Planned economy
A planned economy is a type of economic system where investment and the allocation of capital goods take place according to economy-wide economic and production plans. A planned economy may use centralized, decentralized or participatory forms of economic planning.[1][2] Planned economies contrast with unplanned economies, specifically market economies, where autonomous firms operating in markets make decisions about production, distribution, pricing and investment. Market economies that use indicative planning are sometimes referred to[by whom?] as planned market economies.
A command economy or administrative command economy describes a country using Soviet-type economic planning which was characteristic of the former Soviet Union and Eastern Bloc before most of these countries converted to market economies. These terms highlight the central role of hierarchical administration and public ownership of production in guiding the allocation of resources in these economic systems.[3][4][5] In command economies, important allocation decisions are made by government authorities and are imposed by law.[6]
Central planning has been used in the majority of countries adopting socialism including those based on the Soviet model, though a minority have adopted some degree of market socialism, such as the Socialist Federal Republic of Yugoslavia. Non-market socialism replaces factor markets with direct calculation as the means to coordinate the activities of the various socially-owned economic enterprises that make up the economy.[7][8][9] More recent approaches to socialist planning and allocation have come from some economists and computer scientists proposing planning mechanisms based on advances in computer science and information technology.[10]
Planned versus command economies[edit]
Planned economies contrast with command economies. A planned economy is "an economic system in which the government controls and regulates production, distribution, prices, etc."[11] whereas a command economy necessarily has substantial public ownership of industry while also having this type of regulation.[12]
Most of a command economy is organized in a top-down administrative model by a central authority, where decisions regarding investment and production output requirements are decided upon at the top in the chain of command, with little input from lower levels. Advocates of economic planning have sometimes been staunch critics of these command economies. For example, Leon Trotsky believed that those at the top of the chain of command, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and who understand/respond to local conditions and changes in the economy, and therefore would be unable to effectively coordinate all economic activity.[13]
Although historians have associated planned economies with Marxist–Leninist states and the Soviet economic model, some argueTemplate:Weasel inline that the Soviet economic model did not actually constitute a planned economy in that a comprehensive and binding plan did not guide production and investment, therefore the further distinction of an administrative command economy emerged as a more accurate designation for the economic system that existed in the former Soviet Union and Eastern Bloc, highlighting the role of centralized hierarchical decision-making in the absence of popular control over the economy.[14] The possibility of a digital planned economy was explored in Chile between 1971 and 1973 with the development of Project Cybersyn and by Template:Ill, head of the Department of Technical Physics in Kiev in 1962.[15][16]
- ↑ Alec Nove (1987). "Planned Economy". The New Palgrave: A Dictionary of Economics. vol. 3. p. 879.
- ↑ Devine, Pat (26 July 2010). Democracy and Economic Planning. Polity. ISBN 978-0745634791.
- ↑ Zimbalist, Sherman and Brown, Andrew, Howard J. and Stuart (October 1988). Comparing Economic Systems: A Political-Economic Approach. Harcourt College Pub. p. 4. ISBN 978-0-15-512403-5.
Almost all industry in the Soviet Union is government owned and all production is directed, in theory, by a central plan (though in practice much is left for local discretion and much happens that is unplanned or not under government control).
- ↑ Wilhelm, John Howard (1985). "The Soviet Union Has an Administered, Not a Planned, Economy". Soviet Studies. 37 (1): 118–30. doi:10.1080/09668138508411571.
- ↑ Ellman, Michael (2007). "The Rise and Fall of Socialist Planning". In Estrin, Saul; Kołodko, Grzegorz W.; Uvalić, Milica (eds.). Transition and Beyond: Essays in Honour of Mario Nuti. New York: Palgrave Macmillan. p. 22. ISBN 0-230-54697-8.
In the USSR in the late 1980s the system was normally referred to as the 'administrative-command' economy. What was fundamental to this system was not the plan but the role of administrative hierarchies at all levels of decision making; the absence of control over decision making by the population [...].
- ↑ Rosser, Mariana V.; Rosser, J. Barkley (23 July 2003). Comparative Economics in a Transforming World Economy. MIT Press. p. 7. ISBN 978-0-262-18234-8.
In a command economy the most important allocation decisions are made by government authorities and are imposed by law.
- ↑ Prychito, David L. (31 July 2002). Markets, Planning, and Democracy: Essays After the Collapse of Communism. Edward Elgar Publishing. p. 72. ISBN 978-1840645194.
Traditional socialism strives to plan all economic activities comprehensively, both within and between enterprises. As such, it seeks to integrate the economic activities of society (the coordination of socially owned property) into a single coherent plan, rather than to rely upon the spontaneous or anarchic ordering of the market system to coordinate plans.
- ↑ Mandel, Ernest (1986). "In Defence of Socialist Planning" (PDF). New Left Review. 159: 5–37.
Planning is not equivalent to 'perfect' allocation of resources, nor 'scientific' allocation, nor even 'more humane' allocation. It simply means 'direct' allocation, ex ante. As such, it is the opposite of market allocation, which is ex post.
- ↑ Ellman, Michael (31 March 1989). Socialist Planning. Cambridge University Press. p. 327. ISBN 978-0521358668.
'[S]ocialist planning', in the original sense of a national economy which replaced market relationships by direct calculation and direct product exchange, has nowhere been established [...].
- ↑ Cottrell, Allin; Cockshott, W. Paul (1993). Towards a New Socialism. Nottingham, England: Spokesman. Retrieved 28 February 2017.
- ↑ "Planned economy". Dictionary.com. Unabridged (v. 1.1). Random House, Inc. Retrieved 11 May 2008).
- ↑ "Command economy". Merriam-Webster Online Dictionary. Retrieved 11 May 2008.
- ↑ Trotsky, Leon. Writings 1932–33. p. 96.
- ↑ Ellman, Michael (2007). "The Rise and Fall of Socialist Planning". In Estrin, Saul; Kołodko, Grzegorz W.; Uvalić, Milica (eds.). Transition and Beyond: Essays in Honour of Mario Nuti. New York: Palgrave Macmillan. p. 22. ISBN 0-230-54697-8.
Realization of these facts led in the 1970s and 1980s to the development of new terms to describe what had previously been (and still were in United Nations publications) referred to as the 'centrally planned economies'. In the USSR in the late 1980s the system was normally referred to as the 'administrative-command' economy. What was fundamental to this system was not the plan but the role of administrative hierarchies at all levels of decision making; the absence of control over decision making by the population [...].
- ↑ "Machine of communism. Why the USSR did not create the Internet".
- ↑ Kharkevich, Aleksandr Aleksandrovich (1973). Theory of information. The identification of the images. Selected works in three volumes. Volume 3. Information and technology: Moscow: Publishing House "Nauka", 1973. - Academy of Sciences of the USSR. Institute of information transmission problems. p. 524.