Indicative Planning

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A question frequently asked today is whether planning has any relevance in a world of economic liberalization and the market economy. The short answer is that it does, but not the kind of planning we practised in the past which derived its rationale from the belief that centralized control on resource allocation, with extensive intervention in private sector decision making, was necessary to achieve rapid growth.

Amartya Sen’s article, which is reprinted in this volume but which first appeared in the Seminar issue on Freedom and Planning almost fifty years ago, provides a flavour of the earlier approach. Sen argued then that planning was necessary not only to achieve

distributional objectives – which he points out is a traditional and much discussed basis for state intervention – but also to achieve a high rate of growth. He recognized that the industrialized world had achieved industrialization without planning and acknowledged that we could also follow this path, but warned that if we did, it would take us more than a hundred years to industrialize whereas the experience of the socialist economies showed that a much faster transition was possible with socialist planning.

The superiority of socialism in achieving rapid growth was attributed to two reasons. First, since capitalists seek profit maximization, growth in a capitalist economy is only a by-product of this process, and therefore need not occur at the fastest possible rate. Second, even if capitalists want to maximize growth, they would be less efficient at doing so because individual entrepreneurs do not have all the information necessary to achieve the best results whereas a ‘national coordinating planning organization’ would have much more information and therefore achieve better ground outcomes.

Sen also warned that planning as practised in India, without a really socialist economy, with a private sector responsible for producing consumer goods and a public sector concentrating on producer goods, was unlikely to achieve results. The model suffered from internal contradictions – the ‘middle path’, as he put it, had run out and it was necessary to take a stand on whether we really wanted a socialist economy. The case for planning was essentially a case for more comprehensive socialism, and was in his view a strong case, but we would need to move to a socialist economy.

Things have changed enormously in fifty years and not surprisingly attitudes to planning have also changed. The greatest change in perceptions that has occurred since Sen’s Seminar article of fifty years ago is the discrediting of the technical argument that a centralized planning system, led by a ‘a coordinating national planning organization’ would be more able to achieve faster growth. The costs of a centralized system of decision-making, relative to a decentralized approach of ‘letting a hundred flowers bloom’ are now much better appreciated. Centralization is of course particularly dangerous where governance is poor but even when governance is not a serious problem, centralization is likely to be inefficient because bureaucratic decision-making, subject to multiple levels of

accountability, is inherently sluggish, rule bound and unlikely to promote risk-taking. It suffers from greater inertia being less likely to acknowledge mistakes and change course when evidence begins to suggest that it should.

Paradoxically, democratic governments are actually much more burdened than authoritarian regimes in this respect, because accountability in a competitive political environment often leads to dilatory procedures designed to ensure transparency and is vulnerable to constant challenges on grounds of bias and ill-intention. This in turn suggests that our democratic system is likely to yield a better economic performance, if it relies on an economy with greater reliance on market forces, rather than one subject to constant political interference.

Another important change in the plan...
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