One more thing. Here is a graph of a supply chain:
The first thing to notice is that it looks more like an ecosystem web than a human-planned thing. Also notice how many lines connect between suppliers.
Every single line on that graph represents information and created value.
Manufacturers don’t just pick suppliers from a phone book. They send out RFPs, they order samples and test them for conformance to their specs, and they work with suppliers to improve materials, eliminate inefficiencies, and create software the two of them can use to share information constantly. They use messaging systems and standards like ISA-95 to transmit information about processes, inventories, materials and specifications. Over time, a graph like the one above emerges. Highly efficient, with lots of redundancy. Each link in it was part of a planning process, but the entire structure was emergent. And if you think that is complex, consider that if you could drill down to any supplier, you’d see an underlying graph just like this one.
Think about the complexity of that. Now imagine millions of businesses, each with its own supply chain graph, with overlapping supply chains between businesses. It is hellishly complex, evolved, and no one understands it just like we don’t understand neural networks or ecosystems.
I will give you an example of how these systems get more efficient over time. A factory I was at had a problem with a packaging line for a product. Specifically, the boxing line. Once in a while a machine would jam or a box would get torn on the line or something. So some process control engineers came in and analyzed the aituation, and found that the jams only happened when paper from certain suppliers were used. (They use many suppliers for each material for redundancy, @Kimstu)
The problem turned out to be that the specifications for the paper were too loose. The paper was supposed to be 20 lb, but since no one makes perfect products the specification was 20 lb ± .5 lb. Every single supplier was in spec. However, the suppliers that never had jams had tighter specs, say ± .2 lb (from memory, may not be exact but doesn’t matter). This was determined because factories track every product back to the suppliers of the raw material and do periodic testing for specification adherence.
Anyway, the paper that was in spec but over a limit (say, 20.4) would cause jams some times. Not often, but enough that it was worth fixing. So they released new, tighter upper specifications. Say, 20lb -.5 +.2. The paper manufacturers who couldn’t meet the new specs dropped off the supply chain.
Now here’s the cool part: The company that had the tightest tolerances realized that they could consistently produce thinner paper and stay in spec. So their average thickness, was more like 19.7lb ± .2 This saved paper, increased their profits, and everyone was happy.
But then other paper suppliers saw their market share being eroded, and also realized they too could make thinner paper and make more money. So they put in the work to improve their own processes, and got back into the supply chain.
The end result of this was thinner boxes for cereals and other goods. Perhaps you’ve noticed that such boxes are a little thinner these days. Think about how much material has been saved, fewer trees cut down, etc. A huge environmental and economic win across many sectors of the economy. All because some engineers in a plant had a small problem to solve.
In a free market, this happens all the time. Millions of peoole serving their own interests by making things better for everyone. This is the hidden world of economic growth that central planners can’t see, and that people who want to tear things down and ‘build back better’ have no appreciation for.
And you think central planners can do better? Do you think macroeconomists who analyze economies with aggregates like ‘production’ and ‘labor’ can possibly suss out what might be going on when growth slows or speeds up? Do you think the behaviour of that complex thing can be predicted over 10 years when a policy change happens?
The answer is no, and the evidence for that is that central planning on a large scale has never worked well, and economist’s predictions of the future have proven to be no better than a simple model like regressing from the present to the mean, or throwing darts at a board.