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UnconditionalHeisenberg

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economic planning economic history communist economies economic models

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This document provides an overview of economic planning, tracing its historical development, especially in the context of communist and Western economies. It emphasizes the difference between centrally planned and market-driven approaches and the challenges and successes in implementing different planning models and strategies.

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# Economic Planning ## Britannica Money ### Economic Planning - Economic planning is when central governments make or influence key economic choices. - It contrasts with *laissez-faire*, where the market is allowed to function freely without government intervention. - By the late 1960s, most cou...

# Economic Planning ## Britannica Money ### Economic Planning - Economic planning is when central governments make or influence key economic choices. - It contrasts with *laissez-faire*, where the market is allowed to function freely without government intervention. - By the late 1960s, most countries relied on national economic plans. - During the 1980s, there was a crisis in economic planning. - In developed countries, economic growth slowed, and unemployment rose. - In developing countries, economic planning led to heavy state bureaucracies and inefficient public enterprises. - In the Soviet Union, the backward state of the economy and widespread waste led to attempts to introduce market solutions, but these were largely unsuccessful. The collapse of communism in Eastern Europe in 1989 made clear the rigidities inherent in the Soviet economic model. ### The Nature of Economic Planning - Historically, the idea of central economic planning was associated with the criticism of capitalism. - Marxist critics believed that a socialist society would function without difficulty. - In the Soviet union, central planning was a pragmatic affair. - Many methods (e.g., for industrialization) were tried and discarded as they evolved over time. - In Western Europe, - economic planning is more indirect and adapted to a diversified economic structure. - The state generally does not intervene directly in the affairs of individual firms. - The state collaborates with the private sector. - There is a trend in the 1980s to reduce government regulation and sell state owned enterprises to the public. - In mid-1950s, communist methods of planning entered a state of flux. - Many countries moved away from highly centralized administrative planning methods. - New techniques were adopted. - Debate on the best methods continued. - Soviet Union's attempts in the 1980s to reform its planning machinery inadvertently brought down the whole structure of central economic planning. ### Economic Planning in Communist Countries - **Planning in the early U.S.S.R.** - In 1917, the Bolsheviks seized power in Russia without a blueprint for how an economy should be run. - Most Marxist critics had no model for organizing a socialist economy. - Planning was undertaken as a pragmatic response to economic breakdown, the civil war, and hyperinflation. - The state nationalized all property, outlawed all private enterprise, and demanded the delivery of farm surpluses to state procurement organs. - This period, known as "War Communism", led to a centralized planning system that was a failure, despite the fact that resources were concentrated for the civil war fronts. - This period was marked by famine, rationing, and a drastic fall in output. - **The controversies of the 1920s.** - Lenin's New Economic Policy (NEP) in 1921 legalized small-scale private manufacturing, trade, and the free sale of peasant surpluses. - The state maintained control over heavy industry, foreign trade, banking, and transportation. - In 1927, the decision to undertake large-sale industrialization required more centralized control. - The debate over the future basis of planning in the late 1920s led to two schools of thought: - "genetic" and "teleological" planning. - "genetic" planners believed that plans should be based on existing trends. - "teleological" planners believed that drastic measures were necessary to speed up industrialization. - The support of Stalin helped the "teleological" school win out. - **The First Five-Year Plan** - The First Five-Year Plan (1928-1932) sought to quadruple steel production and make large investments in heavy industry. - During a chaotic period of transition, the Soviet Union moved towards a "command economy". - In this system, subordinate units of the economy had to follow administrative instructions and could not negotiate their inputs or outputs with other enterprises. - The single criterion of management became conformity with the plan. - The Soviet government relied on planning to allocate resources and achieve its goals. - The success of the plan came at a cost, namely, the drastic fall in the availability of consumer goods. - **The structure of the Soviet planning system** - In 1932, the Soviet government reorganized its planning system with the creation of three People's Commissariats (for heavy, light, and timber industries). - By 1939, the organization of industry was overseen by 21 People's Commissariats (later renamed ministries in 1946). - The ministries issued instructions to their enterprises, organized the supply of materials and components, and disposed of the output. - **The work of Gosplan** - The central planning organ, Gosplan, translated politically determined objectives into a consistent set of plan targets. - Gosplan had to ensure coherence between production and supply, investment plans and current production of capital