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Thing 19

Despite the fall of communism, we are still living

in planned economy

Presented by:
Mukesh Sahu

What they tell you

In complex modern economies,
planning is neither possible nor
A complex modern economy
decentralized decisions
A market mechanism
individuals and firms
a profitable opportunity
The less planning there is,
the better

What they dont tell you

Capitalist economies are
in large part planned
By planning of the
activities of state-owned
Through sectorial
industrial policy and
indicative planning
With the help of Large,
hierarchical corporations
Planning the right
things at the right

Upper Volta with Rockets

In the 1970s, Western diplomats called
the Soviet Union Upper Volta with
A country that could send men into space
but had people queuing up for basic
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

Upper Volta with Rockets .

Cap on how much a business
manager, however successful, could
Limited incentive for business
managers to turn the advanced
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
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
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

Planning is gone. Or

There is planning and there is


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
But not India

Sectorial industrial policy

Sizeable chunk of the national
economy driven through stateowned 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
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

Rich countries are more planned than poor
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