Perestroika's Missing Ingredient E. C. Pasour, Jr. Perestroika, Mikhail Gorbachev's widely discussed restructuring of the Soviet economy, has done little to improve Soviet living standards. Unfortunately, a necessary ingredient for economic coordination in a productive economy is missing in Gorbachev's perestroika. In fact, so long as the restructuring of the economy fails to heed the lesson from the socialist calculation debate that occurred more than 50 years ago, perestroika is doomed to failure. In the 1920s and 1930s, Ludwig von Mises and F A. Hayek demonstrated that successful economic planning is impossible in a centrally directed socialist economy in which market prices are necessarily absent. Without market prices there is no possibility of calculating costs, no meaningful profit and loss signals, and no way to determine the goods and services most highly valued by consumers.
Decentralized markets bring about economic coordination in two ways.
First, market prices coordinate and transmit information to various participants in the competitive entrepreneurial market process more completely and accurately than can be done through central direction. Indeed, Hayek showed that a great deal of economic information is highly specialized to time and place and that these data cannot be conveyed in statistical form to central planners. Consider the land market. A tract of land may have a number of alternative uses, including housing, industry, recreation, and agricultural production. The land market is unique in its ability to channel land to different uses, taking into account the supply of land and the demands for its various uses.