Planning Summary - Lecture notes 1-5 PDF

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The process of economic planning ...

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1 THE PROCESS OF ECONOMIC PLANNING CONTENTS PART: ONE Planning in perspective: possibilities and limitations 1. General approaches to planning. 2. Development plans-systematized.

PART: TWO Planning: The institutional aspects 1. Legal provisions for planning: planning organs. 2. The plan and the market. 3. Some broader institutional-political issues.

PART: THREE Aims, strategies, and policies of development planning 1. Basic ends: Domestic Economic Aspects. 2. Development strategies: International and social aspects.

PART: FOUR The elaboration of development plans 1. Systematic analysis of the aspiration of the population for planning purposes. 2. Utilization of economic theory and models of growth in planning.

PART: FIVE Scientific and Quantitative evidence and planning 1. Planning: The evidence furnished by science and technology. 2. The base period of the plan: The statistical evidence.

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Planning in Perspective: Possibilities and Limitations General Approaches to Planning AT THE MIDPOINT of the decade, the 1970s are beset with worldwide problems. The term "crisis" is applied with increasing frequency, with the international energy situation, the shortages in world food supplies, and the current and forecast population levels foremost on the list of phenomena characterized as critical. The problems are not restricted to the poverty-ridden less developed areas. The international financial system as a whole is under very great strain. Inflation persists in the most affluent economies. Even the huge and relatively self-sufficient United States economy is not exempt from grave problems. The seriousness of the situation is augmented by the difficulties that governments experience in their attempts to cope with the problems. The ensuing frustrations often lead to a feeling of crisis in another area, Namely, economics. Those economic models, constructs, and policies that served well under previous conditions no longer appear to be effective in resolving various current issues. The weaknesses of the economic and political institutions dealing with the problems are also apparent. The unresolved national issues of inflation and balanced growth with equitable results are clear indications of similar limitations in even the best-endowed economies. One purpose of the present work is to show that unless careful planning is applied to the problems faced by the world and by individual nations, there is no hope for solutions, perhaps not even for temporary remedies for most major contemporary issues. Since emphasis should be as much on the adjective "careful" as on the noun "planning." the present work strongly emphasizes the steps preparatory to planning and is structured around eight major topics:

1. The possibilities and limitations of planning 2. The institutional aspects

3 3. The aims, strategies, and policies of development planning 4. The elaboration of development plans 5. Quantitative evidence and planning 6. Techniques of planning 7. Political priorities and planning 8. Plan implementation

The discussion of these eight topics follows an outline based on eight main propositions. The first link in this chain of reasoning is the claim of unavoidability of planning in our times. The need to evaluate the potential and the limitations of planning is a corollary. Secondly-given the will to engage in planning-the institutional issues arise in their various political, legal, and economic ramifications.

However, the introduction of planning and the provision of the relevant institutional prerequisites gain their true significance only in the context of well thought out, balanced, and farsighted national objectives. This is the third basic proposition. Unfortunately, the setting of national objectives is one of the weakest links in most national planning efforts.

Therefore the present work deals separately with four major sources of evidence relevant to the planning of national objectives:

1. The desires and aspirations of the populace The evidence furnished by modern knowledge (all branches of it, including economics). The quantitative evidence (particularly statistics) regarding the socioeconomic processes to be planned The priorities adopted by the decision-making political authorities. After study of the bases and setting of the broad objectives of the plan, the selection of the appropriate planning techniques is of central importance A review of the informal and formal, overall and sectional, and short-term and long-term planning techniques should aid in this process.

4 Finally, the relationship between planning and plan implementation becomes crucial. The plan implementation should be stressed, with provisions for intervention, corrective action, and if necessary, modifications in the plan. For discussion of the eight main topics briefly outlined above, adherence to the following two basic assumptions is of particular importance:

1. Much of the difficulty experienced in economic planning by various countries is connected with the relative neglect of the ultimate aims to be served. 2. Relatively non-detailed economic planning (coupled with a wider use of market forces) is preferable to the practicing of economic planning in great detail (usually exercised in conjunction with the use of extensive administrative controls). Regarding the first assumption, it is maintained that the ultimate aims to be served by economic planning-and more generally, the wider social context in which it takes place-are neither adequately studied, systematically taken into account, nor organically embodied in the planning process. This is due only partly to unwillingness on the part of economic planners. Considerable difficulties are involved in the study of the numerous factors relevant to evaluation of the ultimate aims of society, an evaluation essential to the creation of national development plans. Noneconomic factors are very important here, and the training of economic planners often does not prepare them sufficiently for the analysis of combined economic and noneconomic factors, needed for the setting of national objectives. On the other hand, the learned representatives of the noneconomic fields of knowledge such as health, nutrition, population, or environment studiesall very important in the evaluation of national objectives-are seldom able to understand the usually complex economic implications of their proposals.

