Political Concept of Planning

The need for some kind of economic organization arises out of the simple fact of scarcity: while human needs and wants are infinite, the material resources available to satisfy them clearly are not. In a world of abundant wealth and general prosperity economics would be irrelevant; but in circumstances of scarcity economic issues threaten to dominate all others, political ones included. As already noted, the heart of the economic question has traditionally been posed as a choice between two fundamentally different economic systems – socialism or capitalism – and therefore between two rival mechanisms for allocating resources within the economy: the plan or the market. However, the idea of planning is often poorly understood, being linked in many people’s minds to the machinery of central planning once found in the Soviet Union. Yet planning has assumed a wide variety of forms, having been employed by developing countries in the third world as well as by some advanced industrialized states. Moreover, although some have argued that historical developments have entirely discredited the planning process, it is difficult to see how economic activity can be undertaken without some element of planning.

The Planning Process

To ‘plan’ is to draw up a scheme or devise a method for achieving a specified goal. In effect, it is to think before one acts. All forms of planning must therefore have two essential features. In the first place, planning is a purposeful activity; planning presupposes the existence of clear and definable objectives, something that it is desirable to achieve or accomplish. These goals may be highly specific, as in the case of the output targets set in Soviet-style central planning, or they may be broader and more generalized, for example, an increase in economic growth, a reduction in unemployment and so on. Second, planning is a rational activity. It is based upon the assumption that economic and social problems are capable of being solved through the exercise of human reason and ingenuity. At the heart of economic planning therefore lies a belief that the problem of scarcity can best be overcome by a rational mechanism for allocating resources, geared to established human goals. This ‘rational mechanism’ undoubtedly involves the exercise of some kind of control over economic life, the production, distribution and exchange of goods and services. However, the means for doing this and the range of control exerted over the economy differs considerably from one system of planning to the next.

The idea of planning has traditionally been associated with socialist economics, and particularly with Marxism. However, Marx never laid down a blueprint for the organization of a future socialist society and, believing that it was impossible to envisage in detail how a historically different society would work, he restricted himself to a number of broad principles. His central belief was that private property should be abolished and replaced by a system of collective or social ownership. In Marx’s view, capitalism was a system of ‘commodity production’, in which goods and services were produced in response to market pressures, a system of ‘production for exchange’. By contrast, a socialist economy would be based upon the principle of ‘production for use’, and would dispense altogether with market transactions and indeed the need for a money economy. In other words, under socialism the economy would serve the material needs of society, a requirement that presupposes some kind of planning arrangement. Unfortunately, Marx did not specify what form that arrangement would take. What is certain, however, is that neither Marx nor Engels envisaged the emphasis upon central control and large-scale production which characterized the planning process in the Soviet Union. Marx consistently supported broad popular participation at every level in society, and his prediction that the state would ‘wither away’ as full communism was established suggests support for common property and self-management rather than for state collectivization.

There is little doubt that the planning process reached its highest stage of development in the Soviet Union, a model later adopted by state socialist regimes in Eastern Europe and elsewhere. In his famous phrase Lenin described communism as ‘Soviet power plus electrifica-tion’, indicating a broad commitment to modernization and the task of bringing the economy under democratic control. This vision, however, was not realized until the launch of the First Five Year Plan in 1928 and the collectivization of Soviet agriculture which started the next year. This led to the construction of a centrally planned economy. With the exception of private plots of land, supposedly for the personal use of peasants, all economic resources came under the control of the state. Under Stalin a ‘command economy’ was established, which involved a system of so-called ‘directive planning’ operating through a hierarchy of party and state institutions. Overall control of economic policy lay in the hands of the highest organs of the Communist Party, the Central Committee and the Politburo. A complicated network of planning agencies and committees, operating under Gosplan, the State Planning Committee, was responsible for drawing up Five Year Plans. Soviet-style central planning placed unquestioning faith in the notion that society could be organized on rational lines, and was prepared, when necessary, to imitate US capitalism. For example. the giant steel town of Magnito Gorsk was modelled upon Gary, Indiana, and work in Soviet enterprises was organized on the basis of Taylorism, according to the pioneering time-and-motion studies under-taken by F.W. ‘Speedy’ Taylor of the Bethlehem Steel Corporation.

