Planning Economic

Development
Planning Economic Development

• Resources are limited while human wants are unlimited.

• The problem is not only how to satisfy reasonable human
wants but also how to properly allocate scarce resources.
•Development strategies of many less developed countries have
been derived from Western models.
• The main focus of development is almost always on increasing
GNP.
The Need for Planning

•There is no country in the world that is totally satisfied with its

present conditions. Not even the United States is contented with
its existing economic growth. For as long as people are human
beings, ultimate satisfaction, is difficult if not impossible to
attain.
•Planning is more needed by the less developed countries. Their
economic, social, and political needs and problems are more
serious.
Democratic Planning

•A democratic concept of planning is needed. This means the

people are involved in solving their own problems. They know
best the local situations and they know and they know what they
are good for them.
•Planning should never be imposed from the top if it concerns
the interests of the masses.
•Governments should allow people to have the right to plan for
themselves and for the future of their children.
Planning Models

•An economic model constitutes a system of interrelationships in

the economy.
•The efficacy of economic policies can be tested in two different
models.
•The first is used to determine the effects of a particular set of
economic measures, like investments in a specific sector.
•The second, contains a specific set of objectives such as to
increase income, employment or production.
Elements of the second-type policy model

•1. A specified set of objectives dedicated to the overall development of the selected
sector. (improve productivity, attain full employment, give land to the tillers.)
•2. A set of variable instruments related to the policy measures which the government
plans to use in achieving the objectives is given. (levels of savings, production and
investment by sectors, exports or other economic activities.)
•3. Other variables which are not directly affected by government action, but are necessary
for sufficient analysis of the economy. (consumption, prices of goods, productive factors.)
•4. Economic relationships which are expressed in equations.
Types of Planning Models

•1. Aggregate Model – This applies to the whole economy. It deals with
investment, production and consumption and similar activities as single
aggregates. Also called macro planning.
•2. Sector Model – This refers to the individual sectors of the economy. This
is also called project planning. It deals with individual projects or sectors.
•3. Inter-industry Model – This is concerned with the relationships of the
productive factors of the economy with one another. This is also called
multi-sectoral planning. Decisions are made on an industry and firm-by-firm
basis.
Uses of Models

•Aggregate model determines:

•Possible growth rates in the national income of a country;
•allocation of the national product among public and private
consumption, investment and exports;
•and the required volume of domestic savings, exports and
foreign financial assistance for the implementation of a given
program.
Uses of Models

•Sector model determines:

•Levels of consumption and production by
economic sectors.
•Alternative production possibilities within
individual production branches.
Uses of Models

•Inter-industry model determines:

•The demand for intermediate products and
capital goods, including imports; and
•their solution which provides a mutually
consistent set of production levels by economic
sectors and imports for the whole economy.
Models Further Explained

•Aggregate Model
•Includes usually relations such as consumption-income;
production function relating national product to capital and
labor; import function relating requirements to the level of
national income; and certain number of constraints among other
things.
Models Further Explained

•Aggregate Model
•Includes usually relations such as consumption-income;
production function relating national product to capital and
labor; import function relating requirements to the level of
national income; and certain number of constraints among other
things.
Models Further Explained

•Sector Model
• Is the project approach. Project are planned on the basis of their
contributions to the economy or in relation to social and economic
problems requiring top priority. For example, projects which involve food
production, employment or energy development are given more weights in
planning and implementation.
• Inter-industry Model
Ranges from simple input-output matrices to more complicated linear
programming models.
Intermediate
Technology in
Planning
 Intermidate Technology in Planning
There have been many numerous projects in many poor countries that
have been funded by the United States, Russia and some European
countries. They mostly used modern technologies in this project and
they produce luxurious goods which do not use local materials and do
not employ local labor. There are many poor little countries whose
geographical endowments have been developed into paradise for
tourists.
 Development Begins With People
Development does not begin with machines or goods, unlike what
most economists says. It starts with people- their attitudes, values and
institutions. Some former poor countries became rich and developed
because of the positive quality of their people. Mohandas Gandhi, a
great man of India, said that the poor of the world cannot be helped by
mass production- but by the production of the masses. When people
are involved in production, they become more productive and efficient.
 Development Begins With People
Schumacher, the author of Small is Beautiful suggested a more
appropriate technology for the less developed countries. He calls it
intermediate technology. It is halfway between primitive and modern
technology. It can also be called a self-help technology, democratic or
people’s technology. This is a technology with a human face, it primarily
involves people and their own developments.
 Schumacher’s
Propositions
1. Projects or factories have to be set up in the rural areas where
people live.

