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WEEK 2: Economic planning
Economic planning is a resource allocation mechanism that is contrasted with the market mechanism. As a coordinating mechanism for socialism, economic planning substitutes factor markets and is defined as a direct allocation of resources; contrasted with the indirect allocation mechanism of the market. There are various types of planning procedures and forms planning can take.
The level of centralization in decision-making in planning depends on the specific type of planning mechanism employed. As such, one can distinguish between centralized planning and decentralized planning. An economy primarily based on central planning is referred to as a planned economy. In a centrally planned economy, the allocation of resources is determined by a comprehensive plan of production which specifies output requirements. Planning may also take the form of directive planning or indicative planning.
Most modern economies are mixed economies incorporating various degrees of markets and planning.
A distinction can be made between physical planning (as in pure socialism) and financial planning (as practiced by governments and private firms in capitalism). Physical planning involves economic planning and coordination conducted in terms of disaggregated physical units; whereas financial planning involves plans formulated in terms of financial units.
Types of Planning: Comprehensive, Partial, Short-term and Long-term.
Comprehensive: This type of planning affects the whole economy as a unit. Policies are formulated to cover all the aspects of the economy. All the planning efforts of the government are integrated to achieve economic development.
Partial: Partial Planning is aimed at affecting only a part of the economy. It is a type of planning which take care of sector by sector.
Short-term: This is a plan which is achievable within six months to one year.
Long-term: These are plans which are achievable over a long period of time.
Have you ever heard the saying ‘Those who fail to plan, plan to fail’?
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