MLG COLLEGE OF LEARNING INC.

BRGY. ATABAY HILONGOS, LEYTE

Name: Davora Mae J. Lopez BSED – SS3

COMPARATIVE ECONOMIC PLANNING

I. DEFINITION

What is Economic Planning-

Economic planning is the process through which we can take the decisions of what and how
it is to be produced through controlling and managing the economic activity. It is an
economic programme speculated for the development of the regional economic system.

“Economic Planning is essentially a way of organizing and utilizing resources to maximum

advantage in terms of social ends.”

Economic planning is a resource allocation mechanism based on a computational procedure

for solving a constrained maximization problem with an iterative process for obtaining its
solution. Planning is a mechanism for the allocation of resources between and within
organizations contrasted with the market mechanism. As an allocation mechanism for
socialism, economic planning replaces factor markets with a procedure for direct allocations
of resources within an interconnected group of socially owned organizations which together
comprise the productive apparatus of the economy.

There are various forms of economic planning that vary based on their specific procedures
and approach. The level of centralization or decentralization in decision-making depends on
the specific type of planning mechanism employed. In addition, one can distinguish between
centralized planning and decentralized planning. An economy primarily based on planning is
referred to as a planned economy. In a centrally planned economy, the allocation of resources
is determined by a comprehensive plan of production which specifies output requirements.
Planning can also take the form of indicative planning within a market-based economy,
where the state employs market instruments to induce independent firms to achieve
development goals.

II. NATURE AND SCOPE

• The nature of economic planning

Historically, the idea of central economic planning was associated with the criticism of
capitalism as a system of anarchy and greed. Marxist critics did not give much thought to
how the economy would be run after capitalism had been abolished; most of them professed
to see no difficulty in organizing the society that would follow. When in 1917 the new Soviet
government found itself the owner of all the means of production, it had no blueprint as to
what to do next. The evolution of central economic planning in the Soviet Union was largely
a pragmatic affair; methods were tried and discarded, and new ones were introduced. The
decision in 1927 to undertake rapid and large-scale industrialization required the centralizing
of control, since only the government could undertake the task of marshaling the productive
resources of the country to achieve its ambitious aims.

In western Europe, economic planning is adapted to a diversified economic structure, a

dynamic class of business managers, and a long tradition of political and economic liberty.
Consequently, although planning implies an extension of the economic responsibilities and
activities of the state, the mainspring of economic growth remains the private sector. Only
rarely does the state intervene directly in the affairs of individual firms. Economic planning
remains indirect and takes the form of collaboration between the public and the private
sectors. Producers and consumers are free to adapt their activities to changes in market
conditions and relative prices. In the 1980s there was a general trend for governments to sell
state-owned enterprises to the public and to reduce the extent of public regulation of
particular sectors, such as air transport.

Communist methods of planning after the mid-1950s entered a state of flux, and the highly
centralized administrative type of planning inherited after World War II from the Soviet
Union by all the newly established communist states underwent considerable modifications.
In Yugoslavia planners followed policies very different from those of the Soviet model, and
differences also emerged in the practice of other eastern European countries. In the Soviet
Union itself, a debate concerning the most appropriate means for implementing plans went on
for some years, but, despite numerous efforts on the part of the government to reorganize the
machinery of planning, the fundamental drawbacks of central economic planning were never
overcome. The Soviet Union’s attempts in the late 1980s to reform its planning machinery
had the unintended effect of bringing down the whole structure of central economic planning,
and with it the Soviet government itself. By the early 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 typical of the economies of western Europe.

In the meantime, the knowledge of the Soviet-bloc countries’ long-standing difficulties had
given rise in many developing countries to a repugnance to Soviet planning methods, while
the methods used in the developed noncommunist countries were felt to be not directly
applicable, either. There was consequently no settled planning doctrine in the developing
countries, and the approach of governments remained empirical. In practice, this meant that
the state played a major role in setting up new industries and in modernizing agriculture,
particularly in countries of recent independence. The state budget was a major source of
savings, supplemented frequently by the local currency counterpart of foreign aid. But the
absence of a highly qualified civil service placed limits upon the extent and efficacy of state
action. Thus, in urban areas, privately owned businesses continued to supply most local
consumer goods. In agriculture, peasant proprietorship or large private estates—particularly
for export products—remained the general rule.

