The Evolution of Development

Paradigms and Planning

Debre Berhan University
College of Business and Economics
Department of Economics

February, 2023
Debre Berhan, Ethiopia
The Evolution of Development Paradigms and Planning

 Evolution of Development Thinking and Planning

 The meaning of development planning
 The Rationale for Development Planning
 The Need for Planning
 Requisites for successful development planning

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 Evolution of Development Thinking and Planning

The evolution of development thinking can be summarized in to three different

periods:
 The Early Post War Consensus
 The Washington Consensus
 The Oscillating Search for Silver Bullet

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The Early Post War Consensus

 Covers immediately after cease of World War II up to the end of 1960’s and
beginning of 1970's.
 This is an interesting period for the developing world b/c it gets attention by
academicians how growth & development could be achieved in these
countries.
 Available economic models seemed to offer only limited insights into the
practical problems facing Third World.

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 Con’t . . .

 The period, for ease of understanding could be looked into five important
sub‐periods:
 Dualism
 Need for Balanced Growth (Structuralism)
 International Trade Scene
 Interventionist State
 Technology in Generating Growth

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The Washington Consensus

 Main Theme: Prices matters more & macroeconomic stability matters less
 Main ingredients of the consensus are:
 Privatization and unified & competitive exchange rates
 Liberalization of financial markets
 Openness to FDI & deregulation of control system
 Emphasize on R and D
 Changes at micro level
 Program lending changes into structural adjustment lending.

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The Oscillating Search for a Silver Bullet

 Gives Serious attention to the distribution of income.

 Focus on the extent to which private income poverty is reduced and to the
extent to which public income poverty is being addressed.
 Per capita income growth should not be seen as the key objective.

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Historical Background of Economic Planning

 The idea of planning has a long history and goes back to the time of Pluto.
 It was later developed, shaped and molded by eminent thinkers and writers
both in the western and eastern camp.
 However, the idea of economic planning in its modern form is comparatively
new. It is the 20th century phenomena.
 Ideologically, the evolution is from three perspectives:
 Planning in Eastern Europe (Socialist Perspective)
 Planning in Western Europe (Capitalist Perspective)
 Planning in Underdeveloped Countries (Mixed Economy Perspective)

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A) Planning in Eastern Europe (Socialist Perspective)

 Originated as a result of people’s fed up with the inquiry and

contradictions of pure capitalism
 The Idea of state intervention, thus, developed to set matters right and to
prevent inequalities resulting from capitalism.
 There was no mention of economic planning and how to interrelate was
ambiguous
 In 1928 the Soviet Union gave the idea of economic planning a real shape
when it formulated its first five year plan.
 The main objective of the socialist (Soviet) plan was to achieve the rapid
transformation of a backward agriculture sector (traditional sector) in to a
modern industrial sector.
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B) Planning in Western Europe

 Various factors necessitates planning in western camp:

 Wars,
 Great depression of 1930th,
 Expansion of markets, and
 Specialization.
 These situations in western economies led to the coordination of economic policies.
i.e., Planning. Planning in the west was for different purposes:
 As a remedy for economic & other ills followingthedepressioninthe1930s.
 For successful prosecution of war(I&II) – Nazi Germany
 For rehabilitation ‐ during post war.
 To rectify externalities resulted from growth & increased specialization.
 To rectify social inequalities resulted from democracy

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C) Planning in Underdeveloped Countries
 Economic planning was considered as important panacea (remedy) for these countries
in their desire for development. They want to achieve rapid growth using economic
planning as a tool.

