Economic planning
Part of a series on |
Economic systems |
---|
Major types
|
|
Economic planning is a
There are various forms of economic planning that vary based on their specific procedures and approach. The level of
A distinction can be made between physical planning (as in pure socialism) and financial planning (as practiced by governments and private firms in capitalism). Physical planning involves economic planning and coordination conducted in terms of disaggregated physical units whereas financial planning involves plans formulated in terms of financial units.[6]
In socialism
Part of a series on |
Socialism |
---|
Different forms of economic planning have been featured in various models of socialism. These range from decentralized-planning systems which are based on collective decision-making and disaggregated information to centralized systems of planning conducted by technical experts who use aggregated information to formulate plans of production. In a fully developed socialist economy, engineers and technical specialists, overseen or appointed in a democratic manner, would coordinate the economy in terms of physical units without any need or use for financial-based calculation. The economy of the Soviet Union never reached this stage of development, so planned its economy in financial terms throughout the duration of its existence.[7] Nonetheless, a number of alternative metrics were developed for assessing the performance of non-financial economies in terms of physical output (i.e. net material product versus gross domestic product).
In general, the various models of socialist economic planning such as a socialist mode of production exist as theoretical constructs that have not been implemented fully by any economy, partially because they depend on vast changes on a global scale. In the context of mainstream economics and the field of comparative economic systems, socialist planning usually refers to the Soviet-style command economy, regardless of whether or not this economic system actually constituted a type of socialism or state capitalism or a third, non-socialist and non-capitalist type of system.
In some models of socialism, economic planning completely substitutes the market mechanism, supposedly rendering monetary relations and the price system obsolete. In other models, planning is utilized as a complement to markets.
Concept of socialist planning
The classical conception of socialist economic planning held by
In such a socialist society based on economic planning, the primary function of the state apparatus changes from one of political rule over people (via the creation and enforcement of laws) into a technical administration of production, distribution and organization; that is, the state would become a coordinating economic entity rather than a mechanism of political and class-based control and thereby ceasing to be a state in the Marxist sense.[9]
In the May 1949 issue of the Monthly Review titled "Why Socialism?", Albert Einstein wrote:[10]
I am convinced there is only one way to eliminate (the) grave evils (of capitalism), namely through the establishment of a socialist economy, accompanied by an educational system which would be oriented toward social goals. In such an economy, the means of production are owned by society itself and are utilized in a planned fashion. A planned economy, which adjusts production to the needs of the community, would distribute the work to be done among all those able to work and would guarantee a livelihood to every man, woman, and child. The education of the individual, in addition to promoting his own innate abilities, would attempt to develop in him a sense of responsibility for his fellow-men in place of the glorification of power and success in our present society.
Administrative-command system
The concept of a
Economic analysts have argued that the economy of the Soviet Union actually represented an administrative or command economy as opposed to a planned economy because planning did not play an operational role in the allocation of resources among productive units in the economy since in actuality the main allocation mechanism was a system of command-and-control. The term administrative-command economy gained currency as a more accurate descriptor of Soviet-type economies.[11]
Decentralized planning
Decentralized economic planning is a planning process that starts at the user-level in a bottom-up flow of information. Decentralized planning often appears as a complement to the idea of socialist self-management, most notably by democratic socialists and libertarian socialists.
The theoretical postulates for models of decentralized socialist planning stem from the thought of Karl Kautsky, Rosa Luxemburg, Nikolai Bukharin and Oskar R. Lange.[12] This model involves economic decision-making based on self-governance from the bottom-up (by employees and consumers) without any directing central authority. This often contrasts with the doctrine of orthodox Marxism–Leninism which advocates directive administrative planning where directives are passed down from higher authorities (planning agencies) to agents (enterprise managers), who in turn give orders to workers.
Two contemporary models of decentralized planning are participatory economics, developed by the economist Michael Albert; and negotiated coordination, developed by the economist Pat Devine.
