Planned economy

A planned economy is a type of economic

system where the distribution of goods
and services or the investment, production
and the allocation of capital goods takes
place according to economic plans that
are either economy-wide or limited to a
category of goods and services. A planned
economy may use centralized,
decentralized, participatory or Soviet-type
forms of economic planning.[1][2] The level
of centralization or decentralization in
decision-making and participation
depends on the specific type of planning
mechanism employed.[3]

Socialist states based on the Soviet model

have used central planning, although a
minority such as the former Socialist
Federal Republic of Yugoslavia have
adopted some degree of market
socialism. Market abolitionist 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.[4][5][6] 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.[7]

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 variously referred to
as planned market economies, mixed
economies and mixed market economies.
A command economy follows an
administrative-command system and uses
Soviet-type economic planning which was
characteristic of the former Soviet Union
and Eastern Bloc before most of these
countries converted to market economies.
This highlights the central role of
hierarchical administration and public
ownership of production in guiding the
allocation of resources in these economic
systems.[8][9][10]

Overview

In the Hellenistic and post-Hellenistic

world, "compulsory state planning was the
most characteristic trade condition for the
Egyptian countryside, for Hellenistic India,
and to a lesser degree the more barbaric
regions of the Seleucid, the Pergamenian,
the southern Arabian, and the Parthian
empires".[11] Scholars have argued that the
Incan economy was a flexible type of
command economy, centered around the
movement and utilization of labor instead
of goods.[12] One view of mercantilism
sees it as involving planned economies.[13]

The Soviet-style planned economy in

Soviet Russia evolved in the wake of a
continuing existing World War I war-
economy as well as other policies, known
as war communism (1918–1921), shaped
to the requirements of the Russian Civil
War of 1917–1923. These policies began
their formal consolidation under an official
organ of government in 1921, when the
Soviet government founded Gosplan.
However, the period of the New Economic
Policy (c. 1921 to c. 1928 intervened
before the planned system of regular five-
year plans started in 1928. Leon Trotsky
was one of the earliest proponents of
economic planning during the NEP
period.[14][15][16] Trotsky argued that
specialization, the concentration of
production and the use of planning could
"raise in the near future the coefficient of
industrial growth not only two, but even
three times higher than the pre-war rate of
6% and, perhaps, even higher".[17]
According to historian Sheila Fitzpatrick,
the scholarly consensus was that Stalin
appropriated the position of the Left
Opposition on such matters as
industrialisation and collectivisation.[18]

After World War II (1939–1945) France

and Great Britain practiced dirigisme –
government direction of the economy
through non-coercive means. The Swedish
government planned public-housing
models in a similar fashion as urban
planning in a project called Million
Programme, implemented from 1965 to
1974. Some decentralized participation in
economic planning occurred across
Revolutionary Spain, most notably in
Catalonia, during the Spanish Revolution of
1936.[19][20]

Relationship with socialism

Albert Einstein advocated

for a socialist planned
economy with his 1949
article "Why Socialism?"
In the May 1949 issue of the Monthly
Review titled "Why Socialism?", Albert
Einstein wrote:[21]

I am convinced there is only one

way to eliminate these grave
evils, namely through the
establishment of a socialist
economy, accompanied by an
educational system which would
be oriented toward social goals.
In such an economy, the means
of production are owned by
society itself and are utilized in
a planned fashion. A planned
economy, which adjusts
production to the needs of the
community, would distribute the
work to be done among all those
able to work and would
guarantee a livelihood to every
man, woman, and child. The
education of the individual, in
addition to promoting his own
innate abilities, would attempt
to develop in him a sense of
responsibility for his fellow-men
in place of the glorification of
 power and success in our
present society.

