Prices, efficiency and `know how'

It is one of the progressive features of capitalism that the process of competition forces some degree of convergence upon least-cost methods of production (even if the cost in question is monetary cost of production, which reflects social cost in a partial and distorted manner). Hayek reminds us, and rightly so, that this convergence may in fact be far from complete. Firms producing the same commodity (and perhaps even using the same basic technology) may co-exist for extended periods despite having quite divergent costs of production. If the law of one price applies to the products in question, the less efficient producers will make lower profits and/or pay lower wages. This situation can persist provided the mobility of capital and labour are less than perfect.

The question arises whether convergence on best practice could be enforced more effectively in a planned system. We believe this is so. If all workers are paid at a uniform rate for work done, it will be impossible for inefficient producers to mask their inefficiency by paying low wages. Indeed, with the sort of labour-time accounting system we have advocated elsewhere (Cockshott and Cottrell, 1989, 1993), differentials in productive efficiency will be immediately apparent. Not only that, but there should be a broader range of mechanisms for eliminating differentials once they are spotted. A private firm may realise that a competitor is producing at lower cost, but short of industrial espionage may have no way of finding out how this is achieved. Convergence of efficiency, if it is attained at all, may have to wait until the less efficient producer is driven out of business and its market share usurped by more efficient rivals. In the context of a planned system, on the other hand, some of the managers or technical experts from the more efficient enterprises might, for instance, be seconded as consultants to the less efficient enterprises. One can also imagine---in the absence of commercial secrecy---5 economy-wide electronic bulletin boards on which the people concerned with operating particular technologies, or producing particular products, share their tips and tricks for maximising efficiency. The present popularity of this sort of thing amongst users of personal computers suggests that it might easily be generalised. #./price.tex#