III. CHARACTERISTICS/FEATURES

• Characteristics or Features of Economic Planning

The features of economic planning include various points such as:-

(A) A system of Economic Organization-

In this first features of economic planning, it consists of various comprehensive activities of

production, consumption, distribution, exchange, and finance are planned and defined in a
coordinated manner to attain various economic and social objectives.

(B) Determination of Target and Priorities-

In this, the economic and social targets are well defined in the process of economic planning.
A certain priority is also determined for these targets.

(C) Central Planning-

All the activities of economic planning are performed by the central planning authority. This
authority is known as the planning commission. All the decision are taken by this authority.

(D) Certain Period-

The process of economic planning involves the determination of economic plans for a certain
or specific period. For Example– In India, an economic plan is purposed for 5 years. After
completing one five year plan another plan is launched.

(E) Government Regulation and Control-

Economic planning is a government affair. All plans are determined, regulated, and
controlled by the government (generally central government). All the major source of data
(related to economy planning) is managed by the government and its team.

(F) Economic and Social Government-

The main motive of economic planning is economic development and social welfare. All
possible efforts are made to achieve balanced growth.

IV. TYPES OF ECONOMIC PLANNING

• Types of Economic Planning

The types of economic planning are divided into three categories such as:-
[Link] the basis of-

Capitalist Planning

Socialist Planning

Communist Planning

Fascist Planning

Democratic Planning

2. On the basis of-

Long Term & Short Term Planning

Permanent & Emergency Plan

3. On the basis of-

General & Partial Planning

Regional, National, & International

Centralized & Decentralized

On the basis of-

(A) Capitalist Planning-

It is planning adopted by the capitalist country. All the resources are managed, controlled,
and regulated by private entrepreneurs or companies.

(B) Socialist Economy-

It is a specific way between capitalist planning and communist planning and also the
resources are owned and regulated by the government (whether it is central or state).

(C) Communist Planning-

This types of economic planning are adopted by the communist countries. All the resources
are owned, managed, and regulated by the government.

(D) Fascist Planning-

The planning is regulated, directed, and controlled by the individual. An individual is the
head of the state to take efficient and important decisions.

(E) Democratic Planning-

This type of planning is adopted in mixed economies both the public and the private sector
work under government rules & regulations in control. In this planning, the government
provides the code of conduct to all companies for explaining the purpose of how to work in
an economy.

On the basis of-

(A) Long Term & Short Term Planning-

When the plan is drafted for a long period of time. Say 5 to 10 years, it is called long term
planning.

When the plan is drafted for a short period of time, say less than a year, it is regarded
as short term planning.

(B) Permanent & Emergency Plan-

A permanent plan exists for a longer period of time and is fixed for a longer time period. For
Example– 5-year plan.

Emergency planning is a plan which is used to deal with emergency situations such as floods,
etc.

On the basis of other factors-

(A) General & Partial Planning-

It is planning for the economy as a whole and economic planning for a particular part of the
economy is called partial planning.

(B) Regional, National, & International-

When the economic plan is drafted for a regional level is called Regional Planning. Similarly,
the economic plan drafted for a national level is called as national planning and finally, an
economic plan which is crossing the boundary of countries it is called international planning.

(C) Centralized & Decentralized-

The economic plan drafted by a central or head authority is known as centralized planning.
While planning done by regional authority it is known as decentralized planning.

V. OBJECTIVES

• Objectives of Economic Planning

The objectives can be classified into various sources like economical, social, and political
also.
The objectives can be classified into various sources like economical, social, and political
also.

The 3 main objectives of economic planning are classified as follows:-

•Economic Objectives

•Social Objectives

•Political Objectives

[Link] Objectives-

This is the first part of objectives of economic planning and it includes various sub-
points such as:-

(A) Better Utilization of National Resources-

Economic planning ensures the better utilization of natural resources such as water resources,
land resources, mineral resources, and forest resources.

(B) Full Employment-

Unemployment is the root cause of concern for any nation. Economic planning ensures full
employment opportunities to prospective employees with desired skills and abilities.

(C) Promoting Balanced Development-

There should be balanced between agricultural and industrial development, rural and urban
development, economic and social development, and so on.

(D) Minimizing Economic Inequalities-

Effective economic planning leads to minimization of inequalities that results in differences

in the distribution of wealth and incomes. The ultimate objectives of economic planning are
that wealth should be distributed equally among the masses.