2. Projects must be simple and cheap so that more project’s can be

created

3. Production methods must be simple in order to minimizie the

need for technical skills not only in production but also in
organization, financing, marketing and management.

4. Production should mainly use local materials for local

consumption.
 Schumacher’s
Propositions
The aforementioned strategies for economic development can only be achieved,
according to Schumacher, if there is regional approach to development and if there is a
conscious effort to develop and apply intermediate technology. He gave symbols of the
technology of the developing country and that of the developed ones, like 1.00
technology for the primitive technology of the developing countries and 1,000.00-
technology for the modern technology of the developed countries. Less developed
countries should not adopt the 1,000.00 technology because it was expensive and
inappropriate. Rather, they should apply the 100.00 technology, it was a technology
that is more productive than 1.00 and cheaper than 1000.00 technology.
 Schumacher’s
Propositions
However, not a few economists claimed that such technology tends to slow
down the rate of economic growth in contrast to the use of modern
technology. This view commonly comes from highly-trained social scientists
who doesn’t experience poverty and misery. They are inclined to stress
productivity or technical efficiency. Their lack of observation made them
insensitive to more urgent and more important economic programs. The
efficiency of production is good but if it benefits only few groups and neglects
the other unemployed masses, then such efficient production is not good.
 Requirements of an Implementable Plan
1. Major targets must be specified completely, sector by sector. The feasibility of such
projects must be tested in both financial and physical terms.

2. Targets must be stated in both capital and current terms. This means, the resources of
production, presumed to have been created by the end of the planning period and the
current flows of output which it hopes to achieve in time, must be specified.

3. Activities of projects and programs which are designed towards the attainment of
specific targets must be specified. There is an important distinction between activities
in the public sector and private sector. Methods of implementation, control, reporting,
and evaluation differ in said sectors.

4. All major activities must have their time frames fully specified. For capital projects with
long gestation period, the periods of time assumed to be required for the phases of
planning and design, placing orders, delivery of equipment and components,
construction, and operation must be clearly indicated.
 Requirements of an Implementable Plan
5. Initial conditions in the economy which is presumed to prevail at the start of the
planning period must be fully specified.
These includes prices, GNP, rate of investment, levels of employment, physical capacity of
output of the major sectors, power, transportations, housing, communication, etc.

6. The plan must be thoroughly tested for its input-output consistency. It means that the
interdependence among the various projects in the plan and among the various sectors
in the economy and decision-making units having responsibility in its implementation
must be fully specified to reveal possible bottlenecks in the output or inputs like
materials, power, transportation, and similar factors.

7. The plan should include a time-phase indication of the proposed of the proposed
allocation of financial, physical, and human resources. For financial resources, these
includes funds for investment, total foreign exchange resources and their sectoral
allocation. Regarding human resources, the manpower sections of the plan should be
broken down by skill categories. This should be done in details.
 Requirements of an Implementable Plan
8. The levels of demand for the major commodity groups which are likely to be
generated by incomes of the planned production should be reasonably
consistent with the levels of supply from the physical production targets. For
instance, if good production plus food imports are much lesser than the levels of
demand for food, then there is food shortage. To avoid such problem, more food
imports are needed. This is not a problem if sufficient foreign exchange earnings
are available. On the other hand, if there is a greater food supply than demand, a
surplus is created. This results to a fall in price of food. This is favorable to
buyers but not to producers.
 Problems of Development Planning
Development planning is not an easy task, mostly when the
resources are scarce and there are competing demands for such
resources. Although needs can be prioritized, the basic problem is
the manner of organizing the resources for growth. Such problems
also exists in the developed economies. The only difference is that
there is a market and numerous institutions which can support the
implementation of planning ideas. For the underdeveloped
countries these are the problems:
 Problems of Development Planning
1. Lack of signaling system which a well-functioning market provides;

2. Lack of institutions which can crystallize ideas into realities;

3. Non-existence of a sufficient number of people who can take the place even of a crudely working
price system;

4. Basic technical information on agriculture is frequently not enough;

5. Lack of competent development planners;

6. Principal economy, which is agricultural, is not stable due to natural calamities and changing
conditions in the world market for agricultural products;