While socialism is not equivalent to

economic planning or to the concept of a
planned economy, an influential
conception of socialism involves the
replacement of capital markets with some
form of economic planning in order to
achieve ex-ante coordination of the
economy. The goal of such an economic
system would be to achieve conscious
control over the economy by the
population, specifically so that the use of
the surplus product is controlled by the
producers.[22] The specific forms of
planning proposed for socialism and their
feasibility are subjects of the socialist
calculation debate.

Computational economic planning

In 1959 Anatoly Kitov proposed a

distributed computing system (Project
"Red Book", Russian: Красная книга) with
a focus on the management of the Soviet
economy. Opposition from the Defence
Ministry killed Kitov's plan.[23]

In 1971 the socialist Allende

administration of Chile launched Project
Cybersyn to install a telex machine in every
corporation and organization in the
economy for the communication of
economic data between firms and the
government. The data was also fed into a
computer-simulated economy for
forecasting. A control room was built for
real-time observation and management of
the overall economy. The prototype-stage
of the project showed promise when it was
used to redirect supplies around a
trucker's strike,[24] but after CIA-backed
Augusto Pinochet led a coup in 1973 that
established a military dictatorship under
his rule the program was abolished and
Pinochet moved Chile towards a more
liberalized market economy.
In their book Towards a New Socialism
(1993), the computer scientist Paul
Cockshott from the University of Glasgow
and the economist Allin Cottrell from Wake
Forest University claim to demonstrate
how a democratically planned economy
built on modern computer technology is
possible and drives the thesis that it would
be both economically more stable than the
free-market economies and also morally
desirable.[7]
Cybernetics

Project Cybersyn was an early form of

computational economic planning.

The use of computers to coordinate

production in an optimal fashion has been
variously proposed for socialist
economies. The Polish economist Oskar
Lange (1904–1965) argued that the
computer is more efficient than the market
process at solving the multitude of
simultaneous equations required for
allocating economic inputs efficiently
(either in terms of physical quantities or
monetary prices).[25]

Salvador Allende's socialist government

pioneered the 1970 Chilean distributed
decision support system Project Cybersyn
in an attempt to move towards a
decentralized planned economy with the
experimental viable system model of
computed organisational structure of
autonomous operative units through an
algedonic feedback setting and bottom-up
participative decision-making in the form
of participative democracy by the
Cyberfolk component.[26]
Fictional portrayals

The 1888 novel Looking Backward by

Edward Bellamy depicts a fictional
planned economy in a United States
around the year 2000 which has become a
socialist utopia.

The World State in Aldous Huxley's Brave

New World (1932) and Airstrip One in
George Orwell's Nineteen Eighty-Four
(1949) provide fictional depictions of
command economies, albeit with
diametrically opposed aims. The former is
a consumer economy designed to
engender productivity while the latter is a
shortage economy designed as an agent
of totalitarian social control. Airstrip One is
organized by the euphemistically named
Ministry of Plenty.

Other literary portrayals of planned

economies include Yevgeny Zamyatin's We
(1924), which influenced Orwell's work.
Like Nineteen Eighty-Four, Ayn Rand's
dystopian 1938 story Anthem offered an
artistic portrayal of a command economy
that was influenced by We. The difference
is that it was a primitivist planned
economy as opposed to the advanced
technology of We or Brave New World.
Central planning

Advantages

The government can harness land, labor,

and capital to serve the economic
objectives of the state. Consumer demand
can be restrained in favor of greater
capital investment for economic
development in a desired pattern. In
international comparisons, state-socialist
nations have compared favorably with
capitalist nations in health indicators such
as infant mortality and life expectancy.
However, according to Michael Ellman, the
reality of this, at least regarding infant
mortality, varies depending on whether
official Soviet or WHO definitions are
used.[27]

The state can begin building massive

heavy industries at once in an
underdeveloped economy without waiting
years for capital to accumulate through
the expansion of light industry and without
reliance on external financing. This is what
happened in the Soviet Union during the
1930s when the government forced the
share of gross national income dedicated
to private consumption down from 80% to
50%. As a result of this development, the
Soviet Union experienced massive growth
in heavy industry, with a concurrent
massive contraction of its agricultural
sector due to the labor shortage.[28]

