A planned economy is a type of

economic system An economic system, or economic order, is a system of Production (economics), production, resource allocation and Distribution (economics), distribution of goods and services within a society or a given geographic area. It includes the combinati ...

where

investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...

, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use

centralized Centralisation or centralization (see spelling differences) is the process by which the activities of an organisation, particularly those regarding planning and decision-making, framing strategy and policies become concentrated within a particu ...

, decentralized, participatory or Soviet-type forms of

economic planning Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources b ...

. The level of

centralization Centralisation or centralization (see spelling differences) is the process by which the activities of an organisation, particularly those regarding planning and decision-making, framing strategy and policies become concentrated within a particu ...

or decentralization in decision-making and participation depends on the specific type of planning mechanism employed. 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 market In economics, a factor market is a market where factors of production are bought and sold. Factor markets allocate factors of production, including land, labour and capital, and distribute income to the owners of productive resources, such as wage ...

s with direct calculation as the means to coordinate the activities of the various

socially-owned Social ownership is the appropriation of the surplus product, produced by the means of production, or the wealth that comes from it, to society as a whole. It is the defining characteristic of a socialist economic system. It can take the form of ...

economic enterprises that make up the economy. 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. Planned economies contrast with

unplanned economies An unplanned economy is an economy where economic decisions regarding production, investment and resource allocation are not linked together through conscious economic planning. This may refer to subsistence-level economies, systems of barter o ...

, 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 The Eastern Bloc, also known as the Communist Bloc and the Soviet Bloc, was the group of socialist states of Central and Eastern Europe, East Asia, Southeast Asia, Africa, and Latin America under the influence of the Soviet Union that existed du ...

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.

Overview

In the

Hellenistic In Classical antiquity, the Hellenistic period covers the time in Mediterranean history after Classical Greece, between the death of Alexander the Great in 323 BC and the emergence of the Roman Empire, as signified by the Battle of Actium in ...

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". 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. One view of

mercantilism Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a ...

sees it as involving planned economies. 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 ( to intervened before the planned system of regular

five-year plans Five-year plan may refer to: Nation plans *Five-year plans of the Soviet Union, a series of nationwide centralized economic plans in the Soviet Union *Five-Year Plans of Argentina *Five-Year Plans of Bhutan, a series of national economic developm ...

started in 1928. Nazi Germany's Four Year Plan of 1936 onwards involved elements of state planning in the Reich economy. After World War II (1939–1945) France and Great Britain practised

dirigisme Dirigisme or dirigism () is an economic doctrine in which the state plays a strong directive (policies) role contrary to a merely regulatory interventionist role over a market economy. As an economic doctrine, dirigisme is the opposite of ''lai ...

- 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.Wetzel, Tom
"Workers Power and the Spanish Revolution"
Dolgoff, Sam, ed. (1974). '' The Anarchist Collectives'' (1st ed.). Free Life Editions. p. 114. .

Relationship with socialism

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 The term ''ex-ante'' (sometimes written ''ex ante'' or ''exante'') is a phrase meaning "before the event". Ex-ante or notional demand refers to the desire for goods and services that is not backed by the ability to pay for those goods and servic ...

'' 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 Surplus product (german: Mehrprodukt, links=no) is an economic concept explicitly theorised by Karl Marx in his critique of political economy. Roughly speaking, it is the extra goods produced above the amount needed for a community of workers to ...

is controlled by the producers. 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", ru , Красная книга) with a focus on the management of the Soviet economy. Opposition from the

Defence Ministry {{unsourced, date=February 2021 A ministry of defence or defense (see American and British English spelling differences#-ce.2C -se, spelling differences), also known as a department of defence or defense, is an often-used name for the part of a g ...

killed Kitov's plan. In 1971 the socialist Allende administration of Chile launched Project Cybersyn to install a telex machine in every corporation and organisation 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, but after CIA-backed Augusto Pinochet led a coup in 1973 that established a

military dictatorship A military dictatorship is a dictatorship in which the military exerts complete or substantial control over political authority, and the dictator is often a high-ranked military officer. The reverse situation is to have civilian control of the m ...

under his rule the program was abolished and Pinochet moved Chile towards a more liberalized

market economy A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers ...

