This blog entry is posted in conjunction with our Podcast # 123 – Making It Up!

Existence is an incomprehensible mix of chaos and order. Sometimes the emphasis seems to be on chaos, sometimes on order.

It is the chaos that makes it interesting – especially to the sort of people who become entrepreneurs. For us, few things are more horrible than the thought of a dull, predictable life. It is through the unpredictable that we make our fortunes – and sometimes lose them.

Even as we embrace the chaos, we fear it. Humans have a deep-seated psychological desire to control their lives. If life teaches anything, it teaches that such control is impossible. There is a lot of truth behind the joke, “If you want to make God laugh, tell Him your plans”.

The fact that control is therefore impossible only increases the desire for it. This explains the popularity of planning. It generates an artificial certainty that has nothing to do with real life but which in itself is very reassuring.

This is not to say planning is a bad idea. It is a necessary first step in the process of organisation, without which there can be no business.

However, there is a special version of the Law of Diminishing Returns that applies to planning. Advanced preparation is essential, but there is such a thing as being over-prepared.

In particular, as planning becomes more elaborate, the feeling of artificial certainty it engenders becomes all-encompassing. The organisation, and everyone involved in it, becomes wholly reliant on “The Plan”. This destroys all flexibility and initiative.

Even Vladimir Lenin, the founder of a state dedicated to the principle of “scientific” centralised planning, came to realise that this was a problem. After an initial period of the tightest possible regulation of the economy, he relaxed central controls a little and allowed a degree of private enterprise. People could use their initiative and adapt to changing circumstances. Predictably, there was a dramatic increase in general prosperity.

However, Josef Stalin, Lenin’s successor, reversed that policy. He had supported Lenin on economic grounds but, on attaining power himself, he had good political reasons to centralise control: he did not like the idea of people using their initiative.

His principal mechanism of economic control was a series of Five Year Plans. These spawned a host of imitators. Marxist regimes all over the world had their own Five Year Plans, on the basis that imitation is the sincerest form of flattery, but Stalin had some unlikely fans among those who claimed to be anti-Marxists. Adolf Hitler, for example, stole quite a few ideas from Stalin, mostly the bad ones, and added his own twist to them. He imposed a Four Year Plan on Germany – presumably on the assumption that his anti-Marxists ought to be more efficient than the Marxists and would therefore get the job done 25% quicker.

Centralised planning can be very efficient at dealing with relatively simple, routine tasks. When it focuses on a particular target, it may well achieve it. The problem is that, in focussing on those targets, it ignores everything else – and the everything else may be what really matters.

The world is a complex place, changing rapidly – and the rate of change is increasing all the time. Even the most efficient central planning will always lack the feel for what is happening on the ground, and the initiative and flexibility to adapt to it.

This applies to states and to individual businesses. The paradox of planning is that the best plans expect the unexpected, and adapt to it.