centralized planning. For economic systems based on decentralized forms of planning, see Decentralized planning (economics). A planned economy is the economic system in which decisions regarding production and investment are em- bodied in a plan formulated by a central authority, usu- ally by a public body such as a government agency. [1][2] Thus it may be termed a extquotedblcommand economy extquotedbl. Although a planned economy may be based on either centralized or decentralized forms of economic planning, it usually refers to a centrally planned econ- omy. Central planning aims to improve productivity and coordination by enabling planners to take advantage of better information achieved through the consolidation of economic resources when making decisions regarding in- vestment and the allocation of economic inputs. Planned economies are usually categorized as a particu- lar variant of socialism, and have historically been sup- ported by and implemented by Marxist-Leninist socialist states. Analysts argue that Soviet-type central planning did not actually constitute a planned economy in that a comprehensive and binding plan did not guide produc- tion and investment; therefore the term administrative command economy emerged as a more accurate desig- nation for the economic system that existed in the former Soviet Union and Eastern bloc, highlighting the role of centralized hierarchical administrative decision-making in the absence of popular and democratic local market- based oversight as the essential coordinating feature of these economies. [3] In some cases, the most extensive formof a planned econ- omy is referred to as a command economy, [4] or com- mand and control economy. [5][6] In such economies, central economic planning directs all major sectors of the economy and formulates decisions about the use of economic inputs and the means of production. [7] In a centrally-planned economy, planners would decide what would be produced and would direct lower-level enter- prises and ministries to produce those goods in accor- dance with democratically-determined national and so- cial objectives. [8] Implementation of this form of econ- omy is sometimes called planication. Planned economies are held in contrast to unplanned economies, such as the market economy and proposed self-managed economy, where production, distribution, pricing, and investment decisions are made by au- tonomous rms based upon their individual interests rather than upon a macroeconomic plan. Less exten- sive forms of planned economies include those that use indicative planning as components of a market-based or mixed economy, in which the state employs inuence, subsidies, grants, and taxes, but does not compel. [9] This latter is sometimes referred to as a planned mar- ket economy. [10] In some instances, the term planned economy has been used to refer to national economic de- velopment plans and state-directed investment in market economies. Beginning in the 1980s and 1990s, many governments presiding over planned economies began a process of marketization, moving toward market-based economies by allowing individual enterprises to make the decisions regarding management and pricing, granting autonomy to state enterprises, and ultimately expanding the scope of the private sector through privatization. Limited free market activity gradually entered the Eastern Bloc dur- ing the 1980s. on January 1, 1992 the newly independent Russian Federation abolished the Soviet price controls. Although most economies today are market-based mixed economies (which are partially planned), fully planned economies of the Soviet-type continue to exist (as of 2013) in Cuba, North Korea and Laos. [11] The possibility of a digital planned economy was ex- plored by Chile with the creation of Project Cybersyn. 1 2 2 RELATIONSHIP WITH SOCIALIST ECONOMICS 1 Economic planning versus com- mand economies Main article: Economic planning Economic planning in general is dened as a mecha- nism for the allocation of inputs based on a direct al- location, held in contrast with the market mechanism, which is based on indirect allocation. [12] Economic plan- ning may be carried out in a decentralized, distributed or centralized manner depending on the specic organi- zation of economic institutions. An economy based on economic planning (either through the state, an associ- ation of worker cooperatives or another economic entity that has jurisdiction over the means of production) appro- priates its resources as needed, so that allocation comes in the form of internal transfers rather than market trans- actions involving the purchasing of assets by one govern- ment agency or rm by another. In a traditional model of planning, decision-making would be carried out by work- ers and consumers on the enterprise-level. This is contrasted with the concept of a centrally planned, or a command economy, where most of the economy is planned by a central authority and organized in a top- down administrative model, where decisions regarding investment and production output requirements are de- cided upon by planners at the top in the chain of com- mand, with little input from lower levels of the chain of command. Advocates of economic planning have some- times been