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A planned economy is a type of economic system where investment,
production Production may refer to: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products (goods and services) * Production as a stati ...
and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized,
decentralized Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group. Conce ...
,
participatory Citizen Participation or Public Participation in social science refers to different mechanisms for the public to express opinions—and ideally exert influence—regarding political, economic, management or other social decisions. Participato ...
or Soviet-type forms of economic planning. The level of centralization or
decentralization Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group. Conce ...
in decision-making and participation depends on the specific type of planning mechanism employed.
Socialist states Several past and present states have declared themselves socialist states or in the process of building socialism. The majority of self-declared socialist countries have been Marxist–Leninist or inspired by it, following the model of the Sovi ...
based on the Soviet model have used central planning, although a minority such as the former
Socialist Federal Republic of Yugoslavia The Socialist Federal Republic of Yugoslavia, commonly referred to as SFR Yugoslavia or simply as Yugoslavia, was a country in Central and Southeast Europe. It emerged in 1945, following World War II, and lasted until 1992, with the breakup of Yu ...
have adopted some degree of
market socialism Market socialism is a type of economic system involving the public, cooperative, or social ownership of the means of production in the framework of a market economy, or one that contains a mix of worker-owned, nationalized, and privately owne ...
.
Market abolitionist Market abolitionism is the belief that the economic market should be completely eliminated from society. Market abolitionists argue that markets are ethically abhorrent, antisocial and fundamentally incompatible with long term human and environ ...
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. 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, specifically
market economies 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 are ...
, where autonomous firms operating in
market Market is a term used to describe concepts such as: *Market (economics), system in which parties engage in transactions according to supply and demand *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an ...
s make decisions about production, distribution, pricing and investment. Market economies that use
indicative planning Indicative planning is a form of economic planning implemented by a state in an effort to solve the problem of imperfect information in market economies by coordination of private and public investment through forecasts and output targets. The ...
are variously referred to as
planned market economies A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economie ...
,
mixed economies A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economie ...
and
mixed market economies A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economie ...
. A
command economy A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, p ...
follows an
administrative-command system The administrative-command system (russian: Административно-командная система, Administrativno-komandnaya sistema), also known as the command-administrative system, is the system of management of an economy of a sta ...
and uses Soviet-type economic planning which was characteristic of the former
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a List of former transcontinental countries#Since 1700, transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, ...
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.


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 Seleucid Empire (; grc, Βασιλεία τῶν Σελευκιδῶν, ''Basileía tōn Seleukidōn'') was a Greek state in West Asia that existed during the Hellenistic period from 312 BC to 63 BC. The Seleucid Empire was founded by the ...
, the Pergamenian, the southern
Arabia The Arabian Peninsula, (; ar, شِبْهُ الْجَزِيرَةِ الْعَرَبِيَّة, , "Arabian Peninsula" or , , "Island of the Arabs") or Arabia, is a peninsula of Western Asia, situated northeast of Africa on the Arabian Plat ...
n, and the Parthian empires". Scholars have argued that the
Incan The Inca Empire (also known as the Incan Empire and the Inka Empire), called ''Tawantinsuyu'' by its subjects, (Quechua for the "Realm of the Four Parts",  "four parts together" ) was the largest empire in pre-Columbian America. The admin ...
economy was a flexible type of command economy, centered around the movement and utilization of labor instead of goods. One view of mercantilism 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 World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...
war-economy as well as other policies, known as
war communism War communism or military communism (russian: Военный коммунизм, ''Voyennyy kommunizm'') was the economic and political system that existed in Soviet Russia during the Russian Civil War from 1918 to 1921. According to Soviet histo ...
(1918–1921), shaped to the requirements of the
Russian Civil War {{Infobox military conflict , conflict = Russian Civil War , partof = the Russian Revolution and the aftermath of World War I , image = , caption = Clockwise from top left: {{flatlist, *Soldiers ...
of 1917–1923. These policies began their formal consolidation under an official organ of government in 1921, when the Soviet government founded
Gosplan The State Planning Committee, commonly known as Gosplan ( rus, Госплан, , ɡosˈpɫan), was the agency responsible for central economic planning in the Soviet Union. Established in 1921 and remaining in existence until the dissolution of ...