(E) Maximum Production & Productivity-

Economic planning can result in better utilization of resources and appropriate use of
technology to increase the production and enhancing the productivity of employees.

(F) Promoting Standard of Living-

Economic planning ensures a better quality of products is provided to the various members of
the society ensuring a better standard of living.
(G) Attaining Self Reliance-

The best efforts are made to promote exports and to channelize industrial development of the
country in such a manner that dependence on imports is minimized.

(H) Economic Security & Stability-

It ensures fair remuneration to workers, a fair return to investors, reasonable returns to

entrepreneurs.

2. Social Objectives-

This is the second part of objectives of economic planning and it includes various sub-
points such as:-

(A) Social Security-

It deals with old age, pensions, unemployment, allowances, accidental insurances, and so on.

(B) Social Welfare-

Economic planning ensures better facilities in education, accommodation, medical,

recreation, transport facilities, and so on.

(C) Social Equality-

Equal opportunity for development is provided to way citizen of the country irrespective of
the caste, religion, gender, and so on.

3. Political Objectives-

This is the third part of objectives and it includes various sub-points such as:-

(A) Promoting Defense-

Defense from for foreign attacks and aggression is an important objective of economic
planning.

(B) Promoting Internal Peace-

Maintenance of law, order and internal peace is an essential condition for a social and
economic department.

(C) Satisfying the Political Ego-

Economic planning has been adopted by different political parties as a tool to satisfy their
political ego. There are various changes in economic plans and policies a change in
government.

VI. IMPORTANCE
• Importance of Economic Planning

The importance of economic planning is also known as the scope of economic planning.
It includes various points such as:-

(A) Reliable Statistical Data-

Economic planning is dependent heavily on statistic so that there can be the proper fixation of
targets and priorities.

(B) Suitable Economic Organization-

The Planning commission was set up in India with the desired objective of attaining
economic stability and social welfare. This organization will streamline the production,
consumption, distribution, and exchange mechanism to attain desired results.

(C) The existence of Strong and Stable Government-

The progress of the nation rests on the shoulders of the central government. A strong and
progressive government will provide a sound infrastructure for economic planning.

(D) Maintenance of Proper Balance-

A proper balance between agriculture and industry, public and private sector, urban and rural
areas, cotton and heavy industries should be maintained thus, resulting in economic progress.

(E) Proper fixation of Target and Priorities-

Priorities are set up in the progress of economic planning. A certain priority order is
determined for the attainment of these targets. The focus is on more economic and social
targets.

(F) Efficient and Clear Administration-

Economic planning will be effective only when the administration is a sound one and free
from the roots of corruption. All the policies should be progressive and should lay a lot of
emphasis on human development.

VII. DIFFERENT TYPES OF ECONOMIC SYSTEM

• Different types of Economic System

Let us learn about the different types of an economic system.

Capitalist Economy:

A capitalist economy refers to an economy that works on the principle of the free market
mechanism. It is also termed as laissez faire system. In a capitalist economy, the role of
government is very limited. The main functions of government, as given by Adam Smith, are
to maintain law and order in a country, make national defense stronger, and regulate money
supply. According to Smith, the market system administers various economic functions.
However, over a period of time, the functions of government in an economy have increased.

In a capitalist economy, the main responsibilities performed by the government are as

follows:

a. Developing and sustaining the free market mechanism system

b. Eliminating any kind of restrictions on the working of free competitive market

c. Increasing the effectiveness of free competitive market system through various measures

In the view of Meade, following are the responsibilities of a government in a capitalist

economy:

a. Regulating and controlling various economic situations, such as inflation and deflation, by
formulating and implementing various fiscal and monetary measures

b. Controlling the power of monopolistic and large corporations to elude various economic
problems, such as unemployment and inequitable distribution of resources

c. Possessing the ownership of public utilities, such as railways, education, medical care,
water, and electricity, which are required by an economy as a whole

d. Prohibiting discrimination among individuals and providing them equal educational and
job opportunities

e. Limiting restrictive trade practices and power of trade unions

f. Maintaining law and order, administering justice, and safeguarding the freedom of
individuals in an economy

g. Supporting private ventures in an economy

h. Creating central planning body that helps in the development of an economy on a larger
scale

i. Handling problems to environment, extinction of natural resources, and growth of

population

Therefore, we can conclude that the major role of government in a capitalist economy is to
control and encourage the free market mechanism. In addition, the government should
encourage private ventures for safeguarding the future of an economy.

