regular and have more surface blemishes. International markets require technical standards – in order to buy and sell tomatoes, one has to be able to categorize them as Grade II (with certain defined attributes in terms of color, size, consistency etc), Grade III etc. Scott argues that there is a real and fundamental loss of knowledge that occurs in the standardization process, regardless of whether the standards are imposed by states are by markets. Indeed, he sees the two as going hand-in-hand. Brad DeLong (like Lee) made much of Scott’s critique of the state, but failed to observe how intricately this was linked to a critique of the market....
Hence – when Lee suggests that:
Although Scott specifically declines to endorse Hayek’s policy agenda, I think Seeing Like a State is squarely within the Hayekian intellectual tradition.
he is simply wrong, unless (contrary to what Lee and I both believe), Hayek has written somewhere within his voluminous opus on the problematic tradeoffs that markets face when they become unmoored from local society. This distinction is, I am pretty sure, an inherent part of Scott’s intellectual project.
Lee makes a positive Hayekian case on behalf of standards – this too, it seems to me, is wrong.... The key problem is in his (again standard Hayekian) defense of the processes through which certain rules come to dominate. What makes decentralized economic institutions powerful isn’t standardization but the possibility for competition among alternative standardization schemes. Rubber tomatoes create an entrepreneurial opportunity for firms to establish a more exacting tomato standard and deliver tastier tomatoes to their customers. In real markets, you see competition not only among individual firms but among groups of firms using alternative standards. Markets gradually converge on the standards that are best at transmitting relevant information and discarding irrelevant information. In contrast, when standards are set by the state, or by private firms who have been granted de facto standard-setting authority by government regulations, there is no opportunity for this kind of decentralized experimentation. The problem with this claim is that it relies (as Hayek relies) on quite heroic assumptions about the underlying conditions under which competition occurs.... Perhaps the very particular standards that Lee points to are different. He claims:
The web browsers we all used to retrieve this article conform to a variety of technical standards, including TCP/IP, HTTP, and HTML. … This suite of now-dominant protocols emerged from an intense process of inter-standard competition during the 1980s and 1990s. This competitive standardization process is not a market process—accessing a web page is not a financial transaction—but it is very much a Hayekian one.
Or again, perhaps not, if notorious libertarian-hater Dan Drezner is to be believed. In a detailed study of the adoption of TCP/IP, Drezner finds that state power was the key factor determining which standard won out.... But perhaps, in the absence of government power, we might expect Lee’s arguments to work? Almost certainly not. Hayek-style evolutionary arguments really only work when actors are indifferent between coordination outcomes (i.e. they want to coordinate, but do not care what outcome they coordinate upon).... This applies in spades to Lee’s other example of Hayek in action – the HTML standard. Anyone who has had to optimize web sites for various browsers will be familiar with the fact that different browsers have different ways of interpreting what is purportedly the same standard. And anyone who bothers to look into the politics behind this will be quite aware that Microsoft’s infamous policy of ‘embrace, extend, extinguish’ plays a significant role in this story. Microsoft Word’s .doc standard is an even purer example of how standard-setting processes play out in markets where businesses are competing to set the rules of the game. And if anyone wants to argue that Microsoft Word was an efficient outcome of a competitive process, all I can do is post this image and say: Sir. I refute you thus.
In short then: (1) Lee completely misreads my post. (2) James Scott is not a Hayekian under any reasonable definition of the term Hayekian. (3) Hayekian arguments about evolutionary competition both are implausible in general, and provide a demonstrably bad explanation of how technical standards evolve. (4) And, finally, rubber tomatoes suck. I think that covers everything.
I, by contrast, say that you have to either live in the countryside or live in the city and be really rich to say that rubber tomatoes suck. For those humans who live in the city and are not really rich, rubber tomatoes provide a welcome and tasty and affordable simulacrum of the tomato-eating experience.