Planned economy
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A planned economy is a type of
Planned economies contrast with
Overview
In the
The Soviet-style planned economy in Soviet Russia evolved in the wake of a continuing existing
After World War II (1939–1945) France and Great Britain practiced dirigisme – government direction of the economy through non-coercive means. The Swedish government planned public-housing models in a similar fashion as urban planning in a project called Million Programme, implemented from 1965 to 1974. Some decentralized participation in economic planning occurred across Revolutionary Spain, most notably in Catalonia, during the Spanish Revolution of 1936.[19][20]
Relationship with socialism
In the May 1949 issue of the Monthly Review titled "Why Socialism?", Albert Einstein wrote:[21]
I am convinced there is only one way to eliminate these grave evils, 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.
While socialism is not equivalent to economic planning or to the concept of a planned economy, an influential conception of socialism involves the replacement of capital markets with some form of economic planning in order to achieve ex-ante coordination of the economy. The goal of such an economic system would be to achieve conscious control over the economy by the population, specifically so that the use of the surplus product is controlled by the producers.[22] The specific forms of planning proposed for socialism and their feasibility are subjects of the socialist calculation debate.
Computational economic planning
In 1959 Anatoly Kitov proposed a distributed computing system (Project "Red Book", Russian: Красная книга) with a focus on the management of the Soviet economy. Opposition from the Defence Ministry killed Kitov's plan.[23]
In 1971 the socialist
In their book Towards a New Socialism (1993), the computer scientist Paul Cockshott from the University of Glasgow and the economist Allin Cottrell from Wake Forest University claim to demonstrate how a democratically planned economy built on modern computer technology is possible and drives the thesis that it would be both economically more stable than the free-market economies and also morally desirable.[7]
Cybernetics
The use of computers to coordinate production in an optimal fashion has been variously proposed for
Soviet
Fictional portrayals
The 1888 novel Looking Backward by Edward Bellamy depicts a fictional planned economy in a United States around the year 2000 which has become a socialist utopia.
The
Other literary portrayals of planned economies include
Central planning
Advantages
The government can harness land, labor, and capital to serve the economic objectives of the state. Consumer demand can be restrained in favor of greater capital investment for economic development in a desired pattern. In international comparisons, state-socialist nations have compared favorably with capitalist nations in health indicators such as infant mortality and life expectancy. However, according to Michael Ellman, the reality of this, at least regarding infant mortality, varies depending on whether official Soviet or WHO definitions are used.[28]
The state can begin building massive heavy industries at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry and without reliance on external financing. This is what happened in the Soviet Union during the 1930s when the government forced the share of gross national income dedicated to private consumption down from 80% to 50%. As a result of this development, the Soviet Union experienced massive growth in heavy industry, with a concurrent massive contraction of its agricultural sector due to the labor shortage.[29]
Disadvantages
Economic instability
Studies of command economies of the Eastern Bloc in the 1950s and 1960s by both American and Eastern European economists found that contrary to the expectations of both groups they showed greater fluctuations in output than market economies during the same period.[30]
Inefficient resource distribution
Critics of planned economies argue that planners cannot detect consumer preferences, shortages and surpluses with sufficient accuracy and therefore cannot efficiently co-ordinate production (in a market economy, a free price system is intended to serve this purpose). This difficulty was notably written about by economists Ludwig von Mises and Friedrich Hayek, who referred to subtly distinct aspects of the problem as the economic calculation problem and local knowledge problem, respectively.[31][32] These distinct aspects were also present in the economic thought of Michael Polanyi.[33]
Whereas the former stressed the theoretical underpinnings of a market economy to
Historian
Suppression of economic democracy and self-management
Economist
Combined with a more democratic political system, and redone to closer approximate a best case version, centrally planned economies no doubt would have performed better. But they could never have delivered economic self-management, they would always have been slow to innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible to growing inequities and inefficiencies as the effects of differential economic power grew. Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impeding markets for final goods to the planning system enfranchise consumers in meaningful ways. But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it did only because it was propped up by unprecedented totalitarian political power.[36]