 However, the development (evolution) of planning in LDCs took a different course (path)
than the rich countries due to the following reasons:
 Planning was considered as an ideology rather than a means. i.e., it is an
expression of desire of self control, desire (expression) of independence , expression
of self‐determination, etc. Planning as a political & cultural goal.
 For new leaders (after independence from colonization), as a potential tool
(instrument) to survive and prosperity.
 In general, Planning here was not as ensuing of industrialization, which is the
inverse of the Western developed countries.
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Projection, Planning, and Forecasting
 The planner should have an interest or a desire on the subject matter he/she is going to

accomplish before “when and how” to perform it. A desire to undertake a work is called
projection. i.e. Projection is a precondition to planning and forecasting.
 Planning at any time is concerned with the future, when the goal laid down in a plan and
the means by which these are to be achieved depends on. Forecasting involving the use of
statistical laws and probability calculation also concerns the future and provides answer to
questions like “when?” and “how accurately?” Planning is not forecasting although it
makes use of the techniques of forecasting.
 However, forecasting is important in two respects:
i. It shows the likely course of future development
ii. It enables concerned people to take necessary steps for meeting the developing
situations
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Meanings of Economic Planning

 There is no agreement among economists with regard to the meaning of

economic planning.
 The term has been used very loosely in economic literature. Any type of state
intervention in economic affairs has been treated as planning. But, in real
sense, not.
What then is planning?
 Planning is a technique or a means to an end being the realization of
certain pre‐determined and well‐defined aims and objectives laid down.

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 Con’t . . .

Some of the definitions of economic planning by different academicians:

 "Economic planning in the widest sense is the deliberate direction by persons in
charge of large resources of economic activity towards chosen ends”. Dr. Dalton
 “A scheme of economic organization in which individual and separate plants,
enterprises,& industries are treated as coordinate units of one single system for the
purpose of utilizing available resources to achieve the maximum satisfaction of the
people's needs within a given time”. Lewis Lord
 “The direction of productive activity by a central authority”. Hayek
 “Collective control or super session of private activities of production and
exchange”. Prof. Robbins

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 Con’t . . .
 “Planning is the making of major economic decisions on: what and how
much is to be produced, How, when and where it is to be produced, & to
whom it is to be allocated”. Dickinson
 Working Definition: It is a technique (a means) to achieve an end.
 The definition of Planning can also be seen from two angles: Institutional
related & development related meanings.
 Institution related meaning: is related with the ownership pattern of
resources. i.e., for socialist (it is centralized control of the economy) &
non‐socialist, it is different.
 Development related meaning: as per the development levels of
countries priorities differ b/n countries.
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The Need for Economic Planning

 Despite the large number of factors contributing for the need of planning, one
can nevertheless broadly list the major ones as follow:
• Institutional Requirement
• Economic Consideration
• Technology Considerations
• Development Requirement

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I. Institutional Requirement

 Planning, in some countries, has been used to meet the institutional needs
of people.
 In socialist countries, planning has been used to abolish private
ownership/ sectors.
 Likewise, a country free from a colonial yoke may use planning as a
medium to achieve bright future.
 In non‐socialist countries, planning is used to strengthen competitiveness.

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II. Economic Considerations

Planning is necessary:
 To meet the changes of modern economics
 To help the entrepreneurs to undertake various developmental activities
taking in to consideration the constraint of resources.
 To make the policies of the government rational and effective
 To narrow the big functional difference of macro and micro policies
 To bring rational use of resources.

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III. Technology Considerations

Due to the following reasons, fuller utilization of technology requires planning.

 Technologies of modern times involve so much expenses.
 Indivisibility, adjustability, product changes and mass production features
of technology.
 Important for new products to take shape smoothed without upsetting
existing productive capacity to much.
 Provide for the multifarious activities to ensure that the cost and the price
of mass produced goods are kept minimum.