In other countries, however, planning has been seen as a way of supplementing the market rather than replacing it. In such cases, a system of so-called ‘indicative planning’ has developed in which plans do not establish directives instructing enterprises what to produce and how much to produce, but rather seek to influence the economy indirectly. Econo-mists sometimes refer to this form of government intervention as economic ‘management’ to distinguish it from Soviet-style ‘planning’; nevertheless, it still seeks to exercise a purposeful and rational influence over the organization of economic life. After 1945 state intervention became increasingly commonplace in the West as governments sought to meet a broad range of economic objectives: maintaining a high level of economic growth, controlling inflation, boosting international trade, ensuring full employment and a fair distribution of wealth, and so forth. In countries such as the UK and France this led to the nationalization of strategic industries and the construction of mixed economies, allowing government to exert growing influence over economic life.

Formal systems of planning were also set up. In the UK, faltering steps were taken in this direction under the National Plan, drawn up in 1966 by the ill-fated Department of Economic Affairs. However, in France and the Netherlands in particular, more developed and far more successful systems were introduced. A form of planning was also applied in Japan, clearly distinguishing it from the free-market model of economic development found in the USA. The ‘economic miracle’ Japan experienced in the 1950s and 1960s was overseen by the Ministry of International Trade and Industry, which guided the investment policies of private industry, helped to identify growth industries and targeted export markets. A similar system of careful government intervention to promote export-led growth was adopted elsewhere in East Asia, notably in Hong Kong, Singapore, South Korea and Taiwan. India, however, developed a system of planning that drew unashamedly from Soviet experience. Shortly after independence in 1947, an Indian Planning Commission was set up which, with the assistance of expert institutions such as the Ministry of Finance and the Reserve Bank of India, drew up Five Year Plans. Although these gave the Indian government considerable influence over investment and trade, they did not amount to direct control over the private sector of the economy. Moreover, all plans were subject to approval and amendment in the Indian parliament, the Lok Sabha.

Promise of Planning

The attraction of planning rests upon economic, political and moral considerations. Central to these arguments is the fact that planning is a rational process, implying that no economic problem is beyond human ingenuity to solve. In short, planning places the economy firmly in human hands, rather than leaving it to the impersonal and sometimes capricious whims of the market. This is particularly important in establishing overall economic goals – what to produce, and how much to produce. Being relieved of the drive for profit, planners are able to organize a system of ‘production for use’ geared to the satisfaction of human needs, instead of a system of ‘production for exchange’ that responds only to market forces.

Although human needs are highly complex and infinitely variable, especially in the areas of consumer taste and popular fashion, there is broad agreement about what constitutes the basic necessities of life. These surely include shelter, a subsistence diet, primary health care and basic education. Unlike capitalist countries, state socialist regimes orientated their economies around the satisfaction of such needs. Although the central planning systems employed in the Soviet Union and throughout Eastern Europe failed dismally in their attempt to produce Western-style consumer goods, they were nevertheless successful in eradicating homelessness, unemployment and absolute poverty, problems which continue to blight the inner cities in some advanced capitalist countries. Despite chronic economic backwardness, Cuba, for example, has a literacy rate of over 98 per cent and a system of primary health care that compares favourably with those in many Western states. Such achievements require not only that economic resources are channelled into the construction industry, agriculture and the building of schools and hospitals, but also that the prices of basic necessities are subsidized and controlled by the planning process, delivering cheap food and affordable housing, as well as free education and health care.

‘Planning for need’ also offers the prospect of efficiency. Having decided what to produce, planning offers a rational solution to the problem of how to produce, distribute and exchange the goods and services that are desired. In this respect, planning draws on the experience of capitalist firms which have long organized production on rational lines. Although private corporations respond to external market conditions, their internal organization is planned and directed by a team of senior managers, whose task is to ensure the efficient use of resources. In a sense, Soviet planning was an attempt to transfer this mechanism of rational control from the private corporation to the entire economy. This was evident in the eagerness of Soviet planners to apply management techniques such as Taylorism which had developed in the capitalist West. In this way, planning was able to avoid some of the irrationalities of market capitalism. For instance, planning systems can avoid the scourge of unemployment and the gross waste of economic resources which this represents. Un-employment means that the most vital of all resources, human labour, lies idle while important social needs, such as the building of houses or the improvement of schools and hospitals, go unmet.