Command economy
Planned economies contrast with command economies in that a planned economy is "an economic system in which the government controls and regulates production, distribution, prices, etc."[37] whereas a command economy necessarily has substantial public ownership of industry while also having this type of regulation.[38] In command economies, important allocation decisions are made by government authorities and are imposed by law.[39]
This is contested by some
Most of a command economy is organized in a top-down administrative model by a central authority, where decisions regarding investment and production output requirements are decided upon at the top in the chain of command, with little input from lower levels. Advocates of economic planning have sometimes been staunch critics of these command economies. Leon Trotsky believed that those at the top of the chain of command, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and who understand/respond to local conditions and changes in the economy. Therefore, they would be unable to effectively coordinate all economic activity.[42]
Historians have associated planned economies with
While both economic planning and a planned economy can be either authoritarian or
Decentralized planning
A decentralized-planned economy, occasionally called horizontally planned economy due to its
Decentralized planning has been a feature of
Models
Negotiated coordination
Economist
Participatory planning
The planning structure of a decentralized planned economy is generally based on a consumers council and producer council (or jointly, a distributive cooperative) which is sometimes called a
Practice
Kerala
Some decentralized participation in economic planning has been implemented in various regions and states in India, most notably in Kerala. Local level planning agencies assess the needs of people who are able to give their direct input through the Gram Sabhas (village-based institutions) and the planners subsequently seek to plan accordingly.[55]
Revolutionary Catalonia
Some decentralized participation in economic planning has been implemented across Revolutionary Spain, most notably in Catalonia, during the Spanish Revolution of 1936.[19][20]
Similar concepts in practice
Community participatory planning
The United Nations has developed local projects that promote participatory planning on a community level. Members of communities make decisions regarding community development directly.[citation needed]
See also
- Adhocracy
- Commanding heights of the economy
- Communist state
- Creative destruction
- Critique of political economy
- Distributed economy
- Economic equilibrium
- Economic interventionism
- Inclusive democracy
- Input–output model
- Laissez-faire
- Material balance planning
- Nationalization
- Peer-to-peer economy
- Production for use
- Public ownership
- Resource-based economy
- Social peer-to-peer processes
- Steady-state economy
- Technocracy
- Workers' self-management
- The Venus Project
- Why Socialism? – an article written by Albert Einstein which presented a critique of modern capitalism and advocated for a planned economy.
- Case studies (Soviet-type economies)
- Analysis of Soviet-type economic planning
- Eastern Bloc economies
- Economy of Cuba[56]
- Economy of North Korea
- Five-year plans of the Soviet Union
- OGAS, a plan for creating a computer network to supervise the Soviet economy
- Project Cybersyn, a project for a computer network controlling the economy of Chile under Salvador Allende
- Case studies (mixed-market economies)
- Five-year plans of China
- Dirigisme (indicative planning in France)
- Economy of India
- Economy of Singapore
- First Malaysia Plan
- Five-year plans of Argentina
- Five-year plans of South Korea
- The Lucas Plan, an industrial plan which combined the theoretical understanding of aerospace designers and practice knowledge of workers to produce 150 alternative product designs.
References
- The New Palgrave: A Dictionary of Economics. vol. 3. p. 879.
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Traditional socialism strives to plan all economic activities comprehensively, both within and between enterprises. As such, it seeks to integrate the economic activities of society (the coordination of socially owned property) into a single coherent plan, rather than to rely upon the spontaneous or anarchic ordering of the market system to coordinate plans.
- ^ a b Mandel, Ernest (1986). "In Defence of Socialist Planning" (PDF). New Left Review. 159: 5–37. Archived (PDF) from the original on 2008-05-16.
Planning is not equivalent to 'perfect' allocation of resources, nor 'scientific' allocation, nor even 'more humane' allocation. It simply means 'direct' allocation, ex ante. As such, it is the opposite of market allocation, which is ex post.
- ISBN 978-0521358668.
'[S]ocialist planning', in the original sense of a national economy which replaced market relationships by direct calculation and direct product exchange, has nowhere been established [...].
- ^ a b c Cottrell, Allin; Cockshott, W. Paul (1993). Towards a New Socialism Archived 2018-06-27 at the Wayback Machine. (Nottingham, England: Spokesman. Retrieved 17 March 2012.
- ISBN 978-0-15-512403-5.)
Almost all industry in the Soviet Union is government owned and all production is directed, in theory, by a central plan (though in practice much is left for local discretion and much happens that is unplanned or not under government control).
