David Frum


Nerdiness from Noah: How Tropico Taught Me Central Planning Can't Work

In 2002, PBS aired a documentary called The Commanding Heights: The Battle for the World Economy. The documentary traced how the forces of free-markets competed against central planning for most of the 20th century (it was like a sober version of those Keynes v. Hayek rap videos).

One notable section focused on the victory of the Labor Party in the British election of 1944. It’s a fascinating section where Labor candidates from the period talk openly about their plans to nationalize industries, institute central planning, and build a welfare state that proactively tramples on “the sacred notion of private property”.

Video screenshot

The disadvantages of central planning control used to be a fiercely debated topic in political life. One game that captured the challenge of running a controlled economy was the Tropico series. I may have started reading Milton Friedman in high school, but it was Tropico that taught me why we don’t use wage controls.

Tropico is the excellent nation-builder game that simulates a Caribbean banana republic during the Cold War. There have been four entries in the series, and my write-up is based on my experiences with Tropico 1 and Tropico 3.

You lead the nation of Tropico as El Presidente, the leader of the island tasked with guiding your people to prosperity or ruin. It’s a city builder and industry simulator: you can lay down roads and buildings, and to make money you build industries that export goods to market.

The game has a diverse set of political policies you can pursue and many different factions to contend with. For example, if you ban contraception the religious faction gets happy, but the intellectuals get outraged. If you ally with the Soviet Union, the bankers and capitalists on the island will want to replace you. If you allow too many immigrants in, Tropico’s nationalists will want you out, and so on.

Despite the different ways you can shape your island, one feature of gameplay remains constant: you have complete control over the political economy of the island.

You will only succeed in Tropico if you can micromanage. You will need to set the individual wages of the Tropicans, the rents for their apartments, as well as the working conditions in factories. You can see where each individual citizen lives, works, and worships.

The resulting political economy of Tropico is bizarre. The government owns all buildings so it must pay all maintenance. There are no taxes: the majority of your income is from your island’s exports and tourism. The government owns all industry so the government pays all salaries while also collecting rents from tenants in apartments and houses. An amusing consequence of all this is that even if the games says you are a “capitalist” country because you have banks and heavy industry, you still run the entire island with a level of control that would make Stalin jealous.

I don’t begrudge the game for this design choice (it works really well for the player!) but I have found that this system provides a lesson in why we don’t set up our real-world economies this way.

Wages in Tropico won’t rise on their own. You as the player have to remember to do that. This is made challenging because in addition to the average wage of the island, the game also tracks the “Average Caribbean Wage”, reflecting the wages of surrounding countries. The citizens of Tropico pay very close attention to how they compare to their neighbors and get very frustrated when their wages are not regularly rising. (Possible consequences of unhappy Tropicans include: rebellions and revolutions.)

Tropicans expect higher wages as they get educated. It is possible for Tropicans to receive three levels of education: none, high school, and college education. Certain jobs will require education as a prerequisite. For example, power plant operators need a college degree, but factory workers only need a high school degree, and restaurant staff need no education.

It can be tempting as a player to decide that all income on the island will be determined by education level. Seems fair, right? College-educated jobs can be paid $35, high school education jobs gets $25 and non-college educated jobs will pay $15. Problem solved? Not quite. You may discover that workers won’t end up where they are supposed to. If you need tobacco farmers more urgently, raising those wages for that job may be necessary, even if it is a job that requires no education.

You can try setting wages by industry, but ultimately the same problem still presents itself, just in a different context. If there are rebels on the island, you may need to hire some soldiers quickly, and that may not happen fast enough if the cigar factory provides higher wage opportunities.

The challenge of ultimate control is that you are responsible for optimizing the output of each citizen.

The level of micromanagement needed to skillfully run the island is not impossible to acquire, but it becomes clear why no sane country is run this way. There is no mechanism to allow for wages to be set organically and there is too much onus on single individual (El Presidente) to guide the nation. Great for a game, terrible as a template for real life.

The game’s demonstration of the difficulties with a command-economy are particularly striking given how the game also makes a strong case against dictatorships and totalitarianism (despite the game’s light-hearted depiction of Latin American strongmen).

It is possible to run your island without free and open elections and without political opposition, but in order to do that, you will need to spend a significant amount of money on your military to suppress your citizen’s liberty. If you do this, you will soon realize that every Tropican employed as a soldier is a Tropican who is not involved in the process of making profits for your island. Your soldiers will have the same needs for housing, food, and entertainment, but don’t bring anything valuable into the economy at all.

So while the game lets you be a Castro or a Pinochet, the game won't reward you for it.

Tropico may have set out to be a economic and political simulator with a light-hearted take on Caribbean politics, but it ultimately does a little bit more: it gives an good lesson on why having a central authority set all wages and rents is a challenge, and even nudges along the idea that funding the military for the sake of domestic repression is an economic waste. It’s not the worse way to teach some basic points about economics, especially since those lessons have since been adopted by most nations of the world.