Disadvantages

Economic instability

Studies of command economies of the

Eastern Bloc in the 1950s and 1960s by
both American and Eastern European
economists found that contrary to the
expectations of both groups they showed
greater fluctuations in output than market
economies during the same period.[29]
Inefficient resource distribution

Critics of planned economies argue that

planners cannot detect consumer
preferences, shortages and surpluses with
sufficient accuracy and therefore cannot
efficiently co-ordinate production (in a
market economy, a free price system is
intended to serve this purpose). This
difficulty was notably written about by
economists Ludwig von Mises and
Friedrich Hayek, who referred to subtly
distinct aspects of the problem as the
economic calculation problem and local
knowledge problem, respectively.[30][31]
These distinct aspects were also present
in the economic thought of Michael
Polanyi.[32]

Whereas the former stressed the

theoretical underpinnings of a market
economy to subjective value theory while
attacking the labor theory of value, the
latter argued that the only way to satisfy
individuals who have a constantly
changing hierarchy of needs and are the
only ones to possess their particular
individual's circumstances is by allowing
those with the most knowledge of their
needs to have it in their power to use their
resources in a competing marketplace to
meet the needs of the most consumers
most efficiently. This phenomenon is
recognized as spontaneous order.
Additionally, misallocation of resources
would naturally ensue by redirecting
capital away from individuals with direct
knowledge and circumventing it into
markets where a coercive monopoly
influences behavior, ignoring market
signals. According to Tibor Machan, "
[w]ithout a market in which allocations can
be made in obedience to the law of supply
and demand, it is difficult or impossible to
funnel resources with respect to actual
human preferences and goals".[33]
Historian Robert Vincent Daniels regarded
the Stalinist period to represent an abrupt
break with Lenin's government in terms of
economic planning in which an deliberated,
scientific system of planning that featured
former Menshevik economists at Gosplan
had been replaced with a hasty version of
planning with unrealistic targets,
bureaucratic waste, bottlenecks and
shortages. Stalin's formulations of
national plans in terms of physical quantity
of output was also attributed by Daniels as
a source for the stagnant levels of
efficiency and quality.[34]
Suppression of economic democracy and
self-management

Economist Robin Hahnel, who supports

participatory economics, a form of
socialist decentralized planned economy,
notes that even if central planning
overcame its inherent inhibitions of
incentives and innovation, it would
nevertheless be unable to maximize
economic democracy and self-
management, which he believes are
concepts that are more intellectually
coherent, consistent and just than
mainstream notions of economic
freedom.[35] Furthermore, Hahnel states:
Combined with a more
democratic political system, and
redone to closer approximate a
best case version, centrally
planned economies no doubt
would have performed better.
But they could never have
delivered economic self-
management, they would
always have been slow to
innovate as apathy and
frustration took their inevitable
toll, and they would always have
been susceptible to growing
inequities and inefficiencies as
the effects of differential
economic power grew. Under
central planning neither
planners, managers, nor
workers had incentives to
promote the social economic
interest. Nor did impeding
markets for final goods to the
planning system enfranchise
consumers in meaningful ways.
But central planning would have
been incompatible with
economic democracy even if it
 had overcome its information
and incentive liabilities. And the
truth is that it survived as long
as it did only because it was
propped up by unprecedented
totalitarian political power.[35]

Command economy

Planned economies contrast with

command economies in that a planned
economy is "an economic system in which
the government controls and regulates
production, distribution, prices, etc."[36]
whereas a command economy necessarily
has substantial public ownership of
industry while also having this type of
regulation.[37] In command economies,
important allocation decisions are made
by government authorities and are
imposed by law.[38]

This is contested by some Marxists.[5][39]