. In their book '' Towards a New Socialism'' (1993), the computer scientist Paul Cockshott from the University of Glasgow and the economist Allin Cottrell from the 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.

Cybernetics

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). Salvador Allende's socialist government pioneered the 1970 Chilean distributed

decision support system A decision support system (DSS) is an information system that supports business or organizational decision-making activities. DSSs serve the management, operations and planning levels of an organization (usually mid and higher management) and h ...

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 though an algedonic feedback setting and bottom-up participative decision-making in the form of

participative democracy Participatory democracy, participant democracy or participative democracy is a form of government in which citizens participate individually and directly in political decisions and policies that affect their lives, rather than through elected repr ...

by the Cyberfolk component.

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 Eric Arthur Blair (25 June 1903 – 21 January 1950), better known by his pen name George Orwell, was an English novelist, essayist, journalist, and critic. His work is characterised by lucid prose, social criticism, opposition to totalitar ...

's '' Nineteen Eighty-Four'' (1949) provide fictional depictions of command economies, albeit with diametrically opposed aims. The former is a

consumer economy A consumer economy describes an economy driven by consumer spending as a percent of its gross domestic product, as opposed to the other major components of GDP (gross private domestic investment, government spending, and imports netted against expo ...

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 Alice O'Connor (born Alisa Zinovyevna Rosenbaum;, . Most sources transliterate her given name as either ''Alisa'' or ''Alissa''. , 1905 – March 6, 1982), better known by her pen name Ayn Rand (), was a Russian-born American writer and p ...

'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 Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used f ...

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 compared favorably with capitalist nations in health indicators such as infant mortality and life expectancy. However, the reality of this, at least regarding infant mortality, varied depending on whether official Soviet statistics or WHO definitions were used. In Socialist China under Mao China's growth in life expectancy between 1950 and 1980 ranks as among the most rapid sustained increases in documented global history. 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.

Disadvantages

Economic instability

Studies of command economies of the

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.

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

, 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 In economics, the local knowledge problem is the argument that the data required for rational economic planning are distributed among individual actors and thus unavoidably exist outside the knowledge of a central authority. Friedrich Hayek's des ...

, respectively.Hayek, Friedrich A. (1945). " The Use of Knowledge". ''American Economic Review''. XXXV: 4. pp. 519-30. These distinct aspects were also present in the economic thought of Michael Polanyi. Whereas the former stressed the theoretical underpinnings of a market economy to

subjective value theory The subjective theory of value is an economic theory which proposes the idea that the value of any good is not determined by the utility value of the object, nor by the cumulative value of components or labour needed to produce or manufacture it, ...

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 Spontaneous order, also named self-organization in the hard sciences, is the spontaneous emergence of order out of seeming chaos. The term "self-organization" is more often used for physical changes and biological processes, while "spontaneous o ...

. 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 Tibor Richard Machan (; 18 March 1939 – 24 March 2016) was a Hungarian-American philosopher. A professor emeritus in the department of philosophy at Auburn University, Machan held the R. C. Hoiles Chair of Business Ethics and Free Enterprise ...

, " thout 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".

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. 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 Economic power refers to the ability of countries, businesses or individuals to improve living standards. It increases their ability to make decisions on their own that benefit them. Scholars of international relations also refer to the economic p ...
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.

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.""Planned economy"
Dictionary.com. Unabridged (v. 1.1). Random House, Inc. Retrieved 11 May 2008). whereas a command economy necessarily has substantial public ownership of industry while also having this type of regulation."Command economy"
''Merriam-Webster Online Dictionary''. Retrieved 11 May 2008. In command economies, important allocation decisions are made by government authorities and are imposed by law. This is contested by some

Marxist Marxism is a Left-wing politics, left-wing to Far-left politics, far-left method of socioeconomic analysis that uses a Materialism, materialist interpretation of historical development, better known as historical materialism, to understand S ...

s. Decentralized planning has been proposed as a basis for socialism and has been variously advocated by anarchists, council communists, libertarian Marxists and other

democratic Democrat, Democrats, or Democratic may refer to: Politics *A proponent of democracy, or democratic government; a form of government involving rule by the people. *A member of a Democratic Party: **Democratic Party (United States) (D) **Democratic ...

and

libertarian Libertarianism (from french: libertaire, "libertarian"; from la, libertas, "freedom") is a political philosophy that upholds liberty as a core value. Libertarians seek to maximize autonomy and political freedom, and minimize the state's e ...

