Thing 19 Despite the fall of communism,

we are still living in planned economy

Presented by:

Mukesh Sahu

27NMP22

What they tell you

• In complex modern economies, planning is neither possible nor desirable

• A complex modern economy needs:

decentralized decisions

A market mechanism

individuals and firms

a profitable opportunity

The less planning there is, the better

What they don’t tell you • Capitalist economies are

in large part planned • By planning of the

activities of state-owned enterprises

• Through sectorial industrial policy and indicative planning

• With the help of Large, hierarchical corporations

Planning the right things at the right levels

Upper Volta with Rockets • In the 1970s, Western diplomats called

the Soviet Union ‘Upper Volta with rockets’

• A country that could send men into space but had people queuing up for basic foodstuffs

• 1980s the second-biggest cause of fires in Moscow: Exploding TVs

• Soviet Union aimed for full employment and a high degree of equality

• Virtually all enterprises were run by professional managers

• Prevented the emergence of visionary entrepreneurs, like Henry Ford or Bill Gates

Upper Volta with Rockets …. cont

• Cap on how much a business manager, however successful, could get

• Limited incentive for business managers to turn the advanced technologies

• Full employment at all costs

• Led to problem of labour discipline

Central planning: The logic

• Contradiction between the social nature of the production process and the private nature of ownership

• Impossible to coordinate the actions of the interdependent firms

• ‘Coordination failures’, accumulates into periodic economic crises

• Under central planning, all means of production are owned by the whole of society

• Unified plan; Economy will produce only exactly what is needed

The logic: A failure

• Interdependence makes the economy more complex, making it more difficult to plan centrally

• Success of early Soviet industrialization

• Main task was to produce a relatively small number of key products in large quantities

• Increase in the ability to plan was not sufficient to deal with the increase in the complexity of the economy

• Central planning was abandoned

China and Vietnam have gradually abandoned central planning, although their states still hold

high degrees of control over the economy.

So, we all now live in market economies.

Planning is gone. Or is it?

There is planning and there is planning

• Governments in capitalist economies also plan • Indicative planning • Broad targets concerning key economic variables • Targets are not legally binding • France, Finland, Norway and Austria, Japan, Korea, Taiwan successful • But not India

Sectorial industrial policy

• Sizeable chunk of the national economy driven through state-owned enterprises (SOEs)

• Sweden, Germany • International average is

around 10 per cent • High funding in R&D • 1950-80: 47-65% funding in US • Despite relative decline of

government planning in the recent period, there is still extensive planning in the capitalist economies

To plan or not to plan – that is not the question

• Businesses plan their activities – often down to the last detail

• When Marx talked about planning, there was in fact no real-life government that was practicing planning

• Once private property was abolished and the capitalists eliminated, the rational elements could be isolated and harnessed for the social good.

• We live in an organizational economy; bulk of the economic activities is coordinated within the boundaries of organizations

Conclusion

• Rich countries are more planned than poor countries

• Different activities have appropriate levels and forms of planning

• The true nature of the modern economy: Government policy, Corporate planning and Market relationships are all vital and interact in a complex way

It is like believing that we can live by eating only salt, because salt is vital for our survival