Lange–Lerner–Taylor model
The economic models developed in the 1920s and 1930s by American economists
Material balances
In capitalism
Intra-firm and intra-industry planning
Part of a series on |
Capitalism |
---|
Large
According to J. Bradford DeLong, many transactions in Western economies do not pass through anything resembling a market, but rather they are actually movements of value among different branches and divisions within corporations, companies and agencies. Furthermore, much economic activity is centrally planned by managers within firms in the form of production planning and marketing management (that consumer demand is estimated, targeted and included in the firm's overall plan) and in the form of production planning.[14]
In The New Industrial State, the American economist John Kenneth Galbraith noted that large firms manage both prices and consumer demand for their products by sophisticated statistical methods. Galbraith also pointed out that because of the increasingly complex nature of technology and the specialization of knowledge, management had become increasingly specialized and bureaucratized. The internal structures of corporations and companies had been transformed into what he called a "technostructure". Its specialized groups and committees are the primary decision-makers and specialized managers, directors and financial advisers operate under formal bureaucratic procedures, replacing the individual entrepreneur's role and intrapreneurship. Galbraith stated that both the obsolete notion of entrepreneurial capitalism and democratic socialism (defined as democratic management) are impossible organizational forms for managing a modern industrial system.[15]
In the first volume of Das Kapital, Karl Marx identified the process of capital accumulation as central to the law of motion of capitalism. The increased industrial capacity caused by the increasing returns to scale further socializes production. Capitalism eventually socializes labor and production to a point that the traditional notions of private ownership and commodity production become increasingly insufficient for further expanding the productive capacities of society,[16] necessitating the emergence of a socialist economy in which means of production are socially owned and the surplus value is controlled by the workforce.[17] Many socialists viewed these tendencies, specifically the increasing trend toward economic planning in capitalist firms, as evidence of the increasing obsolescence of capitalism and inapplicability of ideals like perfect competition to the economy, with the next stage of evolution being the application of society-wide economic planning.
State development planning
State development planning or national planning entails macroeconomic policies and financial planning conducted by governments to stabilize the market or promote economic growth in market-based economies. This involves the use of monetary policy, industrial policy and fiscal policy to steer the market toward targeted outcomes. Industrial policy includes government taking measures "aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation".[18]
In contrast to socialist planning, state development planning does not replace the market mechanism and does not eliminate the use of money in production. It only applies to privately owned and publicly owned firms in the strategic sectors of the economy and seeks to coordinate their activities through indirect means and market-based incentives (such as tax breaks or subsidies).
Around the world
While economic planning is mainly associated with
East Asia
The development models of the
The economy in both Malaysia and South Korea were instituted by a series of macroeconomic government plans (First Malaysia Plan and Five-Year Plans of South Korea) that rapidly developed and industrialized their mixed economies.
The economy of Singapore was partially based on government economic planning that involved an active industrial policy and a mixture of state-owned industry and free-market economy.
France
Under dirigisme (dirigism), France used indicative planning and established a number of state-owned enterprises in strategic sectors of the economy. The concept behind indicative planning is the early identification of oversupply, bottlenecks and shortages so that state investment behavior can be quickly modified to reduce market disequilibrium so that stable economic development and growth can be sustained. France experienced its Trente Glorieuses (Thirty Glorious), years with economic prosperity.
Soviet Union
The Soviet Union was the first national economy to attempt economic planning as a substitute for factor market allocation. Soviet-type economic planning took form in the 1930s and largely remained unchanged despite mild reforms until the Soviet Union's dissolution. Soviet economic planning was centralized and organized hierarchically, with a state planning agency such as the Gosplan establishing target rates for growth and the Gossnab allocating factor inputs to enterprises and economic units throughout the national economy. The national plan was broken down by various ministries, which in turn used the plan to formulate directives for local economic units which implemented them. The system used material balance planning. Economic information, including consumer demand and enterprise resource requirements, were aggregated to balance supply from the available resource inventories, with demand based on requirements for individual economic units and enterprises through a system of iterations.[21]
The
Historian
United Kingdom
The need for long-term economic planning to promote efficiency was a central component of
A long-term economic plan was a phrase often used in British politics.
United States
The United States used economic planning during World War I. The federal government supplemented the price system with centralized resource allocation and created a number of new agencies to direct important economic sectors, notably the Food Administration, Fuel Administration, Railroad Administration and War Industries Board.[28] During World War II, the economy experienced staggering growth under a similar system of planning. In the postwar period, United States governments utilized such measures as the Economic Stabilization Program to directly intervene in the economy to control prices and wages, among other things, in different economic sectors.
Since the start of the Cold War, the federal government has directed a significant amount of investment and funding into research and development (R&D), often initially through the United States Department of Defense. The government performs 50% of all R&D in the United States,[29] with a dynamic state-directed public-sector developing most of the technology that later becomes the basis of the private sector economy. Noam Chomsky has referred to the United States economic model as a form of state capitalism.[30] Examples include laser technology, the internet, nanotechnology, telecommunications and computers, with most basic research and downstream commercialization financed by the public sector. That includes research in other fields including healthcare and energy, with 75% of most innovative drugs financed through the National Institutes of Health.[31]
Criticism
The most notable critique of economic planning came from Austrian economists Friedrich Hayek and Ludwig von Mises. Hayek argued that central planners could not possibly accrue the necessary information to formulate an effective plan for production because they are not exposed to the rapid changes that take place in an economy in any particular time and place and so they are unfamiliar with those circumstances. The process of transmitting all the necessary information to planners is thus inefficient without a price system for the means of production.[32] Mises also had a similar opinion. In his analysis of socialism in 1938, Oskar R. Lange addressed this theoretical issue by pointing out that planners could gain much of the information they required by monitoring changes in plant inventory levels. In practice, economic planners in Soviet-typed planned economies were able to make use of this technique.[33]
Proponents of
“The successes are very important, and I affirmed it every time. They are due to the abolition of private property and to the possibilities inherent in planned economy. But, they - I cannot say exactly - but I will say two or three times less than they could be under a regime of Soviet democracy”.[35]
In his work, The Revolution Betrayed: What is the Soviet Union and Where is it Going ?, Trotsky argued that the excessive authoritarianism under Stalin had undermined the implementation of the first five-year plan. He noted that several engineers and economists who had created the plan were themselves later put on trial as "conscious wreckers who had acted on the instructions of a foreign power".[36]
See also
- Calculation in kind
- Council democracy
- Cybernetics
- Decentralized planning (economics)
- Dirigisme
- Economic democracy
- Econometrics
- Enterprise resource planning
- Indicative planning
- Industrial policy
- Input–output planning
- Material Product System
- Material balance planning
- Mixed economy
- Nonmarket forces
- Participatory planning
- Peer-to-peer economy
- Planned economy
- Socialist calculation debate
- Socialization (economics)
- Socialist economics
- Soviet-type economic planning
- "The Use of Knowledge in Society"
- Why Socialism? – an article written by Albert Einstein which presented a critique of modern capitalism and advocated for a planned economy.