{{cite book}}
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In the USSR in the late 1980s the system was normally referred to as the 'administrative-command' economy. What was fundamental to this system was not the plan but the role of administrative hierarchies at all levels of decision making; the absence of control over decision making by the population [...].
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- ^ La Lone, Darrell E. (1982). "The Inca as a Nonmarket Economy: Supply on Command versus Supply and Demand". Contexts for Prehistoric Exchange: 292. Archived from the original on 19 October 2020. Retrieved 17 December 2018.
- ISBN 978-1852784669. Retrieved 7 September 2018.
To this approach belongs at least in part an attempt to view mercantilism as economic dirigee, a planned economy with national economic objectives – 'wealth', 'plenty' or simply 'welfare' within the framework of the nation and at the expense of other nations.
- ^ ISBN 978-90-04-26953-8. Archivedfrom the original on 2023-07-26. Retrieved 2023-10-27.
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- ^ a b Wetzel, Tom. "Workers Power and the Spanish Revolution" Archived 2020-11-07 at the Wayback Machine.
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- ^ Einstein, Albert (May 1949). "Why Socialism?" Archived 2011-03-17 at the Wayback Machine, Monthly Review.
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We have presented the view that planning and market mechanisms are instruments that can be used both in socialist and non-socialist societies. [...] It was important to explode the primitive identification of central planning and socialism and to stress the instrumental character of planning.
- ^
Kitov, Vladimir A.; Shilov, Valery V.; Silantiev, Sergey A. (5 October 2016). "Trente ans ou la Vie d'un scientifique". In Gadducci, Fabio; Tavosanis, Mirko (eds.). History and Philosophy of Computing: Third International Conference, HaPoC 2015, Pisa, Italy, October 8–11, 2015, Revised Selected Papers. Volume 487 of IFIP Advances in Information and Communication Technology. Cham, Switzerland: Springer (published 2016). p. 191. ISSN 1868-4238. Retrieved 12 September 2021.
[...] "Measures to overcome the shortcomings in the development, production and introduction of computers in the Armed Forces and national economy". Today this project is known among the specialists as the 'Red Book' project. It was the first project in the USSR, which proposed to combine all the computers in the country into a unified network of compter centers. In peacetime this network must have fulfilled both national economic and defense tasks [...].
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- ^ a b Lange, Oskar (1979). "The Computer and the Market". Calculemus.org. Archived from the original on 17 April 2021. Retrieved 12 September 2012.
- ^ "Cyberfolk". Project Cybersyn. Archived 12 May 2011 at the Wayback Machine. Retrieved 6 August 2020.
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For the USSR, the official Soviet statistics of infant mortality give too favourable a picture. There are two reasons for this. First, the USSR used a definition of 'birth' different from the WHO one (Chapter 8, pp. 321–322). The percentage increase in the infant mortality rate caused by switching from the Soviet definition to the WHO one seems to have ranged from 13 per cent in Moldova to 40 per cent in Latvia. In Poland, which has a much larger population than the two previously mentioned countries, it was about 21 per cent. Secondly, there seems to have been significant under-registration of deaths, particularly in certain regions, such as Central Asia and Azerbaijan. Estimates of 'true' infant mortality in 1987–2000 show very high increases over the official figures in Central Asia, Azerbaijan, Albania, Romania, and Bulgaria. In Russia – which was supposed to have adopted the WHO definition of 'birth' by 1993 and where under-registration is much less than in Central Asia or Azerbaijan – in 1987–2000 the estimated increase of the official figures to measure 'true' infant mortality is 26.5 percent.
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- ^ Hayek, Friedrich A. (1945). "The Use of Knowledge". American Economic Review. XXXV: 4. pp. 519–530.
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- ^ "Planned economy" Archived 2007-02-28 at the Wayback Machine. Dictionary.com. Unabridged (v. 1.1). Random House, Inc. Retrieved 11 May 2008).
- ^ "Command economy" Archived 2007-01-24 at the Wayback Machine. Merriam-Webster Online Dictionary. Retrieved 11 May 2008.
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In a command economy the most important allocation decisions are made by government authorities and are imposed by law.
- ISBN 978-0-415-91967-8. "For an Anti-Stalinist Marxist, socialism is defined by the degree to which the society is planned. Planning here is understood as the conscious regulation of society by the associated producers themselves. Put it differently, the control over the surplus product rests with the majority of the population through a resolutely democratic process. [...] The sale of labour power is abolished and labour necessarily becomes creative. Everyone participates in running their institutions and society as a whole. No one controls anyone else."