7. High government officials are reluctant to implement plans which adversely affect their vested
interest; and

8. Planners are separated from the implementors. Those who are given the task of implementing a
development plan should be directly involved in planning
 Some Principles in Planning
In the less developed countries, there have been always a wide gap between
planning and implementation. Many plans have remained unimplemented and
not a few of those implemented are failures. The government development
planners should have follow the basic principles of planning, failures would have
been minimized. The trouble is that some development plans have been
designed to impress the people for political reasons or to impress the foreigners
to give a semblance of economic growth. Many of these bold projects could not
be implemented for lack of or funds. In some cases, expensive projects have been
constructed, but they have no relevance to the most basic needs of the masses.
Here are some basic planning principle.
 Some Principles in Planning
- Planning must be realistic. This means the project/program can be
implemented with existing available resources.
- Planning must be based on the felt needs of the masses. This is real
development. The fruits of economic development will be harvested by
the people.
- Planning must come from below. The people and leaders in the
communities know best the, needs and problems and the prevailing local
conditions. They should therefore be involved in planning for their own
interests.
 Some Principles in Planning
- Planning must be multi-sectoral. No single problem is independent and
isolated. It is affected by several factors. For example an economic
problem , influenced by social or political factor. Thus in planning, aside
from the economic factor, the others are to be considered in solving the
economic problems
- Planning must be flexible. Conditions and existing resources change.
Therefore, adjustments have to be properly made.
- Planning must integrate the various projects/programs. Economic
activities are interlinked with one another.
 Some Principles in Planning
- Planning must have the full support of top government officials.
Sincere and vigorous implementation of development plan
depends on them.
- Planning must start with simple projects. These require simple
technology, simple skills, simple organization and little financial
resources. Such projects are within the capabilities of the less
developed countries. Moreover, such simple projects provide a
training experience for those who have been involved.
 Planning Economic Development
Economic development has to be properly planned to make it responsive to
the needs and aspirations of the people. There are different strategies in
planning economic development, depending on its economic systems. For
instance, under communism or highly socialistic economy there is central
planning . This means that the government plans the activities of the
economy. In the case of capitalism, the private sector enjoys a greater
economic freedom in planning its own economic pursuits.
 Planning Economic Development
Productive investment is an essential element of planning economic
development. Increase should be necessary in national income, increase
must be greater than the growth of population. Otherwise, productive
investment has no appreciable effects. A productive investment which
improves only the economic responsibility and justice. This only widens the
gap between the rich and the poor.
 Planning Economic Development
There are several ways of mobilizing financial resources. One the inducement of the
private sector to engage in productive investments. The government. encourages
business-men, landlords and financial groups to invest their financial resources in
projects that can accelerate economic development. The other way of raising funds
for investments is through foreign loans. However, productive investment requires
two complementary investments. One is investment in agriculture to increase food
and raw materials production. The other one is developmental investment like
transport and communication facilities, electrification and social services. As stated
earlier, investment in people is the most important form of investment. Productive
investment is most likely A fail if the investors and those who manage the
investments do not have the right skills. attitudes, and values.
THE SEVEN SINS OF DEVELOPMENT PLANNERS

1. Concerned only with numbers – planners are inclined to formulate

development models which are primarily quantitative.
2. Excessive controls – the government imposes too many bureaucratic
controls in the implementation of its development plans.
3. Investment illusion – many development planners consider capital
formation as the heart of the development process. Capital formation
comes from savings.
4. Addiction to imported development plans – development planners are
usually economists who are products of American and European
universities.
5. Separation between planning and implementation- development planners are
not included in implementation. This is not correct strategy. If planners implement
their own plans, they acquire a sense of responsibility and fulfillment. Hence, they
do not like their plans to fail. The success of their plan belongs to them, and
therefore they work hard to implement properly their plan,
6. Neglect of human resources- plans and programs like agrarian reforms, family
planning, cooperatives, housing and other social services are going to fail if the
planners, implementors, and beneficiaries do not have the right skills, attitudes and
values. This is the reason why many government programs are not successful.
Implementors are not only inefficient but also corrupt.
7. Growth without justice- development planners are engrossed with high
percentage of increasing NI or GNP. This is good if the benefits of development
are fairly distributed to all members of society.
DEMOCRATIC PLANNING IN SOUTH ASIA

The views in this topic are based on the 10-year research of

Professor Gunnar Myrdal in the region. His observations were
focused on the attitudes, values, and institutions of south Asia
which have greatly influenced the economic development
of the countries in the said region.
Myrdal defined planning as a comprehensive attempt to
reform all unsatisfactory conditions. Clearly, it is the
government that should take the decisive role to initiate and
implement such developmental changes in the economy
and society.
All the leaders in South Asia are aware that economic
development requires fundamental changes in the attitudes of
people towards life and work and that unfavorable traditions
must be eliminated. Another barriers to reforms is the vested
interest of the elite, top government officials, business tycoons,
big landlords, and successful professionals. Since they have a
very comfortable life under the existing system, they are
generally not interested to introduce or accept reforms that
would prejudice their privileges and interest.
Democratic Planning is the active involvement of the masses in
the preparation and implementation of their own plans, and
that their participation is voluntarily in nature. This concept of
planning has become popular in Asia.
PROBLEMS OF DEMOCRATIC PLANNING