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IV. Pre‐requisite for Development

 For many countries, whether they are developed or developing, development

has been the major reason for the adoption of planning.
 In regard to the development aspect, thus, planning is crucial for the
following reasons:
 Providing Investment Resources. i.e., price‐mechanism does not work
well in respect of amount and composition of investment when one is
concerned with changes in fixed capital. Planning also organizes
resources for investment.
 Balancing the economy. It keeps both physical balance and monetary
balance.
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Need of Planning for Developing Countries
 Due to special features of less developing countries, planning also has a special
importance for these countries on top of the above benefits. These include:
 Removing antigrowth milieu.
 Over‐coming Smallness. i.e., smallness in terms of low income, low demand for goods,
small geographic size, paucity of natural resources, etc.
 Development of infrastructure
 Use public enthusiasm. these countries people see in plans their dreams of high standard of
living. This wish produces dynamic force.
 Large opportunities. Planning helps to incorporate the great new possibilities of growth for
LDCs by tracing back to the knowledge about resources and technology practices of
advanced countries
 Semi‐closed economies. Since LDCs’ are Characterized by semi‐closed economies and
highly dominated by agricultural sector, any fluctuation in the foreign economies couldn’t’
influence them significantly. Therefore, it is easier for a planner to fit them into a plan frame.
 Easier control and regulation. Gap filling nature plus no much demolition of past easy
control.
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Requisites for Successful Planning

1. Realistic Goals: realistic, mutually compatible, and flexible enough goals are very
important for the success of a plan.
 A plan should be in a way that inspire people to give the best for its implementation
and completion.
2. Appropriate Policies and Instruments: It is essential that adequate provision is made
for the fulfillment of planning through appropriate policies and instruments. Policies
outline the action and instruments are means to carryout the action.
3. Adequate information (statistical data): information regarding the potential resources
of a country (an organization) together with its deficiencies is essential for the success of
a plan. Or data on various aspects of an economy is of a vital importance both for the
formulation & implementation of plans.

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 Con’t . . .
4. Rational Institutions: An important requirement for successful planning is the presence
of such institutional arrangements that are conducive to the formation and execution of
plans. Institutions are the humanly designed constraints that shape human interaction.
5. Appropriate administrative and Technical Apparatus‐This comprises the agencies,
the personnel, and precedents for the effective operation of a plan. In corrupt and
efficient administration is crucial. According to Lewis, strong, competent and in corrupt
personnel is the first condition for the success of a plan.
6. Public cooperation: The active involvement of planners, administrators and public in
general has immense significance as it open up many possibilities and smooths the
process of successful implementation of plans.
7. Mobilization of Resources: both internal (such as savings, taxation, etc.) and external
sources (such as net budgetary receipt) of financing a plan are important for the success
of a plan
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Cases for and Against Planning
 Cases for planning: all arguments discussed before.
 Cases against planning: As a tool, planning could not be a remedy for all economic, social and
other ills. Broadly, the limitation could be on concepts, coordination, action, and follow-up.
 The specific limitations observed on planning are:
 Planning heavily depends on reliable data. If there are no reliable data, the potential benefits of
planning will be undermined.
 The problem of discontinuity. Planning models don’t deal with random shocks (natural hazards,
social changes, etc.). Plans work effective when social and economic development changed
continuously.
 The problem of uncertainty (natural, market, war, international) which hinders the success of the
desired goal of the plan.
 Inherently market is imperfect. Market could be perfect by man mechanism (the actors
themselves).Thus, no need of government intervention through planning.
 Cost of planning administration and implementation in LDCs is too high.
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Bottlenecks to Planning
 There are many different situations that threaten the formation and implementation of
planning. Among these, the common problems particular to LDCs are:
 Unsuitable administration and lack of competent personnel ‐ planning needs the
Variety of personnel such as administration, academicians, statistician, economists etc. to
realize the objectives. However, the administrative and personnel are largely incapable
undertaking entrepreneurial activity, which is very necessary at the initial stages of
development in these countries.
 Lacks of statistics ‐ to have successful plan reliable and quality data or information are
very crucial. But in these countries, there are no adequate statistics ‐ collecting agencies to
make comprehensive planning.
 Unscientific attitudes & institution – Investment & economic factors continues to be
governed by age old traditions and customs which obstruct the formulation and
implementation of scientific plans.
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 Thank You!!!
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