. However, the period of the
New Economic Policy The New Economic Policy (NEP) () was an economic policy of the Soviet Union proposed by Vladimir Lenin in 1921 as a temporary expedient. Lenin characterized the NEP in 1922 as an economic system that would include "a free market and capitalism, ...
( to intervened before the planned system of regular five-year plans started in 1928.
Nazi Germany Nazi Germany (lit. "National Socialist State"), ' (lit. "Nazi State") for short; also ' (lit. "National Socialist Germany") (officially known as the German Reich from 1933 until 1943, and the Greater German Reich from 1943 to 1945) was ...
's
Four Year Plan The Four Year Plan was a series of economic measures initiated by Adolf Hitler in Nazi Germany in 1936. Hitler placed Hermann Göring in charge of these measures, making him a Reich Plenipotentiary (Reichsbevollmächtigter) whose jurisdiction cut a ...
of 1936 onwards involved elements of state planning in the Reich economy. After
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposing ...
(1939–1945) France and Great Britain practised dirigisme - government direction of the economy through non-coercive means. The Swedish government planned public-housing models in a similar fashion as
urban planning Urban planning, also known as town planning, city planning, regional planning, or rural planning, is a technical and political process that is focused on the development and design of land use and the built environment, including air, water, ...
in a project called
Million Programme The Million Programme ( sv, Miljonprogrammet) was an ambitious public housing program implemented in Sweden between 1965 and 1974 by the governing Swedish Social Democratic Party to ensure the availability of affordable, high quality housing t ...
, 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 The Spanish Revolution was a workers' social revolution that began at the outbreak of the Spanish Civil War in 1936 and for two to three years resulted in the widespread implementation of anarchist and, more broadly, libertarian socialist org ...
.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 Socialism is a left-wing Economic ideology, economic philosophy and Political movement, movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to Private prop ...
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. The specific forms of planning proposed for socialism and their feasibility are subjects of the
socialist calculation debate The socialist calculation debate, sometimes known as the economic calculation debate, was a discourse on the subject of how a socialist economy would perform economic calculation given the absence of the law of value, money, financial prices fo ...
.


Computational economic planning

In 1959
Anatoly Kitov Anatoly Ivanovich Kitov (9 August 1920, Samara - 14 October 2005) was a pioneer of cybernetics in the Soviet Union Cybernetics in the Soviet Union had its own particular characteristics, as the study of cybernetics came into contact with th ...
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 killed Kitov's plan. In 1971 the socialist Allende administration of Chile launched
Project Cybersyn Project Cybersyn was a Chilean project from 1971 to 1973 during the presidency of Salvador Allende aimed at constructing a distributed decision support system to aid in the management of the national economy. The project consisted of four modul ...
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 Augusto José Ramón Pinochet Ugarte (, , , ; 25 November 1915 – 10 December 2006) was a Chilean general who ruled Chile from 1973 to 1990, first as the leader of the Military Junta of Chile from 1973 to 1981, being declared President of ...
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 ''Towards a New Socialism'' is a 1993 non-fiction book written by Scottish computer scientist Paul Cockshott, co-authored by Scottish economics professor Allin F. Cottrell. The book outlines in detail a proposal for a complex planned socialist e ...
'' (1993), the computer scientist
Paul Cockshott William Paul Cockshott (born 16 March 1952) is a Scottish computer scientist, Marxian economist and a reader at the University of Glasgow. Since 1993 he has authored multiple works in the tradition of scientific socialism, most notably '' Towar ...
from the
University of Glasgow , image = UofG Coat of Arms.png , image_size = 150px , caption = Coat of arms Flag , latin_name = Universitas Glasguensis , motto = la, Via, Veritas, Vita , ...
and the economist Allin Cottrell from the
Wake Forest University Wake Forest University is a private research university in Winston-Salem, North Carolina. Founded in 1834, the university received its name from its original location in Wake Forest, north of Raleigh, North Carolina. The Reynolda Campus, the un ...
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 Oskar Ryszard Lange (27 July 1904 – 2 October 1965) was a Polish economist and diplomat. He is best known for advocating the use of market pricing tools in socialist systems and providing a model of market socialism. He responded to the econo ...