A system of planning also means that the economy can be organized in line with long-term goals rather than short-term profit. This has been particularly important in developing economies where market pressures can seriously distort economic prospects, as the dependence of many third world countries upon cash crops clearly demonstrates. Soviet economic development in the 1930s was based largely upon the priority planners gave to building up heavy industries and the steel industry in particular, seeing these as the basis for both national security and future economic progress. By 1941, the central planning system had created a sufficiently strong industrial base to enable the Soviet Union to withstand the Nazi invasion. Similarly, in the 1950s, Japanese planners rejected the advice of economists to concentrate resources in traditional, labour-intensive in-dustries like agriculture in which Japan had a ‘comparative advantage’, but instead promoted capital-intensive industries like steel, automobiles and electrical and electronic goods, which they believed, correctly as it turned out, were to become the industries of the future.

The political case for planning largely rests upon the prospect of bringing the economy under political and therefore democratic control. Market capitalism strives to separate economics from politics in the sense that the economy is driven by internal, market forces not by government regulation. The economy is therefore accountable to the owners of private businesses, in whose interests decisions are taken, rather than to the public. Planning, by contrast, can be seen as a means of creating a democratic economy. Undoubtedly, the image of planning has been tainted by its association with the authoritarian political structures of orthodox com-munism. Planning has thus been portrayed as a step towards the construc-tion of a Soviet-style ‘command economy’. However, it would appear that there is no necessary link between planning and authoritarianism. In-dicative planning, as has been practised in countries such as France, Germany and the Netherlands, is carried out in stable parliamentary democracies in which economic decisions are open to genuine public scrutiny, argument and debate. From this point of view, planning can perhaps be seen as a means through which the anti-democratic tendencies of the market can be tamed.

A moral case can, finally, be made out in favour of planning. As an alternative to private enterprise, planning, in whatever form, attempts to serve public or collective interests rather than particular or selfish ones. That actual systems of planning have failed in this respect, notably the Soviet system of central planning, may have more to do with political circumstances than with the planning process itself. If the planning mechanism is subject to open and democratic accountability and thus addresses genuine human needs, it will give all citizens a ‘stake’ in their economy. Planning can therefore foster social solidarity and strengthen the bonds of community, in contrast to capitalism which encourages only self-striving and avarice. There is, moreover, a clear link between planning and egalitarianism, which helps to explain why planning has been so attractive to socialists. Planning goes hand in hand with the collective ownership of wealth, ensuring that a planned economy is not debilitated by class conflict which pits the interests of property owners against those of the masses. A planned economy is also likely to be characterized by a more egalitarian system of distribution, as material rewards start to reflect social needs rather than individual productivity. In this sense, planning is based upon a theory of motivation quite foreign to advocates of market capitalism. Insofar as planning strengthens social bonds and counteracts selfishness, it creates a moral incentive to work based upon the betterment of the community rather than the well-being of the private individual.

Perils of Planning

Despite its attractions, planning undoubtedly has a number of serious drawbacks. Indeed, planning has never stood alone as a principle of economic organization, but has always been sustained by market ‘impurities’. This is perfectly obvious in the capitalist West where planning has sought to sustain market capitalism by compensating for its failures rather than trying to replace it. However, market impurities also existed in the Soviet Union. For example, private consumption was never controlled, allowing a measure of consumer choice to survive; except in wartime, a market in labour was tolerated; peasants’ ‘private plots’ supplied almost half the potatoes and 15 per cent of the vegetables in the Soviet Union; and thriving ‘black’ markets developed in goods which the official Soviet system failed to produce. Furthermore, when planned economies have been reformed this has invariably meant making concessions to market competition. This was seen as early as 1921 with the introduction of Lenin’s New Economic Policy. In the post-1945 period, a form of ‘market socialism’ developed in Yugoslavia and Hungary, which strove to decentralize economic decision-making and permitted the emergence of small capitalist enterprises. In turn, Yugoslav and Hungarian experience influenced Gorbachev’s attempts to reform the ailing Soviet economy in the late 1980s. Under the slogan Perestroika, or ‘restructuring’, Gorbachev legalized private cooperatives and single-proprietor businesses, and set about dismantling what he called the ‘command-administrative apparatus’ by encouraging state enterprises to become self-managing and self-financing.