The second basic assumption adhered to in the discussion of the various topics concerns planning and the market. The relationship between the two is often perceived as antagonistic, and a heavier reliance on economic decisions within the framework of planning is automatically considered as an "anti-market" attitude. In the present work the antagonistic approach is rejected. The elimination of some undesirable properties from both planning and the market is essential for progress in that direction.

5 Less detail in planning and less administrative regulation of the market may be key elements in achieving the desired dynamic interaction of the two. Strengthening both planning activities and market actions appears to be the only solution to the major problems of our times.

It advocates an approach to economic planning with not only a heavier emphasis on the preparatory steps but also a systematic coupling of these "preparatory steps" with the planning process.

Some overall questions of planning

Mankind and planning are old mates. Planning is a broad human attribute. Unfortunately our knowledge of the history of planning efforts is limited, in both the technical and social aspects. Certain elements of planning, and for that matter, centralized planning, obviously must have existed in order to maintain the systems of irrigation, production, distribution, communication, and defense at various stages in such cultures as ancient Egypt, China, India, Mesopotamia, and the Inca empire. Scattered evidence is not lacking to this effect. The changes in technology, population and various socio-cultural aspects are obvious factors in explaining the difference between ancient and modern planning activities. As mentioned, our knowledge of past efforts is very scarce and thus even a conceptual link is presently lacking. Modern economic planning is therefore a new achievement a characteristic feature of the twentieth century. This widening application of economic planning all over the world is clearly an irreversible process, deeply related to modern technology and the social conditions of our age.

Our assessment may follow a number of different avenues. Three of these appear to be of major importance at present. The first avenue is to consider the possibilities and limitations of economic planning on a more abstract plane, largely on the basis of our theoretical understanding of socioeconomic processes. The second avenue is to evaluate the empirical evidence accumulated with planning endeavors in

6 terms of whether it permits the drawing of some general conclusions concerning the promise it holds and the realistic expectations it can fulfill. The third avenue consists of study of the desirable improvements in economic planning needed to permit this planning to play a role in society within the framework of our theoretical understanding of the subject and within the limits observed in practice for its application. Since this book is concerned largely with the exploration of this third avenue only, a selection of ideas will be given from the first two approaches, and their discussion will be largely confined to their bearing on the task set for this study.

The practical needs for planning

The practical needs for overall economic planning are manifold. The inevitability of planning by any sizable modern corporation or other body is of course widely recognized. No sensible investment decisions are feasible without analysis, foresight, and careful evaluation of future alternatives. Such decisions obviously cannot be reached without very careful preparation, requiring a great deal of effort and time. Clearly, such efforts require careful planning and monitoring throughout the entire process. The planning of individual decisions or separate processes cannot be fully successful unless they are carefully coordinated. Also the various branches of government charged with responsibility for important sectors such as transportation, energy, housing, or health cannot set successful policies in a separated manner. Clearly, no national housing policy is viable without a related transportation policy, which again cannot be separated from environment policies, manpower planning, education measures, and so on. To avoid such undesired results. Increasing the supply of resources, human and material, and in the proportions needed is essential to curbing inflation in a way that will not require periodic bouts of recession. The first affirmative requirement of a new society is a system of planning, allocation and design. But planning cannot be left to the planners. Planning is a tool not an end and its goals must come from outside the process.

7 Utopias and planning The social justification of planning is related to the desirable directions and states which can be pursued and achieved only by the implementation of specific plans designed for that purpose, for the eradication of cruelty, exploitation and illiteracy. They have no provision for the continual adjustment of preference, knowledge, practice and custom to new experience and observation. The understanding of broad human aspirations and the analysis of attainable social goals and the political processes that could lead to their attainment are all relevant to the planning process and to the successful implementation of the plan.

Planning and inflation

The application of planning is often mentioned both as a remedy to inflation and as its cause in the Western economies. In reality, planning is neither at the root of the inflationary pressure nor the panacea to eliminate its dire consequences. The application of planning should not, per se, lead to inflation. Similarly, the introduction of planning does not solve the inflationary problem. If brought into the service of worthy policies, economic planning can become an invaluable tool. Otherwise it may remain either an unused concept or a misdirected effort.

8 CHAPTER 2

Development Plans-Systematized

THE OVERALL NEED for and the general usefulness of planning were discussed in chapter I. We

now consider the various types of plans, classifying them according to their time horizon, activity coverage, geographical scope, institutional character, and level of detail.

