The mainstream economics tells us that era of central planning is over. The central planning was relic of big socialist regimes who centrally planned production, investment and distribution. That is all over and we live in modern capitalist economy, the laissez faire free markets, where the principles of supply and demand, the decisions of consumers and market forces determine everything.
The motivation of this article comes while i am reading 'Essential Galbraith' which is a selection of essays on interesting subjects. If you know Galbraith, he had a strong critique of mainstream economic theory, which he described as neoclassical system. Galbraith's empirical analysis of objective reality on economy and politics is a scathing attack on mainstream theory.
The modern capitalist economy comprises of oligopolies, ruled by giant transnational corporations. They have strong control over the markets, the politics, the consumer and society. Galbraith, identified a bimodal view of economy where two forces exist. First are giant oligopolistic corporations (the ones which i just described) and others are smaller entrepreneurial competitive markets. Galbraith roughly estimated in his time that nearly half of economic output is produced by giant corporations while rest of the half is produced by very numerous smaller enterprises. Now the oligopolies have gotten bigger, concentrated and more powerful and competitive enterprises have shrunk further.
Majority of the output is produced by giant corporations. The corporations control supply of the large share of economic output but more importantly they also control the demand! The demand is not just generated through conditioning of consumers, advertisements and popularizing the products. The dynamics is deeper. The corporations dictate public policy, gobble state subsidies and financial support as they also control the politics. This is very prominent in Defense sector where military industrial complex produce hundreds of billions of $$$ of hardware and through lobbying & political influence make sure that their equipment will be purchased by the government.
Recent industrial policy in America is also a clear example. Due to geopolitics, rise of competitive Chinese corporations, the interests (oligopolistic market power) of American corporations are undermined. To safeguard the interests of American enterprises, the Govt has embarked upon massive subsidies to its corporations (especially in cutting edge semiconductor, green energy, batteries, defense areas etc). And to be sure, interests of America and interests of American corporate giants are the same. On other side, China also has its own industrial policy and central planning since many decades (like Make in China 2025) to strategically develop its own corporate giants.
Modern corporations especially in oligopoly environment where they have control over the markets and government make their business and investment decisions with planning. The planning is done by what Galbraith describes as 'Technostructure' of modern corporation. The modern corporations operate with a degree of certainty (due to their powerful control over markets and politics) so they have liberty to control the prices, output and innovation (through IPs etc). What shall be produced, how much to produce, at what prices and how to sell it - these things are determined by planning in technostructure.
Aggregate all this to macroeconomic scale as giant corporations occupy much of economic areas - defense, electronics, telecom, automobile, appliances, insurance, banking, fast food, Pharma etc. The overall economy is a centrally planned system which is led by respective technostructures. But the planning of giant corporations is in realm of private sector. Isn't it different from state central planning? Here, the Galbraith goes further and explains how corporations have penetrated deeply in Government and political institutions. The planning of corporations is supported by public policies, govt subsidies and federal spending. In fact, public policy is crafted by lobbyists and think tanks and rubber stamped by legislature. Many politicians and civil servants are also part of revolving doors between govt and Wall Street. The overall exercising of power by private technostructure is really to that of the state. All this is really not surprising.
But this again shows bankruptcy of mainstream economics that preaches outrageously nonsensical theories on free markets, sovereign consumer and other abstract principles that are from previous centuries. The reality is that much of the economic production in countries, whether old socialist or modern capitalist, is done through central planning. In modern capitalist countries, the existence of central planning is denied and power of giant corporations and their political outreach is seldom acknowledged.