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. 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. Historians have associated planned economies with Marxist–Leninist states and the

Soviet economic model Soviet-type economic planning (STP) is the specific model of centralized planning employed by Marxist–Leninist socialist states modeled on the economy of the Soviet Union (USSR). The post-''perestroika'' analysis of the system of the Sov ...

. Since the 1980s, it was recognized 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. 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

, highlighting the role of centralized hierarchical decision-making in the absence of popular control over the economy. 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. While both economic planning and a planned economy can be either authoritarian or

and participatory, democratic socialist critics argue that command economies are necessarily authoritarian or undemocratic in practice. 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

and

allocation Allocation may refer to: Computing * Block allocation map * C++ allocators * Delayed allocation * File allocation table * IP address allocation * Memory allocation * No-write allocation (cache) * Register allocation Economics * Asset alloca ...

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 Post-capitalism is a state in which the economic systems of the world can no longer be described as forms of capitalism. Various individuals and political ideologies have speculated on what would define such a world. According to classical Mar ...

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 Computer science is the study of computation, automation, and information. Computer science spans theoretical disciplines (such as algorithms, theory of computation, information theory, and automation) to practical disciplines (including th ...

and

radical economists Neo-Marxism is a Marxist school of thought encompassing 20th-century approaches that amend or extend Marxism and Marxist theory, typically by incorporating elements from other intellectual traditions such as critical theory, psychoanalysis, or ...

. Proponents present decentralized and participatory economic planning as an alternative to market socialism for a post-capitalist society. Decentralized planning has been a feature of

anarchist Anarchism is a political philosophy and movement that is skeptical of all justifications for authority and seeks to abolish the institutions it claims maintain unnecessary coercion and hierarchy, typically including, though not neces ...

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 Guild socialism is a political movement advocating workers' control of industry through the medium of trade-related guilds "in an implied contractual relationship with the public". It originated in the United Kingdom and was at its most influent ...

, libertarian Marxists, libertarian socialists,

revolutionary syndicalists Syndicalism is a Revolutionary politics, revolutionary current within the Left-wing politics, left-wing of the Labour movement, labor movement that seeks to unionize workers Industrial unionism, according to industry and advance their demands t ...

and Trotskyists. 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 Diego is a Spanish masculine given name. The Portuguese equivalent is Diogo. The name also has several patronymic derivations, listed below. The etymology of Diego is disputed, with two major origin hypotheses: ''Tiago'' and ''Didacus''. Et ...

in the book ''After the Revolution''.

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

of consumer and capital goods made through a participatory form of decision-making by those at the most localized level of production. Moreover, organizations that utilize

modularity Broadly speaking, modularity is the degree to which a system's components may be separated and recombined, often with the benefit of flexibility and variety in use. The concept of modularity is used primarily to reduce complexity by breaking a sy ...

in their production processes may distribute problem solving and decision making.Kostakis, Vasilis (2019)
"How to Reap the Benefits of the 'Digital Revolution'? Modularity and the Commons"
''Halduskultuur: The Estonian Journal of Administrative Culture and Digital Governance''. 20 (1): 4–19.

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 Anarchism is a political philosophy and movement that is skeptical of all justifications for authority and seeks to abolish the institutions it claims maintain unnecessary coercion and hierarchy, typically including, though not necessa ...

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.

Revolutionary Catalonia

Some decentralized participation in economic planning has been implemented across Revolutionary Spain, most notably in Catalonia, during the Spanish Revolution of 1936.

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.

References

External links

"The Myth of the Permanent Arms Economy"

{{DEFAULTSORT:Planned economy Anarcho-communism Anarcho-syndicalism Communism Economic ideologies Economic systems Former communist economies Marxism Marxism–Leninism Schools of economic thought Socialism Socialist calculation Syndicalism