Decentralized planning has been proposed
as a basis for socialism and has been
variously advocated by anarchists, council
communists, libertarian Marxists and other
democratic and libertarian socialists who
advocate a non-market form of socialism,
in total rejection of the type of planning
adopted in the economy of the Soviet
Union.[40]
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. 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.
Therefore, they would be unable to
effectively coordinate all economic
activity.[41]

Historians have associated planned

economies with Marxist–Leninist states
and the Soviet economic model. Since the
1980s, it has been contested 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.[42] The
further distinction of an administrative-
command system emerged as a new
designation in some academic circles 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.[43] The possibility of a digital
planned economy was explored in Chile
between 1971 and 1973 with the
development of Project Cybersyn and by
Aleksandr Aleksandrovich Kharkevich,
head of the Department of Technical
Physics in Kiev in 1962.[44][45]

While both economic planning and a

planned economy can be either
authoritarian or democratic and
participatory, democratic socialist critics
argue that command economies are
necessarily authoritarian or undemocratic
in practice.[46][47] Indicative planning is a
form of economic planning in market
economies that directs the economy
through incentive-based methods.
Economic planning can be practiced in a
decentralized manner through different
government authorities. In some
predominantly market-oriented and
Western mixed economies, the state
utilizes economic planning in strategic
industries such as the aerospace industry.
Mixed economies usually employ
macroeconomic planning while micro-
economic affairs are left to the market and
price system.

Decentralized planning

A decentralized-planned economy,
occasionally called horizontally planned
economy due to its horizontalism, is a type
of planned economy in which the
investment and allocation of consumer
and capital goods is explicated
accordingly to an economy-wide plan built
and operatively coordinated through a
distributed network of disparate economic
agents or even production units itself.
Decentralized planning is usually held in
contrast to centralized planning, in
particular the Soviet-type economic
planning of the Soviet Union's command
economy, where economic information is
aggregated and used to formulate a plan
for production, investment and resource
allocation by a single central authority.
Decentralized planning can take shape
both in the context of a mixed economy as
well as in a post-capitalist economic
system. This form of economic planning
implies some process of democratic and
participatory decision-making within the
economy and within firms itself in the form
of industrial democracy. Computer-based
forms of democratic economic planning
and coordination between economic
enterprises have also been proposed by
various computer scientists and radical
economists.[25][7][24] Proponents present
decentralized and participatory economic
planning as an alternative to market
socialism for a post-capitalist society.[48]

Decentralized planning has been a feature

of anarchist and socialist economics.
Variations of decentralized planning such
as economic democracy, industrial
democracy and participatory economics
have been promoted by various political
groups, most notably anarchists,
democratic socialists, guild socialists,
libertarian Marxists, libertarian socialists,
revolutionary syndicalists and
Trotskyists.[41] During the Spanish
Revolution, some areas where anarchist
and libertarian socialist influence through
the CNT and UGT was extensive,
particularly rural regions, were run on the
basis of decentralized planning resembling
the principles laid out by anarcho-
syndicalist Diego Abad de Santillan in the
book After the Revolution.[49]
Models

Negotiated coordination

Economist Pat Devine has created a model

of decentralized economic planning called
"negotiated coordination" which is based
upon social ownership of the means of
production by those affected by the use of
the assets involved, with the allocation of
consumer and capital goods made
through a participatory form of decision-
making by those at the most localized
level of production.[50] Moreover,
organizations that utilize modularity in
their production processes may distribute
problem solving and decision making.[51]

Participatory planning

The planning structure of a decentralized

planned economy is generally based on a
consumers council and producer council
(or jointly, a distributive cooperative) which
is sometimes called a consumers'
cooperative. Producers and consumers, or
their representatives, negotiate the quality
and quantity of what is to be produced.
This structure is central to guild socialism,
participatory economics and the economic
theories related to anarchism.
Practice

Kerala

Some decentralized participation in

economic planning has been implemented
in various regions and states in India, most
notably in Kerala. Local level planning
agencies assess the needs of people who
are able to give their direct input through
the Gram Sabhas (village-based
institutions) and the planners subsequently
seek to plan accordingly.[52]
Revolutionary Catalonia