(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 Salvador Guillermo Allende Gossens (, , ; 26 June 1908 – 11 September 1973) was a Chilean physician and socialist politician who served as the 28th president of Chile from 3 November 1970 until his death on 11 September 1973. He was the fir ...
's socialist government pioneered the 1970 Chilean distributed decision support system
Project Cybersyn Project Cybersyn was a Chilean project from 1971 to 1973 during the presidency of Salvador Allende aimed at constructing a distributed decision support system to aid in the management of the national economy. The project consisted of four modul ...
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 The viable system model (VSM) is a model of the organizational structure of any autonomous system capable of producing itself. A viable system is any system organised in such a way as to meet the demands of surviving in the changing environment. O ...
setting and bottom-up participative decision-making in the form of participative democracy by the Cyberfolk component.


Fictional portrayals

The 1888 novel ''
Looking Backward ''Looking Backward: 2000–1887'' is a utopian science fiction novel by Edward Bellamy, a journalist and writer from Chicopee Falls, Massachusetts; it was first published in 1888. The book was translated into several languages, and in short o ...
'' by
Edward Bellamy Edward Bellamy (March 26, 1850 – May 22, 1898) was an American author, journalist, and political activist most famous for his utopian novel ''Looking Backward''. Bellamy's vision of a harmonious future world inspired the formation of numerou ...
depicts a fictional planned economy in a United States around the year 2000 which has become a socialist utopia. The
World State World government is the concept of a single political authority with jurisdiction over all humanity. It is conceived in a variety of forms, from tyrannical to democratic, which reflects its wide array of proponents and detractors. A world gove ...
in
Aldous Huxley Aldous Leonard Huxley (26 July 1894 – 22 November 1963) was an English writer and philosopher. He wrote nearly 50 books, both novels and non-fiction works, as well as wide-ranging essays, narratives, and poems. Born into the prominent Huxle ...
's ''
Brave New World ''Brave New World'' is a dystopian novel by English author Aldous Huxley, written in 1931 and published in 1932. Largely set in a futuristic World State, whose citizens are environmentally engineered into an intelligence-based social hiera ...
'' (1932) and Airstrip One in George Orwell's ''
Nineteen Eighty-Four ''Nineteen Eighty-Four'' (also stylised as ''1984'') is a dystopian social science fiction novel and cautionary tale written by the English writer George Orwell. It was published on 8 June 1949 by Secker & Warburg as Orwell's ninth and fina ...
'' (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 "Shortage economy" ( pl, gospodarka niedoboru, hu, hiánygazdaság) is a term coined by Hungarian economist János Kornai, who used this term to criticize the old Centrally planned economy, centrally-planned economies of the communist states of th ...
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 Yevgeny Ivanovich Zamyatin ( rus, Евге́ний Ива́нович Замя́тин, p=jɪvˈɡʲenʲɪj ɪˈvanəvʲɪtɕ zɐˈmʲætʲɪn; – 10 March 1937), sometimes anglicized as Eugene Zamyatin, was a Russian author of science fictio ...
'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 Land, also known as dry land, ground, or earth, is the solid terrestrial surface of the planet Earth that is not submerged by the ocean or other bodies of water. It makes up 29% of Earth's surface and includes the continents and various isla ...
,
labor Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the la ...
, 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 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 The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign ...
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 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.


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 A free price system or free price mechanism (informally called ''the price system'' or ''the price mechanism'') is a mechanism of resource allocation that relies upon prices set by the interchange of supply and demand. The resulting price signals ...
is intended to serve this purpose). This difficulty was notably written about by economists
Ludwig von Mises Ludwig Heinrich Edler von Mises (; 29 September 1881 – 10 October 1973) was an Austrian School economist, historian, logician, and Sociology, sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberali ...
and
Friedrich Hayek Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
, who referred to subtly distinct aspects of the problem as the
economic calculation problem The economic calculation problem (sometimes abbreviated ECP) is a criticism of using economic planning as a substitute for market-based allocation of the factors of production. It was first proposed by Ludwig von Mises in his 1920 article "Eco ...
and local knowledge problem, 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 Michael Polanyi (; hu, Polányi Mihály; 11 March 1891 – 22 February 1976) was a Hungarian-British polymath, who made important theoretical contributions to physical chemistry, economics, and philosophy. He argued that positivism supplies ...