staunch critics of command economies and centralized planning. For example, Leon Trotsky be- lieved that central planners, regardless of their intellec- tual capacity, operated without the input and partici- pation of the millions of people who participate in the economy and understand/respond to local conditions and changes in the economy, and therefore would be unable to eectively coordinate all economic activity. [13] Another key dierence is that command economies are usually authoritarian in nature, whereas economic plan- ning in general can be either participatory and demo- cratic or authoritarian. Indicative planning is a form of planning in market economies that directs the economy through incentive-based methods. Economic planning can be practiced in a decentralized manner through dif- ferent government authorities. For example, in some pre- dominately market-oriented and mixed economies, the state utilizes economic planning in strategic industries such as the aerospace industry. Mixed economies usually employ macroeconomic planning, while micro-economic aairs are left to the market and price system. Another example of this is the utilization of dirigisme, both of which were practiced in France and Great Britain after the Second World War. Swedish public housing models were planned by the government in a similar fash- ion as urban planning. A planned economy may consist of state enterprises, co- operative enterprises, or private enterprises, or a combi- nation of dierent enterprise types coordinated through some form of planning. Some make the distinction that in a command economy, enterprises need not follow a comprehensive plan or be coordinated through plan- ning - the dominant coordinating mechanism comes in the form of a command from higher authorities. That is, a planned economy is an economic system in which the government controls and regulates production, distri- bution, prices, etc. [14] but a command economy, while also having this type of regulation, necessarily has sub- stantial public ownership of industry. [15] Therefore, com- mand economies are planned economies, but not neces- sarily the reverse. 2 Relationship with socialist eco- nomics Main article: Socialism While socialismis not equivalent to economic planning or to the concept of a planned economy, an inuential con- ception of socialism involves the replacement of capital markets with some formof 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, specically, so that the use of the surplus product is controlled by the producers. [16] The specic forms of planning proposed for socialism and their feasibility are the subject of de- bate within the broader socialist calculation debate. 3 3 Transition from a planned econ- omy to a market economy The shift from a command economy to a market econ- omy has proven to be dicult; in particular, there were no theoretical guides for doing so before the 1990s. One transition from a command economy to a market econ- omy that manyconsider successful is that of the Peoples Republic of China. By contrast, the Soviet Union's transition was much more problematic, and its successor republics faced a sharp de- cline in GDP during the early 1990s. One of the sug- gested causes is that under Soviet planning, price ceilings created major problems (shortages, queuing for bread, households hoarding money), which made the transition to an unplanned economy more dicult. While the transition to a market economy proved dicult, many of the post-Soviet states have been experiencing strong, resource-based economic growth in recent years, though the levels vary substantially. However, a majority of the former Soviet Republics have not yet reached pre- collapse levels of economic development. Still, most of the economic hardship that struck many of the former East Bloc countries and the post-Soviet states comes from the program of shock therapy. The idea behind this program is to convert from a centrally planned economy to a market economy in a short space of time. This means mass-scale privatization, budget cuts and liberalization of economy and nance regulations. This shock therapy program was implemented in several former communist states like Poland and Russia. Wealth inequality continues to be extremely severe in the rapidly privatized post-soviet countries. People in poverty have seen an approximately 50% reduction in their income, compared to late soviet era income statistics. [17] Much of the acquired wealth is attributed to the political nature of the respective privatization processes. [17] 4 Advantages of economic plan- ning 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 in- vestment for economic development in a desired pattern. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capi- tal to accumulate through the expansion of light industry, and without reliance on external nancing. This is what happened in the Soviet Union during the 1930s when the government forced the share of GNP dedicated to private consumption from eighty percent to fty percent. [18] As a result, the Soviet Union experienced massive growth in heavy industry. 