Economic planning refers to any directing or planning of economic activity outside the mechanisisms of the market, in an attempt to achieve specific economic or social outcomes. Planning is an economic mechanism for resource allocation and decision-making in contrast with the market mechanism. Most economies are mixed economies, incorporating elements of market mechanisms and planning for distributing inputs and outputs.[1] The level of centralization of decision-making ultimately depends on the type of planning mechanism employed; as such planning may be based on either centralized or decentralized decision-making.[2]
Economic planning can apply to production, investment, distribution or all three of these functions. Planning may take the form of directive planning or indicative planning. An economy primarily based on central planning is a planned economy; in a planned economy the allocation of resources is determined by a comprehensive plan of production which specifies output requirements.[3]
Contents |
| Socialism |
|---|
|
Development
|
|
Ideas
Economic planning · Free association
Equality of opportunity Economic democracy Adhocracy · Technocracy Self-management · Direct democracy Public ownership · Common ownership Social dividend · Basic income Production for use Calculation in kind · Labour voucher Industrial democracy · Collaboration Material balance accounting Social ownership · Economics |
|
People
Charles Hall · Henri de Saint-Simon
Robert Owen · Charles Fourier William Thompson Thomas Hodgskin Louis Blanc · Moses Hess Karl Marx · Friedrich Engels Ferdinand Lassalle William Morris · Mary Harris Jones Eugene V. Debs · John Dewey Enrico Barone · Ben Tillett Edvard Kardelj · Robin Hahnel Michael Albert |
| Socialism portal Politics portal |
Socialists and Marxists differentiate between the concept of command economy, which existed in the Soviet Union, and economic planning, defining a command economy as top-down administrative planning based on bureaucratic organization (akin to organizing the economy as a single capitalist firm).[4]
Classical socialists and Marxists define economic planning as directly producing use-values, as opposed to indirectly producing use-value as a byproduct of pursuing profits, and consider this to be a fundamental element of a socialist economy. Economic planning implies production for use, social control over the allocation of surpluses, and in its most extensive theoretical form, calculation-in-kind in place of financial calculation. For Marxists in particular, planning entails control of the surplus product (profit) by the associated producers. democratic fashion.[5] This differs from planning within the framework of capitalism, which is based on the planned accumulation of capital, as opposed to the planned production of use-values.
Marxists and early technocratic socialists hold the view that in 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 scientific administration of things and a direction of processes of production; that is the state would become a coordinating economic entity rather than a mechanism of class or political control, thereby ceasing to be a state in the traditional sense.[6]
Libertarian socialists, Syndicalists, Trotskyists, orthodox Marxists and democratic socialists advocate various forms of de-centralized planning and self-management. In a de-centralized planned economy, economic decision-making is based on self-management and self-governance from the bottom-up without any directing central authority (in a spontaneous manner). On the other hand, Leninists, Marxist-Leninists, Social democrats and some state-oriented socialists advocate directive administrative planning where directives are passed down from higher authorities (planning agencies) to agents (enterprise managers), who in turn give orders to workers.
In some socialist theories, economic planning completely substitutes the market mechanism and supposedly renders monetary relations and the price system obsolete. In other theories, planning is utilized as a complement to markets. Polish economist Oskar Lange and American economist Abba Lerner proposed a form of market socialism where a central planning board would adjust prices of publicly-owned firms to equal marginal cost to enhance the market mechanism by achieving pareto efficient outcomes.
In general, the various types of socialist economic planning listed above exist as theoretical constructs that have not been implemented fully by any economy, partially because they depend on vast changes in social and economic development on a global scale (see: mode of production). In the context of mainstream neoclassical economics, socialist planning usually refers to the Soviet-type command economies, regardless of whether or not they actually constituted a type of state capitalism or a third, non-socialist and non-capitalist system,
Large corporations allocate resources internally among different divisions and subsidiaries through planning. Many modern firms also utilize regression analysis to measure market demand in order to adjust price and decide on the optimal quantity of output to be supplied. Planned obsolescence is often cited as a form of economic planning employed by large firms to increase demand for future products by deliberately limiting the operational lifespan of a product.
In The New Industrial State, economist John Kenneth Galbraith posited that large firms can manage prices and consumer demand, and because of increasing technological capacity, management has become increasingly specialized and bureaucratized. The internal structure of a corporation has been reorganized in what he calls a "technostructure", where specialized groups and committees are the primary decision-makers and specialized managers, directors and financial advisers and formal, bureaucratic procedures have replaced the individual entrepreneur's role. He states that both the obsolete notion of "entrepreneurial capitalism" and democratic socialism are impossible for managing the modern industrial system.[7]
Austrian economist Joseph Schumpeter argued that the changing nature of economic activity; the increasing bureaucratization and specialization of production; was one of the main reasons capitalism would eventually evolve into socialism. The role of the businessman was increasingly bureaucratic and specific functions within the firm required increasing specialized knowledge, which can just as easily be supplied by the state apparatus.
In the first volume of Capital, Karl Marx identifies a tendency for capital to accumulate under capitalism, which leads to increasing industrial capacity due to increasing returns to scale. Capitalism eventually socializes labor and production to a point where the traditional notion of private ownership and commodity production are insufficient for managing and further expanding the productive capabilities of society,[8] necessitating a socialist economy of the means of production and cooperative worker control over the surplus value.[9] Socialists see this as evidence of the increasing obsolescence and inapplicability of notions of perfect competition and as evidence of the increasingly trend toward economic planning in some form or another, the next stage of evolution being planning production on the level of the national economy.
The United States utilized economic planning during the First World War. 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.[10] During the Second World War, the economy experienced staggering growth under a similar system of planning.
From the start of the Cold War to the present, the United States Federal Government directs a significant amount of investment and funding into research and development, often initially through the Department of Defense. The government performs 50% of all R&D in the United States,[11] with a dynamic state-directed public-sector developing most of the technology that later becomes the basis of the private sector economy.[12] Examples include laser technology, the internet, telecommunications and computers.
The government of Malaysia instituted a series of macroeconomic plans to develop its mixed economy. Singapore and South Korea were also partially based on economic planning with active government industrial policies during their rapid development. However, the latter is better described as interventionist because the government intervened in a mainly market-based, rather than planned, economy.
Iran practices a degree of economic planning, but has experienced shortages of oil at pumping stations despite enormous natural reserves.
Under dirigisme, France practiced indicative planning and nationalized or established a number of state 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 modified in a timely fashion to reduce the incidence of market disequilibrium, with the goal being a concerted economy.
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 in the particular time and place that take place in an economy, and are unfamiliar with these circumstances. Transmitting all the necessary information to planners to accumulate and form a comprehensive plan is therefore inefficient.[13]
Centralized economic planning has also been criticized by proponents of de-centralized economic planning. For example, Leon Trotsky believed that central planners, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and understand/respond to local conditions and changes in the economy would be unable to effectively coordinate all economic activity.[14] Proponents of technocratic planning have responded by saying democratic planning would be inefficient due to the time it takes to deliberate and vote on action in a direct democratic setting. Democratic planning would also be ineffective because various economic decisions require specialized knowledge, which the majority of voters lack.