goods, and exports and imports. - The planners developed material balances that expressed the anticipated supply of and demand for all key commodities. - Successive versions of the plan were revised until general balance was attained. - There were millions of consistent instructions to thousands of enterprises. - **The controversies of the 1950s** - Communist methods of planning after the mid-1950s entered a state of flux. - The highly centralized administrative type of planning inherited from the Soviet Union by all the newly established communist states underwent considerable modifications. - Differences emerged in the practice of other eastern European Socialist countries. - In the Soviet Union, debate concerning the most appropriate means for implementing plans went on for some years, and despite numerous changes, fundamental drawbacks remained, not the least of which was the failure of these attempts to reform the Soviet economic model proved an important factor in the collapse of communism in Eastern Europe and the Soviet Union itself, beginning in 1989. - **The Gorbachev reform agenda** - Soviet leadership responded to slow growth rates, shortages, and corruption by proposing reforms in the late 1970s and early 1980s. - In 1987-1990, Gorbachev launched a program that sought to change the nature of the Soviet system. - His program aimed to allow firms to negotiate the product mix with their customers or wholesale trade organs. - He sought to introduce competition into the economy, as well as protecting enterprises from arbitrary exactions by their superiors. - He sought to phase out "soft" credits and subsidies. - He allowed large enterprises direct access to foreign markets. - Gorbachev sought to decentralize control but continued to make planning a key feature of the Soviet economy. - The aim of speeding up growth led to the survival of growth targets, albeit in new forms. - **The structure of the Soviet planning system in the 1990s** - The postcommunist governments of Eastern Europe and of the states of the former Soviet Union had begun making a painful transition to the diversified economic structure. ### Economic Planning in Other Communist Countries - In **Yugoslavia**, planners followed policies that were different from those of the Soviet model. - Planning in **China** evolved to be quite different, particularly in the 1980s with increased decentralization to the private sector. - **Eastern European countries** were forced to adopt a free-market economic system beginning in 1989-90, after the Soviet Union abandoned its political and military control over the region. ### Economic Planning in Non-Communist Countries - **Planning in developed countries: origins and objectives** - Since the end of World War II, economic planning has been a common feature in non-communist developed countries, which include Belgium, Canada, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, and the United Kingdom. - Many countries shifted to the left politically and encouraged more government intervention. - For example, Labour party's victory in Great Britain in 1945 led to a strong focus on policies that aimed for more social equality. - Moderate left-wing traditions in Sweden resulted in a transition to planning becoming politically acceptable. - Planning has been important in France, where a group of eminent public servants, engineers, and business leaders continued a tradition of state involvement in economic affairs. - The decision to plan in Western countries most often followed a crisis. - For example, in France, planning was crucial to reconstructing and modernizing the economy after World War II. The French National Plan (1961) was formulated in response to a balance of payments crisis, and the Labour government's National Plan (1965) was set up in response to dissatisfaction with the performance of the British economy. - Planning has also been important in Belgium and Ireland, which both had a need to respond to their respective economic challenges. - **Origins of planning** - Prior to World War II, there was no serious attempt at economic planning outside the Soviet Union. - The Great Depression of the 1930s forced governments to intervene in economic affairs through a variety of measures, including protectionist policies, cartel formation, and public spending. - World War II and the shift to the left in many countries' politics led to increased government intervention in the postwar period, including more social equality. - In Great Britain, the Labour Party won a large majority in Parliament in 1945 on a platform that sought to make "Social equality" a high priority. - Moderate left-wing governments in Scandinavia implemented more interventionist policies. - **The French Example** - The French Example - which has long been a model for other European countries- - had a strong political impulse to plan, which came from left-wing groups including the Communist Party. - In the early 1960s, there was a balance of payments crisis in Great Britain that led to the establishment of a National Economic Development Council to draft a five-year economic plan that focused on rapid economic growth. - The Netherlands adopted a five-year plan in 1963 to move toward achieving economic growth. - The Central Planning Bureau was influential here, as it had long advised on national budgetary policies. - In Italy, where planning started in the 1950s with a plan to develop Southern Italy, planning was subsequently extended to encompass the nation overall. - Even in West Germany, where Christian Democrats sought to maintain a strong commitment to the free market, there emerged a growing need for central economic planning, often inspired by the French example. - **Objectives of Planning** - Planning in developed countries tends to focus on achieving