Short, medium, and long-term plans

The time scope covered by various plans may range from as little as a single month to a quarter of a century. These plans of various durations are conventionally classified into short-term, medium-term, and long-term. Short-term plans have duration of a year or less. Medium-term plans may cover any period over one year but not more than five or six years. Long-term plans-sometimes also called perspective plans-extend even longer in time, generally for ten or fifteen years in the future.

a. Short-term plans Quarterly and monthly plans. The typical short-term plan is the annual plan. There are certain shorter plans that also belong to the category of short-term plans, but at least at the national level they are of little use. Quarterly and monthly plans are foremost in this shortest category. One of the reasons for their application was the wish to eliminate the ill effects of the year-end rush to fulfill the annual economic plans. This often led to great cost overruns, to the abundant use of overtime, and to the depletion of all kinds of reserves toward the end of the year. One of the problems was of course the size of the workload involved in the preparation of such plans and then in the monitoring of their fulfillment. Especially if the granting of bonuses and material rewards is linked to the fulfillment of such plans a great deal of time is spent on their preparation and evaluation. However, a great deal of planning" cannot replace a great deal of "doing".

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Annual plans. As noted, the typical short-term plan is the annual plan. Modern man tends to forget that the year is not an arbitrary unit of the calendar. It is worth remembering that calendars had an economic function (as well as a religious one) from early times onward. In a sense, the development of the calendar was parallel to the evolution of foresight in economic and other respects. It is worth remembering that calendars had an economic function (as well as a religious one) from early times onward. Some of these phenomena, such as the coming of rains or the dry season or the periodic flooding of rivers, occurred according to regular patterns, but their cyclic return was markedly irregular. Economic plans designed to span one year are also referred to as "operative plans" or "adjustment plans."

The differences between short-term and medium-term plans are significant, and the ensuing differences in scope, the indicators covered, and the approaches selected for them are quite marked. Some of these differences are discussed later, when the interrelationship of various kinds of plans is reviewed.

b. Medium-term plans As mentioned, medium-term plans usually cover a time span of two to six years. Nowadays, the typical medium-term plan is a five-year plan. Medium-term development plans usually aim at some structural reorientation of economic activities and generally cover production and resource allocation over the entire field of the economy. According to their reasoning, medium-term plans are the framework for formulating the resolution of the conflicts and contradictions between long-term overall development goals and the past and present characteristics of the economy. Another reason why special importance is often assigned to medium term plans lies in their considerable long-term impact.

10 Long-term plans In the longer run the margins of choice are increased. Different variants of the plans with their possible results become much more clear-cut in a long-term than in a medium-term framework. Therefore growing attention is paid to the long-term formulation of development goals and related economic and social policies. Long-term planning, in this sense, is identified with the process of formulating general guidelines. It may be sectoral, regional or urban, or again may cover the economy and society as a whole. It is clear that many facets of socioeconomic processes cannot be studied except within the context of two or three decades. Policies regarding demography, education, and health need to be evaluated over the period of the lifetimes of the generations involved, or at least in the perspective of twenty to forty years ahead. The importance of long-term considerations concerning the international division of labor and the structure of foreign trade of any nation is obvious. Important changes in the regional distribution of economic activities are another matter for longterm consideration. Many countries, even if otherwise developed, have some more backward regions requiring special care for their development.

Internal (and sometimes international) migrations of population and manpower also call for longterm plans to cope with the problems related to them. The consequences of larger-scale migrations for housing, industry, agriculture, transportation, and so on are all highly significant and demand the application of long-term analysis and planning in the respective areas.

Types of plans according to activity coverage

After reviewing a classification of plans according to their time horizon, we turn to the various categories of plans distinguished by their activity scope. Four major categories are reviewed: overall (national) plans, sectoral (industrial) plans, functional plans (designed to cover specific program areas), and plans for major projects.

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Overall plans

The activity coverage of overall national plans is global. They pertain to all of the major economic processes such as production, consumption, capital formation, and distribution of incomes. Whether short-, medium-, or long-term, these plans ideally concern every key economic phenomenon at the national level. Their indicators not only relate to overall (global) magnitudes at the national level, but deal with them in an organic, interrelated manner, in the context of the totality of the economic process.

Sectoral (industrial) plans In most planning situations there is a strong need for sectoral plans. Sectoral plans frequently have preceded the introduction of overall plans. The special characteristics of the main productive branches of the economy are easily perceived. Agriculture or mining, construction or manufacturing, and foreign trade or banking is clearly rather different activities, demanding the establishment of specific planning procedures. But even within the main branches there are important differences among the sectors belonging to that branch. Typically the sectoral plans have two major points of departure: the provisions of the overall national plan and the summary of the enterprise forecasts of the given sector. Sectoral plans usually rely on estimates collected regarding the income elasticities of demand relevant to the products of the sector. Sectoral data on the resources available are also heavily used. A central concern of sectoral planning is the evaluation of technical possibilities.

Functional plans

In addition to overall and sectoral plans, the need may arise for special plans concerning certain crucial major functions of society such as education, health care, or welfare. In many developing countries special plans or programs exist to eradicate illiteracy.

12 The needs for...