- . Retrieved 6 August 2020. "Virtually all socialists have distanced themselves from the economic model long synonymous with socialism (i.e., the Soviet model of a nonmarket, centrally planned economy. [...] Some have endorsed the concept of market socialism, a postcapitalist economy that retains market competition but socializes the means of production and, in some versions, extends democracy to the workplace. Some hold out for a nonmarket, participatory economy. All democratic socialists agree on the need for a democratic alternative to capitalism".
- ^ a b Trotsky, Leon. Writings 1932–33. p. 96.
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Realization of these facts led in the 1970s and 1980s to the development of new terms to describe what had previously been (and still were in United Nations publications) referred to as the 'centrally planned economies'. In the USSR in the late 1980s the system was normally referred to as the 'administrative-command' economy. What was fundamental to this system was not the plan but the role of administrative hierarchies at all levels of decision making; the absence of control over decision making by the population [...].
- ^ "Machine of communism. Why the USSR did not create the Internet" Archived 2022-03-08 at the Wayback Machine.
- ^ Kharkevich, Aleksandr Aleksandrovich (1973). Theory of information. The identification of the images. Selected works in three volumes. Volume 3. Information and technology: Moscow: Publishing House "Nauka", 1973. – Academy of Sciences of the USSR. Institute of information transmission problems. p. 524.
- ISBN 978-0275968861. "Sometimes simply called socialism, more often than not, the adjective democratic is added by democratic socialists to attempt to distinguish themselves from Communists who also call themselves socialists. All but communists, or more accurately, Marxist-Leninists, believe that modern-day communism is highly undemocratic and totalitarian in practice, and democratic socialists wish to emphasise by their name that they disagree strongly with the Marxist-Leninist brand of socialism."
- ISBN 978-1840645194. "It is perhaps less clearly understood that advocates of democratic socialism (who are committed to socialism in the above sense but opposed to Stalinist-style command planning) advocate a decentralized socialism, whereby the planning process itself (the integration of all productive units into one huge organisation) would follow the workers' self-management principle."
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- ^ Kotz, David (2008). "What Economic Structure for Socialism?" (PDF). Archived (PDF) from the original on 2011-01-02. Retrieved 12 September 2012.
- ^ "After the Revolution". Membres.multimania.fr. 7 January 1936. Archived from the original on 29 August 2012. Retrieved 12 September 2012.
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- ^ "Participatory Planning Through Negotiated Coordination" (PDF). 1 March 2002. Archived (PDF) from the original on 2011-08-17. Retrieved 30 October 2011.
- ^ Kostakis, Vasilis (2019). "How to Reap the Benefits of the 'Digital Revolution'? Modularity and the Commons" Archived 2023-06-19 at the Wayback Machine. Halduskultuur: The Estonian Journal of Administrative Culture and Digital Governance. 20 (1): 4–19.
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- ^ Crittenden, Ann (18 December 1977). "The Cuban Economy: How It Works". The New York Times. Archived from the original on 29 June 2018. Retrieved 29 June 2018.
Further reading
- Kaplan, Robert – see reference to his work on International Economics and Foreign Relations, where he addresses nature of "command economy", a Weberian term.
- Cox, Robin (2005). "The Economic Calculation Controversy: Unravelling of a Myth". Common Voice (3).
- Damier, Vadim (2012). "The Economy of Freedom".
- Devine, Pat (2010). Democracy and Economic Planning. Polity. ISBN 978-0745634791.
- ISBN 1107427320.
- Grossman, Gregory (1987): "Command economy". The New Palgrave: A Dictionary of Economics. 1. pp. 494–495.
- Landauer, Carl (1947). Theory of National Economic Planning (2nd ed.). Berkeley and Los Angeles, California: University of California Press.
- Mandel, Ernest (1986). In Defence of Socialist Planning. New Left Review (159).
- Myant, Martin; Drahokoupil, Jan (2010), Transition Economies: Political Economy in Russia, Eastern Europe, and Central Asia, Wiley-Blackwell, ISBN 978-0-470-59619-7.
- Nove, Alec(1987). "Planned economy". The New Palgrave: A Dictionary of Economics. 3. pp. 879–885.