specific rates of growth, and to make choices about how to allocate increases in expenditures among the various categories of the economy, including private/public consumption, social investment, directly productive investments, and exports. - The plans have to be balance, so the total expenditures must fall within the total available supply of goods and services after allowing for a desired balance of payments surplus. -The desired rates of increase in some types of demand (e.g., productive investments)are considered to be fixed within fairly narrow limits by technological considerations. The choice in planning, then, lies in determining the balance between investments in private and collective consumption. - Another important objective is to correct imbalances in regional development. - The goal of planning is to achieve consistency between different economic objectives. - For example, while policies that stimulate the economy and increase output and employment might be possible, the effect of such policies could be a surge in prices that leads to increased imports and falling exports, resulting in a balance of payments crisis. - **Stages of planning in developed countries** - Planning provides a forum for public discussion of policy choices in a country. - Planning helps to make the choices before a country explicit. - For example, increased government spending on social services can be shown to imply slower growth in individual incomes after taxes or a higher growth rate with greater willingness on the part of consumers and producers to adapt. - Planning models can be used to detach governments from specific policies that they will stand or fall on at the next election or to make projections of economic trends without the status of a formal draft, as in the case of West Germany. - Planning can be used to provide a formal basis for government policy decisions by, for example; bringing together representatives from various departments, businesses, and trade unions. - Planning can help in resolving conflicts between departments and agencies within a country. - Planning can help to make representatives of employers and workers more conscious of the obstacles to economic growth. - Planning can be used to encourage government to adopt more active roles in carrying out its plans, as in the case of the government's budget and its monetary policy. - **Assessment of planning in developed countries.** - The shift to more flexible and selective planning began in the late 1970s and accelerated in the 1980s. - Planning came to be seen as a means to create conditions that would encourage growth, rather than as a means to set detailed controls over the private sector. - Critics argued that planning led to a greater emphasis on growth at the expense of social costs and did not necessarily translate into greater well-being. - Some critics argued that planning failed to account for the qualitative aspects of economic growth, such as education, health, housing, and income distribution. - Governments responded to these criticisms by adopting a more flexible approach to the setting of targets. - For example, the practice of spelling out targets for the private sector in detail was largely abandoned. - The use of government intervention in regional development has continued. - The goal has been to encourage businesses to expand into less developed regions by providing tax incentives or grants from public funds. ## Planning in Developing Countries: Approaches - Governments of developing countries began publishing "development plans" after the end of World War II. - These plans typically cover a five-year period. - They aim to: - assess the current state of the economy and provide information about it. - increase the overall rate of investment. - carry out special types of investment. - improve coordination between different parts of the economy. - The most important, yet least understood, functions of planning are: - assessing the current state of the economy. - improving coordination. - To achieve these goals, developing countries need a reliable source of information about the economy as a whole, as well as good communication among different government departments and agencies. They also need to assess and coordinate the activities of the private sector. - The primary reason for publishing development plans is to communicate the government's economic intentions to the public and the private sector. ## The Newly Independent Countries - Newly independent developing countries typically begin with a simple, ad-hoc, list of projects that were submitted by different government departments. - These plans are often lacking in coordination, and the projects that were easiest to implement may not be the most productive or beneficial in the long run. - This can lead to duplication of effort, a lack of emphasis on priorities, and misallocation of resources. - For these reasons, it is necessary to develop a more systematic plan to coordinate resources and prioritize projects. ### Creating a More Systematic Plan - A more systematic plan should include: - an assessment of the total amount and time pattern of the financial resources that the government expects to receive. - a realistic estimate of the costs and benefits of alternative investment projects. - an assessment of the time pattern of costs and benefits. - When selecting projects to be included, attention should be paid to the various relationships between the different projects. - Priority should be given to projects that ensure a more immediate return in terms of output and tax yields. - In order to implement a more systematic plan, it is important to pay close attention to the annual budget and the discipline of annual budgetary controls. *** This document has been prepared with the help of 'Perplexity'.