Tuesday, January 27, 2015

Plan or strategy?

In Austrian school economics, and economics influenced by the same, there is often talk of entrepreneurs as making plans. This turns up, for example, in Mark Casson's entrepreneurial theory of the firm (pdf).

As someone who is actually in business, I find the notion of plan somewhat problematic. The business I am a principal of does not make plans in any strong sense, it adopts strategies. It is not about a planned-out sequence of steps, but making decisions about purchases, procedures and communication. Yes, they are aimed at achieving certain outcomes, but in a flexible and operational way.

I suspect the plan usage is something of a holdover from when manufacturing was the dominant mode of private production. Making things does involve a certain amount of planning (and the bigger the thing being made, the more than is true). But, even manufacturing, firms are engaged in commerce, so are about (if they are to be successful) connecting to customers, and you do not control your customers or your competitors. So, the planning of manufacturing is still embedded within commercial strategies.

This is more than a semantic point. Operational strategies are more flexible things than plans. Strategies typically do not regiment decision-making, they coordinate it. The trick is not to target a precise outcome, but to have an outcome within the ambit of success for your commercial strategy. Which procedures such as, for example, just-in-time logistics make easier to achieve.

At a macro level, this makes coordination between commercial strategies somewhat easier. It also makes the entrepreneurial function less like something bureaucratic and more what it is--something very hard to replicate in a highly bureaucratised environment.

Which is my other objection to the plan usage. It does not make clear enough that what goes on in commerce and what goes on in the apparatus of the state tend to be significantly different.

ADDENDA:  The plan usage may also be, as Nick Rowe suggests in a comment, a response to socialist planning claims. In fact, that is more likely.

[Cross-posted at Skepticlawyer.]


  1. Lorenzo: "I suspect the plan usage is something of a holdover from when manufacturing was the dominant mode of private production."

    I'm not 100% sure about this, but I think the Austrians were getting back at the socialist central planners, for whom "planning" was a good thing and contrasted to the unplanned chaos of the market. The Austrians were saying It's not a distinction between planning and not planning, but about who does the planning and what happens when things can't go as planned. Hayek and Mises vs Lange and Lerner, in the great socialist planning debate. I think the "plan" usage is originally Hayek's.

    To which your point fits right in.

    1. Having jogged my memory, I do remember thinking that it was a response to socialist planning claims when I first came across it, so your suggestion is very plausible. Particularly since so much Austrian economics seems to be a reverse foil to Marxism.