5 Disadvantages of economic plan- ning 5.1 Inecient resource distribution: sur- plus and shortage Critics of planned economies argue that planners cannot detect consumer preferences, shortages, and surpluses with sucient accuracy and therefore cannot eciently co-ordinate production (in a market economy, a free price system is intended to serve this purpose). This di- culty was notably written about by economists Ludwig von Mises and Friedrich Hayek, both of whom called it the extquotedbleconomic calculation problem extquot- edbl. These opponents of central planning argue that the only way to satisfy individuals who have a constantly changing hierarchy of needs, and are the only ones to pos- sess their particular individuals circumstances, is by al- lowing those with the most knowledge of their needs to have it in their power to use their resources in a compet- ing marketplace to meet the needs of the most amount of consumers, most eciently. This phenomenon is recog- nized as spontaneous order. Additionally, misallocation of resources would naturally ensue by redirecting capi- tal away from individuals with direct knowledge and cir- cumventing it into markets where a coercive monopoly inuences behavior, ignoring market signals. According to Tibor R. Machan, Without a market in which alloca- tions can be made in obedience to the law of supply and demand, it is dicult or impossible to funnel resources with respect to actual human preferences and goals. [19] 5.2 Suppression of economic democracy and self-management Economist Robin Hahnel notes that, even if central plan- ning overcame its inherent inhibitions of incentives and 4 7 SEE ALSO innovation, it would nevertheless be unable to maximize economic democracy and self-management, which he be- lieves are concepts that are more intellectually coherent, consistent and just than mainstream notions of economic freedom. [20] Says Hahnel, Combined with a more democratic politi- cal system, and redone to closer approximate a best case version, centrally planned economies no doubt would have performed better. But they could never have deliv- ered 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 suscepti- ble to growing inequities and ineciencies as the eects of dierential economic power grew. Under central plan- ning neither planners, managers, nor workers had incen- tives to promote the social economic interest. Nor did impeding markets for nal 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 unprece- dented totalitarian political power. [20] 5.3 Economic Instability Studies of Eastern European planned economies in the 1950s and 1960s by both American and Eastern Euro- pean economists found that, contrary to expectations, they showed greater uctuations in output than market economies during the same period. [21] 6 Fictional portrayals of planned economies The 1888 novel Looking Backward by Edward Bellamy depicts a ctional planned economy in a United States c. the year 2000 which has become a socialist utopia. The World State in Aldous Huxleys Brave New World and Airstrip One in George Orwells Nineteen Eighty Four are both ctional examples of command economies, al- beit 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 or- ganised by the intentionally sarcastically named Ministry of Plenty. Other literary portrayals of planned economies were Yevgeny Zamyatin's We, which was an inuence on Orwells work. Like Nineteen Eighty Four, Ayn Rand's dystopian story Anthem was also an artistic portrayal of a command economy that was inuenced by We. The dif- ference is that it was a primitivist planned economy, as opposed to the advanced technology of We or Brave New World. 7 See also Calculation in kind Communist state Criticisms of Socialism Decentralized planning (economics) Economic equilibrium Economic planning Economics of fascism Economic calculation problem Enrico Barone Input-output model Lange model Leonid Kantorovich Material balance planning Market economy Mixed economy Political and Economic Planning Non-conformists of the 1930s Neosocialism Marxism-Leninism Marcel Dat Participatory economics Inclusive democracy Indicative planning 5 Public ownership Socialist calculation debate Socialist economics Technocracy Jean Coutrot Case studies Analysis of Soviet-type economic planning First Malaysia Plan Five-Year Plans in the Soviet Union Five-year plans of Argentina Five-Year Plans of South Korea Great Leap Forward (China) Economy of Singapore Economy of India Project Cybersyn, a project for a computer network controlling the economy of Chile under Salvador Allende. Eastern Bloc economies Economy of Saudi Arabia 8 Notes [1] Alec Nove (1987), planned economy, The New Pal- grave: A Dictionary of Economics, v. 3, pp. 87980. [2] See Myant, Martin; Jan Drahokoupil (2010). Transition Economies: Political Economy in Russia, Eastern Europe, and Central Asia. Hoboken, New Jersey: Wiley. ISBN 978-0-470-59619-7. [3] Ellman, Michael (2007). The Rise and Fall of Social- ist Planning. In Estrin, Saul; Koodko, Grzegorz W.; Uvali, Milica. Transition and Beyond: Essays in Hon- our 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 sys- tem was not the plan but the role of administrative hier- archies at all levels of decision making; the absence of control over decision making by the population... [4] Command Economy. Encyclopdia Britannica. 2007. Encyclopdia Britannica Online. 