Socialist Economy:

In a socialist economy, the function of government is entirely different from the function of
government in a capitalist economy. In a capitalist economy, the government acts as a
regulatory and complementary body. On the other hand, in a socialist economy, the
government plays a comprehensive role in almost all economic activities, such as production,
distribution, and consumption, of a nation. In a socialist economy, not only the ownership of
private property is allowed to a limited amount, but the concept of free market mechanism is
also eliminated.

The private ownership of resources, in a socialist economy, is changed by state ownership. In

addition, in a socialist economy, the government plans and regulates all the economic
activities centrally at a state level. Moreover, the decisions related to production, allocation of
resources, employment, pricing, and consumption, are completely dependent on the
government or its central planning authority. In a socialist economy, individual’s decisions
are totally dependent on the limit decided by the government.

For example, individuals are given the freedom of choice, but it is subject to the limitations of
policy framework of the socialist economy. The countries in which socialist economy is
adopted are China, Yugoslavia, Czechoslovakia, and Poland. The objective of the
government in a socialist economy is same as in the capitalist economy, such as growth,
efficiency, and maintaining justice. However, the ways adopted by the socialist economy to
achieve those objectives are different from the capitalist economy.

For example, in the capitalist economy, the main force of motivation is the private profit,
whereas in the social economy, the encouraging factor is the social welfare. The socialist way
of managing an economy facilitates the elimination of various evil activities of the capitalist
economy, such as labor exploitation, unemployment, and inequality in the society. This is
only the classical view of the socialist economy.

However, over a passage of time, the scope of socialist economy has also been reduced due to
various reasons, such as prohibition of profits from private ventures, inadequate utilization of
resources, and restrictions on economic development as noted by Union of Soviet Socialist
Republics (USSR).

Mixed Economy:

Mixed economy refers to an economy that-comprises the features of both, the socialist
economy and capitalist economy. This implies that working of a mixed economy is based on
the principles of the free market mechanism and centrally planned economic system.

In a mixed economy, the private sector is encouraged to work on the principle of the free
market mechanism under a political and economic policy outline decided by the government.
On the other hand, the public sector, in a mixed economy, is involved in the growth and
development of public utilities, which is based on the principle of socialist economy.

In a mixed economy the public sector comprises certain industries, businesses, and activities
that are completely owned, managed, and operated by the government. Moreover, in a mixed
economy, certain laws have been enacted by the government to restrict the entry of private
entrepreneurs in industries reserved for the public sector.

Apart from this, the government also strives hard for the expansion of the public sector by
nationalizing various private ventures. For example, in India, the government has
nationalized several private banks, which has resulted in the expansion of the public sector.
Besides working for the growth and development of the public sector, the government, in a
mixed economy, controls the activities of the private sector by implementing various
monetary and fiscal policies.

It should be noted here that the free market mechanism is actually a form of a mixed
economy. This is because of the reason that in free market mechanism, both the private and
public sectors exist simultaneously. However, public sector in a free market mechanism
economy is different from the public sector of the mixed economy.

In free market mechanism economy, the public sector is responsible to maintain law and
order in a country, make national defense stronger, and regulate money supply. On the other
hand the public sector of a mixed economy is involved almost all economic activities, such as
production, distribution, and consumption. For example, the public sector of an economy,
such as India, is based on the socialist pattern of society.

VIII. ROLE OF GOVERNMENT IN ECONOMIC SYSTEM

• Role of Government in Economic Systems

The shortcomings of the free market mechanism under which there is no role of government
in the economic development of a nation.

Due to the failure of the free market mechanism, the intervention of government became
indispensible for the growth of an economy.

Now, the question arises of determining the extent of government in regulating and managing
economic activities.

This remains a debatable issue among various economists. This is because of the reason that
the government intervention is also not able to eradicate the economic problems of a nation
completely.

Different economists have given different viewpoints for the role of government in an
economy.

Following are some of the viewpoints given by different economists:

According to Colin Clark, “The role of government must be held at a ceiling of 25 per cent of
the national income.”

According to Samuelson, “There are no rules concerning the proper role of government that
can be established by a priori reasoning.”
From the aforementioned viewpoints, it can be concluded that the accurate and exact percent
or amount of government intervention in an economy is hard to decide and calls for an issue
of collective social choice. The extent of role of government differs in different economies.
An economic system is a way through which economic resources are owned and distributed.

IX. REFERENCES

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