Some decentralized participation in

economic planning has been implemented
across Revolutionary Spain, most notably
in Catalonia, during the Spanish Revolution
of 1936.[19][20]

Similar concepts in practice

Community participatory planning

The United Nations has developed local

projects that promote participatory
planning on a community level. Members
of communities take decisions regarding
community development directly.
See also

Adhocracy
Commanding heights of the economy
Communist state
Creative destruction
Critique of political economy
Distributed economy
Economic equilibrium
Economic interventionism
Inclusive democracy
Input–output model
Laissez-faire
Material balance planning
Nationalization
Peer-to-peer economy
Production for use
Public ownership
Resource-based economy
Social peer-to-peer processes
Steady-state economy
Technocracy
Workers' self-management
The Venus Project
Why Socialism? – an article written by
Albert Einstein which presented a
critique of modern capitalism and
advocated for a planned economy.
Case studies (Soviet-type economies)

Analysis of Soviet-type economic

planning
Eastern Bloc economies
Economy of Cuba[53]
Economy of North Korea
Five-year plans of the Soviet Union
OGAS, a plan for creating a computer
network to supervise the Soviet
economy
 Project Cybersyn, a project for a
computer network controlling the
economy of Chile under Salvador
Allende
Case studies (mixed-market economies)

Five-year plans of China

Dirigisme (indicative planning in France)
Economy of India
Economy of Singapore
First Malaysia Plan
Five-year plans of Argentina
Five-year plans of South Korea

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1 Al N (1987) "Pl dE "

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Further reading

Kaplan, Robert – see reference to his

work on International Economics and
Foreign Relations, where he addresses
nature of "command economy", a
Weberian term.
Cox, Robin (2005). "The Economic
Calculation Controversy: Unravelling of a
Myth" (https://libcom.org/files/Common
Voice3.pdf) . Common Voice (3).
Damier, Vadim (2012). "The Economy of
Freedom" (http://aitrus.info/node/259
5) .
Devine, Pat (2010). Democracy and
Economic Planning. Polity. ISBN 978-
0745634791.
Ellman, Michael (2014). Socialist
Planning (http://www.cambridge.org/U
S/academic/subjects/economics/econo
mics-general-interest/socialist-planning-
3rd-edition) (3rd ed.). Cambridge
University Press. ISBN 1107427320.
Grossman, Gregory (1987): "Command
economy". The New Palgrave: A
Dictionary of Economics. 1. pp. 494–
495.
Landauer, Carl (1947). Theory of
National Economic Planning (2nd ed.).
Berkeley and Los Angeles, California:
University of California Press.
Mandel, Ernest (1986). In Defence of
Socialist Planning. New Left Review
(159).
 Myant, Martin; Drahokoupil, Jan (2010),
Transition Economies: Political
Economy in Russia, Eastern Europe, and
Central Asia, Wiley-Blackwell, ISBN 978-
0-470-59619-7.
Nove, Alec (1987). "Planned economy".
The New Palgrave: A Dictionary of
Economics. 3. pp. 879–885.

External links

"The Myth of the Wikiquote

has
Permanent Arms
quotations
Economy" (https://ww related to
Planned
w.worldsocialism.org/s
Economy.
pgb/socialist-standar
 d/2003/2000s/no-1188-august-2003/m
yth-permanent-arms-economy/)
"The Stalin Model for the Control and
Coordination of Enterprises in a Socialist
Economy" (http://www.sjsu.edu/faculty/
watkins/stalinmodel.htm) Archived (htt
ps://web.archive.org/web/20210126184
403/http://www.sjsu.edu/faculty/watkin
s/stalinmodel.htm) 2021-01-26 at the
Wayback Machine

Retrieved from
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title=Planned_economy&oldid=1204777595"
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