11 June 2007. [5] Barth, James R.; Caprio, Gerard, Jr. (March 2007). Chinas Changing Financial System: Can It Catch Up With, or Even Drive Growth. Networks Financial Insti- tute Policy Brief No. 2007-PB-05. SSRN 985580. [6] Bouman, O. Thomas; Brand, David George (1997). Sus- tainable Forests: Global Challenges and Local Solutions. New York: Haworth Press. p. 91. ISBN 1-56022-055-4. [7] Myers, Danny (2004). Construction Economics. London: Spon Press. p. 288. ISBN 0-415-28639-5. [8] Ollman, Bertell (1997). Market Socialism: The Debate Among Socialists. London: Routledge. p. 12. ISBN 0- 415-91966-5. [9] Alec Nove (1987), Planned Economy, The New Pal- grave: A Dictionary of Economics, v. 3, p. 879. [10] Barkley, John (1992). Comparative Economics in Trans- forming World Economy. MIT. p. 10. ISBN 0-262- 68153-6. [11] von Brabant, Jozef M. (1992). The Planned Economies and International Economic Organizations. New York: Cambridge University Press. p. 16. ISBN 0-521-38350- 1. [12] Mandel, Ernest (1986). In Defence of Socialist Plan- ning. New Left Review 159: 537. Planning is not equivalent to perfect allocation of resources, nor scien- tic allocation, nor even more humane allocation. It sim- ply means direct allocation, ex ante. As such, it is the opposite of market allocation, which is ex post. [13] Trotsky, Leon. Writings 193233. p. 96. [14] planned economy. Dictionary.com Unabridged (v 1.1). Random House, Inc. (accessed: May 11, 2008). [15] command economy. In Merriam-Webster Online Dictio- nary (2008) (accessed May 11, 2008). [16] Feinstein, C.H. (1975). Socialism, Capitalism and Eco- nomic Growth: Essays Presented to Maurice Dobb. Cam- bridge University Press. p. 174. ISBN 0-521-29007-4. We have presented the view that planning and market mechanisms are instruments that can be used both in so- cialist and non-socialist societies...It was important to ex- plode the primitive identication of central planning and 6 10 EXTERNAL LINKS socialism and to stress the instrumental character of plan- ning. [17] Global Wealth Databook 2013. Credit Suisse. October 2013. [18] Kennedy, Paul (1987). The Rise and Fall of the Great Powers. New York: Random House. pp. 3223. ISBN 0-394-54674-1. [19] Machan, R. Tibor (2002). Some Skeptical Reections on Research and Development. Liberty and Research and Development: Science Funding in a Free Society. Hoover Press. ISBN 0-8179-2942-8. [20] Hahnel, Robin (2002). The ABCs of Political Economy. London: Pluto Press. p. 262. ISBN 0-7453-1858-4. [21] Zielinski, J. G. (1973). Economic Reforms in Polish In- dustry. New York: Oxford University Press. ISBN 0-19- 215323-4. 9 Further reading Gregory Grossman (1987): Command economy, The New Palgrave: A Dictionary of Economics, v. 1, pp. 49495. Carl Landauer (1947): Theory of National Eco- nomic Planning. University of California Press. Berkeley and Los Angeles, Second edition. Alec Nove (1987): Planned economy, The New Palgrave: A Dictionary of Economics, v. 3, pp. 87985. Myant, Martin; Drahokoupil, Jan (2010), Transition Economies: Political Economy in Russia, Eastern Europe, and Central Asia, Wiley-Blackwell, ISBN 978-0-470-59619-7 10 External links An article against The myth of the permanent arms economy The Stalin Model for the Control and Coordination of Enterprises in a Socialist Economy 7 11 Text and image sources, contributors, and licenses 11.1 Text Planned economy Source: http://en.wikipedia.org/wiki/Planned_economy?oldid=626060297 Contributors: Matthew Woodcraft, Robert Merkel, Tarquin, Ap, Malcolm Farmer, -- April, Ed Poor, Aldie, Roadrunner, Heron, Stevertigo, Edward, Michael Hardy, Isomorphic, Collabi, 172, Kosebamse, Radicalsubversiv, Snoyes, Angela, Error, Cadr, Andres, Jiang, Charles Matthews, Timwi, Dcoetzee, Juxo, Gutza, Kaare, Goose, HarryHenryGebel, Wetman, David.Monniaux, Cncs wikipedia, Jni, Robbot, Paranoid, Altenmann, Sam Spade, Rhombus, JB82, Jondel, Hadal, GreatWhiteNortherner, Nagelfar, Decumanus, Connelly, Christiaan, Nikodemos, ShaunMacPherson, Everyking, Lussmu, DO'Neil, NerdOfTheNorth, Luis rib, Christofurio, Explendido Rocha, MSTCrow, PeterC, Antandrus, Beland, Loremaster, Pi- otrus, Am088, Ot, The Land, Mike Rosoft, Smyth, Bender235, S.K., Lycurgus, Shanes, Sietse Snel, RoyBoy, Cretog8, Smalljim, .:Ajvol:., Elipongo, Cohesion, Maurreen, Jerryseinfeld, La goutte de pluie, Xgoni, Foant, Andrewpmk, Cdc, Spangineer, Snowolf, Samohyl Jan, Velella, Max rspct, Knowledge Seeker, RJII, Sciurin, Mikeo, Geraldshields11, Vuo, Michaelm, Skrewler, Empoor, Crypto, Woohookitty, LOL, Scott.wheeler, Nema Fakei, Mandarax, David Levy, Rjwilmsi, Titoxd, Itinerant1, Jrtayloriv, Fephisto, POTA, Scoops, Actown, Raelx, YurikBot, Sceptre, Phantomsteve, RussBot, BernardL, Gaius Cornelius, NawlinWiki, Grafen, Kvn8907, AeonicOmega, Syrthiss, NWOG, Tobias c, WAS 4.250, Sandstein, PTSE, Gorgonzilla, Closedmouth, CapitalLetterBeginning, JBogdan, CWenger, Tierce, Ybbor, DVD R W, JohnGalt1812, Sardanaphalus, SmackBot, Kirby Morgan, David Kernow, Impaciente, KnowledgeOfSelf, Alex1011, Pgk, Darkstar1st, Prototime, Well, girl, look at you!, Beyhan, Mauls, Chuhangjin, Markrich, Gilliam, Chris the speller, Bootdog, Persian Poet Gal, MK8, Stubblyhead, Darth Sidious, Mushii, DHN-bot, Constanz, A. 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