The central problems that have confronted planned economies have been economic inefficiency and low growth. While the gap between the Soviet Union and the capitalist West continued to diminish until the 1950s, allowing Khrushchev to predict that the Soviet Union would ‘bury the West’, thereafter growth levels declined to the point that in the early 1980s the Soviet economy was actually shrinking. There is no doubt that the sluggish performance of centrally planned economies, particularly in contrast to an increasingly affluent West, was a major factor contributing to the ‘collapse of communism’ in the revolutions of 1989–91. One of the first attempts to develop a critique of planning was undertaken by Friedrich Hayek in The Road to Serfdom ([1944] 1976). In an analysis elaborated in later writings, Hayek suggested that planning was inherently inefficient because planners were confronted by a range and complexity of information that was simply beyond their capacity to handle. Central planning means making ‘output’ decisions about what each and every enterprise is to produce, and therefore also ‘input’ decisions which allocate resources to them. However, given that there were over 12 million products in the Soviet economy, some of which came in hundreds, if not thousands, of varieties, the volume of information within the planning system was frankly staggering. Economists have, for example, estimated that even a relatively small central planning system is confronted by a range of options which exceeds the number of atoms in the entire universe. However competent and committed the planners may be and however well-served by modern technology, any system of central planning is therefore doomed to inefficiency.

A further explanation of the poor economic performance of planned economies is their failure to reward or encourage enterprise. An egalitarian system of distribution may be attractive in moral or ideological terms, but does little to promote economic efficiency. Although centrally planned economies achieved full employment, they typically suffered from high levels of absenteeism, low productivity and a general lack of innovation and enterprise. All Soviet workers, for example, had a job, but it was more difficult to ensure that they actually worked. This problem was acknowl-edged in the Soviet Union where an initial emphasis upon moral incentives, based upon medals and social prestige, soon gave way to a system of differential wage levels and material rewards, albeit one more egalitarian than in capitalist countries. Some have gone further, however, and argued that to the extent that incentives exist in planned economies these tend to inhibit growth rather than stimulate it. Because the overriding goal in such an economy is to fulfil planning targets, industrial managers are encour-aged to underestimate their productive capacity in the hope of being set more achievable output targets. In the same way, planners themselves are likely to set modest targets since promotion, prestige and other rewards are linked to the successful completion of the plan. The planning machine is thus biased in favour of low growth.

Planning systems have also been criticized for their disregard of consumer tastes and preferences. Although planners have employed questionnaires and surveys, neither is as sensitive to consumer pressures as the capitalist price mechanism. Some goods are clearly, in Alec Nove’s (1983) term, more ‘plannable’ than others, in that estimates of likely demand can be made with a reasonable degree of accuracy. This applies, for instance, in the case of electricity. However, modern consumer goods are less ‘plannable’ since demand for them is more easily influenced by changing tastes and emerging needs. This perhaps accounts for the tendency of planning systems to address basic social needs while ignoring more sophisticated consumer appetites. For example, although planned economies conquered the problem of homelessness, they did so by providing dreary and impersonal tenement accommodation. Agriculture similarly concentrated upon the production of staple foodstuffs, with little attention being given to developing a varied and interesting diet. More-over, when enterprises are geared to the completion of production targets there is no incentive for them to consider the quality of the goods being produced. Quite simply, production targets can be achieved even though the goods made are never sold and never used.

Finally, planning has been attacked on political and moral grounds. Planned economies have, in particular, been associated with bureaucracy, privilege and corruption. In the absence of market competition, planners are able to enforce their own preferences and values upon society at large. This can lead to ‘the tyranny of the planners’, as economic and social priorities are determined ‘from above’ without the wishes of ordinary people being understood, still less being taken into account. Centrally planned economies have certainly suffered from the problem of bureau-cratization as vast armies of state officials, estimated at over 20 million in the Soviet Union, came to enjoy privileges and rewards which set them apart from the mass of the population. Milovan Djilas (1957), at one time a confidante of Tito in Yugoslavia but later imprisoned, termed this sprawling state bureaucracy ‘the new class’, drawing parallels between its position and the privileges enjoyed by the capitalist class in Western societies. At the very least, the concentration of economic power in the hands of state officials and industrial managers fostered widespread corruption, a problem that became endemic in the Soviet Union. The fiercest attack upon planning was, however, undertaken by free market economists such as Hayek, who argued that it contains the seeds of totalitarian oppression. Once economic life is regulated, all other aspects of human existence will be brought under state control. Without doubt, the introduction of central planning in the Soviet Union was accompanied by brutal political oppression, with an estimated 20 million people dying as a result of the famines, purges, show trials and executions of the period. In Hayek’s view, there was a causal link between these events. In effect, Gosplan led to the gulags, the labour camps.