What is Economic Planning?
What is economic Planning?
The economically advanced countries may not feel enamored of the idea of planning but for the underdeveloped economies it is a stark necessity as economic development is now regarded as imperative. As Galbraith says, "There is much that market can usefully encourage and accomplish. But the market cannot reach forward and take great strides when these are called for. As it cannot put a man into space, so it cannot bring quickly into existence a steel industry when there was little or no steelmaking capacity before.... To trust the market is to take an unprecedented risk that nothing or too little will happen." It is planning alone which can guarantee quick economic growth in backward underdeveloped countries. This explains why there is a clear and pronounced swing of opinion in favor of planning.
Case for Planning
We shall now put forward a few arguments for economic planning. Some of these arguments are in favor of planning in general for all countries and some of them apply with a special force to backward and under-developed economies.
1. Superior Judgment of the State. Planning is advocated on the ground that the judgment of the State is superior to that of the citizen, however wise and able he may be. Economic development is a more serious matter and should not be left to the individual entrepreneur.
2. Stability. Planning has also proved to be a powerful instrument for eliminating instability which is a necessary concomitant of a free-market economy. Private enterprise left to itself would produce trade cycles, unemployment and misery. It is now generally agreed that planning of economic activity goes a long way in smoothing the violent oscillations and swings in business. In the nineteen thirties every country suffered from depression except Soviet Russia.
3. Coping with Major Economic Changes. Without the aid of planning no country can cope with major economic changes. Such changes, e.g., industrial revolution or rationalization movement are bound to turn the economy topsy-turvy. The economic system will be thrown out of gear altogether. Private enterprise will feel helpless and stand simply aghast. The planning authority with its resources of men and money can meet all such situations and control the disturbing factors. Major changes can even be anticipated and provided against in good lime. A planned action to speed up the movement of resources at times of major changes is absolutely essential.
4. Avoids Wasteful Competition. Planning eliminates competition which is wasteful. The merit of the free market lies in competition being perfect; but in actual life perfect competition is rare. At any rate there is nothing in market mechanism that establishes or maintains competition. Only State action can ensure fair competition. Hence, market economy can also be helped to function adequately with the positive support of the planning authority. Huge manpower need not be dissipated in distributional trades nor huge funds frittered away in advertisement and salesmanship. Planning can be combined with a market economy in various degrees to direct economic life wisely and efficiently.
5. Co-ordination. Only a planned economy provides for co-ordination and avoids unnecessary duplication of staff and equipment. In an unplanned economy millions of producers work in an independent and isolated fashion without bothering as to what other businessmen are doing. The cumulative consequence may be confusion and chaos. An unplanned economy, according to
Lerner, is like "an automobile without a driver but in which many passengers keep reaching over to the steering wheel to give it a twist". It will be a miracle indeed if the automobile reaches its destination safely. On the whole, therefore, the decisions in all unplanned economy are likely to be irrational, shortsighted, self-frustrating and socially disastrous.
A planning authority, on the other hand, can take far-sighted decisions and produce a balanced economy. It can take an over-all view whereas in an unplanned economy each entrepreneur looks to his own interest and nobody bothers about the economy as a whole as a central planning authority can do.
6. Keeps Down Social Costs. By planning it is possible to keep down or eliminate community costs which usually take the form of manufacturing accidents, industrial diseases, congestion and unhygienic conditions and cyclic unemployment.