Notes
- New Palgrave Dictionary of Economics. Palgrave Macmillan, London.
- ^ Mandel, Ernest (September–October 1986). "In defense of socialist planning". New Left Review. I (159): 5–37. See also the PDF version.
- ISBN 978-0-618-26181-9.
- The New Palgrave: A Dictionary of Economics. vol. 3. pp. 879–880.
- New Palgrave Dictionary of Economics. Palgrave Macmillan, London.
- ISBN 978-0-521-35866-8.
- ISBN 978-0-8047-7566-3.
- ISBN 978-0-415-91967-8.
- ^ "Socialism: Utopian and Scientific". Marxists.org.
- ^ Einstein, Albert (May 1949). "Why Socialism?", Monthly Review.
- ^ .
- .
- JSTOR 1813077.
- ^ J. Bradford DeLong (1997). "The Corporation as a Command Economy" (PDF). UC Berkeley and National Bureau of Economic Research. Archived from the original (PDF) on 18 April 2016. Retrieved 27 May 2013.
- ISBN 9780691131412. For the Abridge version, see "Part I: The History and Nature of the New Industrial State"(1972).
- ^ Marx and Engels Selected Works, Lawrence and Wishart, 1968, p. 40. Capitalist property relations put a "fetter" on the productive forces.
- Capital, Volume I. From "Chapter 32: Historical Tendency of Capitalist Accumulation".
- UNIDO (2011). "Economic Development in Africa Report 2011: Fostering Industrial Development in Africa in the New Global Environment" (PDF). United Nations. p. 34. Retrieved 27 August 2012.
- ^ ISBN 978-90-04-26953-8.
- ISSN 0925-9392.
- ISBN 9780080430768. "Under Stalin and his successors, central Soviet economic planning was organized hierarchically. The top state planning agency, Gosplan, established the target rate of national economic growth and the allocation of production across industrial sectors and geographic regions. This overall national plan was then broken down by various ministries into directives assigned to local economic units. Finally, managers and engineers at the factory or farm level were required to implement particular instructions."
- ISBN 978-0-521-52436-0.
- ISBN 978-0-394-70747-1.
- ISBN 978-1-893638-97-6.
- ISSN 0260-9592.
- ISBN 978-1-134-92607-7.
- ^ O'Hara, Glen (2007). From Dreams to Disillusionment: Economic and Social Planning in 1960s Britain. Palgrave Macmillan. See also the PDF version.
- ^ Rockoff, Hugh (2010). "U.S. Economy in World War I". Archived 17 March 2010 at the Wayback Machine.
- S2CID 182786220.
- Z Communications. Archived from the originalon 12 October 2012.
- ^ Mazzucato, Mariana (25 June 2013). "The Myth of the "Meddling" State". Public Finance International. Retrieved 5 January 2014.
- .
- ISBN 9780080430768. "Critics argue that the Soviet planned economy failed for two main reasons. The first is inadequate information. Very early on the free market economists Ludwig von Mises and Fredrich Hayek insisted that a socialist system was doomed to fail because central economic planners, lacking the price signals of a market system, would be unable to obtain the information required to promote economic efficiency (Von Mises 1935, Hayek 1948). In fact, economic planners in the Communist world—as Polish economist Oskar Lange anticipated in an important 1938 analysis of socialism—were often able to gain much of the information they needed by monitoring changes in plant inventory levels."
- ^ Trotsky, Leon. Writings of Leon Trotsky (1932–33). p. 96.
- ^ Woods, Alan; Grant, Ted (1976). Lenin and Trotsky – What they really stood for. Wellred Books. pp. 50–151.
- ISBN 978-0-929087-48-1.