Democratic planning seems to be idealistic in the South Asian

region. There is no question that such type of planning is
good for the people. But in a country where many people
are starving and unschooled, where wealth is in the hands of
the very few, and where most people become too
dependent on government assistance, democratic planning
encounters not a few shortcomings.
Planning is a rational and systematic process. This requires
foresight and good judgement on the part of the
participants.
A few leaders from their group make the decisions. The rest just
agree. Unfortunately, in Latin America the true leaders of the
impoverished masses are being jailed or murdered. In other
countries, such leaders are prosecuted as subversives or
communists. Another barrier to democratic planning in the less
developed world is the maldistribution of wealth. Most of the
people work in agriculture as tenants, sharecroppers, or farm
workers. Evidently, they have no interest in planning economic
development at their own level because the gains of
development go to their masters.
In general, they are too weak to oppose their landlords and to
clamor for social and economic reforms. Nevertheless, a few
big organizations emerged, but these are discouraged by
governments in their attempts to demand for social justice and
freedom. According to top FAO officials, third world
governments do not like farmers organizations to expand and
become strong for political reasons.
THE VISION: PHILIPPINES 2000
• WHERE WE WANT TO BE
The vision. President Fidel V. Ramos envisions the Philippines to
become a place where the least of the people has the decent
minimum of food, clothing, shelter and dignity and the chance to
make of his or her life the fullest it can be. He has therefore set his
vision during his watch as president -Philippines 2000- to reconcile
the country with its promise: that of entering industrial status with
the new century.
By the end of his term going into the new century, president
Ramos aims to have allowed the Philippine economy to grow
by at least 6-8 % ; raised per capita income in the Philippines to
at least $1,000; and reduced the incidence of poverty in the
country to at least 30 % from the present 50 %.

• HOW WE WANT TO GET THERE

The development road map. The medium-term Philippine

development plan for 1993-1998 is the development road
map. Guided by the vision of the Philippines 2000, the plan has
taken up the twin goals of “global excellence” and “people
empowerment”. The former helps to “enlarge the pie” the
latter both helps to enlarge the pie and divide it more
equitably.
To achieve global excellence, the key is international
competitiveness, I.e., Ensuring that Philippines products and
services meet world standards. This requires opening the
economy to international markets to encourage investments
and providing proper incentives and infrastructure support to
the local industries.
To empower the people, the key is to invest in human capital In
order to create the economic, political and social environment
to ensure people’s access to their rights and opportunities and
to build up their personal capabilities and skills.
THE GROWTH STRATEGIES
To attain global excellence and people empowerment, the
government has adopted growth strategies which serve to guide
the choice of development programs and projects and the
manner of their implementation.
• Commitment to a “planned” free-market economy;
• Giving the people a stake in development
• Industrializing from a base of agricultural productivity;
• Encouraging a high saving rate;
• Developing an educated workforce;
• Fostering export industries; and
• Building a solid infrastructure
 THE PRINCIPLES OF GOVERNANCE
At the same time, the Ramos administrative is guided by four
principles in its management of developing process or manner of
implementing development activities, as follows:
• Devolution- transfer of decision-making to the lowest units
possible;
• Deregulation- removal of red tape and competition with the
private sector;
• Decentralization- provision of resources and services to the
countryside; and
• Democratization- provision of equal benefits to everyone.
 THE 5 PRIORITY PROGRAMS
There are 5 implementing mechanism that operationalize the main
and supporting strategies to attain Philippines 2000:
1. Attainment of national stability and unity- which aims to create
an environment where the people do not fear for their safety
and where there is growing collaboration and action toward a
common direction.
2. Economic recovery- which seeks to keep the Philippine
economy on the right track to progress. This involves the
continuing pursuit of efforts at economic stabilization,
strengthening of economic structures, generating resources to
fuel economic growth, improving the climate for industry, trade
and investment, increasing agricultural productivity, and
provision of necessary infrastructure for growth and welfare.
3. Rapid development of the energy/power sector – which
envisions to eliminate brownouts in the short term and ensure a
progressive and sustainable program for energy/power
development.
4. Environmental development protection- which aims to
ensure the necessary resources for the development of future
generations. This includes setting the framework for
environmental development and protection and an intensified
campaign against environmental degradation, particularly
garbage and pollution.
5. Streamlining the bureaucracy- which involves the
realignment and shifting of resources for priority activities,
judicious use of limited government resources, and making
frontline services efficient.