dolution

The Making the Connection emphasizes that a key difference between market economies and centrally planned economies, like that of the former Soviet Union, is as follows:

In market economies, entrepreneurs and managers who have their own money on the line make decisions about which investments to make and which technologies to adopt. Nothing concentrates the mind like having your own funds at risk.

But in large corporations, investment decisions are often made by salaried managers who do not have their own money on the line. These managers are spending the money of the firm’s shareholders rather than their own money. Why, then, do the investment decisions of salaried managers in the United States tend to be better for the long-term growth of the economy than were the decisions of salaried bureaucrats in the Soviet Union?