Clinging to Old, Failed Mantras

No Exceptions

Command and control economies are notoriously wasteful, inefficient, and destructive of wealth.  This has always been the case.  No more so than in modern China.  Because the country is so vast and the population so huge the inefficiencies and waste increase geometrically.  

Let's take the matter of wind farms for power generation as an example.  We are familiar with the hard economic reality that wind farms only work if they are heavily subsidised by the state.  This is not a problem in China because the state fundamentally owns all capital and all labour.  But what it does do is turbo-charge the wastefulness and capital  destruction intrinsic to wind farms.

The centralist planners in Western countries (that is, those who believe that the state sector knows best when it comes to wealth creation, production, distribution, and economic growth) can only look at China with green envy.

Western idealists often portray China as a country that “can get things done,” be it investment in infrastructure or the expansion of renewable energy. . . .  On March 21, China announced it will increase total wind power capacity by 22 percent to 139 gigawatts (GW). This is right on track to achieve its ambitious target of 200 GW by 2020.

As a comparison, the United States has 74 GW installed at the end of 2015 and no ambitious plan to boost it to 200 anytime soon. [Epoch Times] 

Western advocates of command-and-control economics use data like this to argue that central planning is much better than free market productivity.  China is able to announce an ambitious target, then marshal its capital and labour and, hey presto, things get done, pronto.  It's like the days of the old Soviet Union which periodically committed itself to increasing the supply of goods and services to ordinary plebs, and so built hundreds of large department stores, only to realise eventually that the stores remained empty, with little to nothing on the shelves.  The only constant was the long queues at the bread shops.

At this point the command-and-control state hits two, insuperably thick blast walls.  The first is that human economies (especially of large countries) are so complex and intricate and interdependent that no-one can devise a comprehensive plan, let alone have any hope of executing such a plan.   Secondly, human action and motivation is so subtle and complex that the central planners can never predict, let alone accommodate the whims of personal-utility-maximising human beings at every level and in every corner of the nation.

The upshot is a vast waste of human and monetary capital.  It has ever been thus.

. . .  China’s wind farms are under-performing,” writes Michael Davidson at The EnergyCollective. On the surface, there are two major problems that lead to windmills being built but not being used.  The first reason is that they are not connected to the national power grid. According to Michael Davidson’s latest estimates, as much as 20 percent of total wind capacity wasn’t connected to the power grid in 2012, although there have been improvements since.

Mmm.  Not bothering to connect the whirling behemoths to the national grid.  A bit of an oversight there. Then there is the problem of sand.  What? we hear you ask.  What's sand got to do with it?

Until the wind energy can actually be transported to where it’s needed, the windmills will not only stand idle, but also be blasted by sand 24/7 because the northeastern regions not only have a lot of wind, but also a lot of sand, which wears on the turbines.

One of the things we do know about the economics of wind turbines is that they are hugely capital intensive to put up, but the maintenance costs are prohibitive.  That is why they lose money in the West wherever they are situated, unless they are subsidised by taxpayers to an extent that makes Bill Gates seem positively scroogie.  But in a place where sandstorms are the norm?  Forget it.  But the Plan said . . .

Then comes the human factor--the motivations and incentives that dominate human action.

This wasteful investment is a direct result of a completely warped incentive system on the central and local government level, writes Mark DeWeaver in his book “Animal Spirits With Chinese Characteristics.”

“As the [central government] targets are for capacity rather than annual production, an incentive was created to build in the windiest locations regardless of their proximity to the existing transmission network or the economic feasibility of installing new power lines,” he writes.

Because local governments compete against each other on the capacity targets, they went to work and built the capacity irrespective of economic feasibility. Even former vice minister Miao Wei said Chinese wind farms are mostly image projects with the sole purpose of making the local official look good.

 Wind farms are "mostly image projects".  At so many levels this will be true in China--as it has been in the West.  But because Chinese operate in a command-and-control economy, the wastefulness on display in the West is magnified many, many times over in China.  While  China needs to industrialise rapidly and extricate the vast majority of its citizens from bone grinding poverty, its repeated dislocation and destruction of capital through its hubris in clinging to central planning and the belief that the state knows best, means that its window of opportunity is fast closing.

What a tragic waste.