. Whereas the former stressed the theoretical underpinnings of a market economy to subjective value theory while attacking the
labor theory of value The labor theory of value (LTV) is a theory of value that argues that the economic value of a good or service is determined by the total amount of " socially necessary labor" required to produce it. The LTV is usually associated with Marxian ...
, 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, " 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 Robin Eric Hahnel (born March 25, 1946) is an American economist and professor emeritus of economics at American University. He was a professor at American University for many years and traveled extensively advising on economic matters all over t ...
, who supports
participatory economics Participatory economics, often abbreviated Parecon, is an economic system based on participatory decision making as the primary economic mechanism for allocation in society. In the system, the say in decision-making is proportional to the impa ...
, a form of
socialist Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the ...
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 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 Marxists. Decentralized planning has been proposed as a basis for
socialism Socialism is a left-wing Economic ideology, economic philosophy and Political movement, movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to Private prop ...
and has been variously advocated by
anarchists 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 necessari ...
, council communists,
libertarian Marxists Libertarian socialism, also known by various other names, is a left-wing,Diemer, Ulli (1997)"What Is Libertarian Socialism?" The Anarchist Library. Retrieved 4 August 2019. anti-authoritarian, anti-statist and libertarianLong, Roderick T. (201 ...
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 The economy of the Soviet Union was based on state ownership of the means of production, collective farming, and industrial manufacturing. An administrative-command system managed a distinctive form of central planning. The Soviet economy was ...
. 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 A command hierarchy is a group of people who carry out orders based on others' authority within the group. It can be viewed as part of a power structure, in which it is usually seen as the most vulnerable and also the most powerful part. Milit ...
, with little input from lower levels. Advocates of economic planning have sometimes been staunch critics of these command economies.
Leon Trotsky Lev Davidovich Bronstein. ( – 21 August 1940), better known as Leon Trotsky; uk, link= no, Лев Давидович Троцький; also transliterated ''Lyev'', ''Trotski'', ''Trotskij'', ''Trockij'' and ''Trotzky''. (), was a Russian ...
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. 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 The administrative-command system (russian: Административно-командная система, Administrativno-komandnaya sistema), also known as the command-administrative system, is the system of management of an economy of a sta ...
emerged as a new designation in some academic circles for the economic system that existed in the former
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a List of former transcontinental countries#Since 1700, transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, ...
and Eastern Bloc, 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 Project Cybersyn was a Chilean project from 1971 to 1973 during the presidency of Salvador Allende aimed at constructing a distributed decision support system to aid in the management of the national economy. The project consisted of four modul ...
and by
Aleksandr Aleksandrovich Kharkevich Aleksandr Aleksandrovich Kharkevich (russian: Алекса́ндр Алекса́ндрович Харке́вич ; 3 February, 1904 – 30 March, 1965) was a specialist in radio engineering, electronics, acoustics and instrumentation. He was ...
, head of the Department of Technical Physics in Kiev in 1962. While both economic planning and a planned economy can be either authoritarian or democratic and
participatory Citizen Participation or Public Participation in social science refers to different mechanisms for the public to express opinions—and ideally exert influence—regarding political, economic, management or other social decisions. Participato ...
,
democratic socialist Democratic socialism is a left-wing political philosophy that supports political democracy and some form of a socially owned economy, with a particular emphasis on economic democracy, workplace democracy, and workers' self-management within ...
critics argue that command economies are necessarily authoritarian or undemocratic in practice.
Indicative planning Indicative planning is a form of economic planning implemented by a state in an effort to solve the problem of imperfect information in market economies by coordination of private and public investment through forecasts and output targets. The ...
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 Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...
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 Horizontalism is an approach to money creation theory pioneered by Basil Moore which states that private bank reserves are not managed by central banks. Instead reserves will be provided on demand at the bank rate set by the central bank. This inv ...
, is a type of planned economy in which the investment and allocation of
consumer A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...
and
capital goods The economic concept of a capital good (also called complex product systems (CoPS),H. Rush, "Managing innovation in complex product systems (CoPS)," IEE Colloquium on EPSRC Technology Management Initiative (Engineering & Physical Sciences Researc ...
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 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 Soviet ...
of the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a List of former transcontinental countries#Since 1700, transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, ...
'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 A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economie ...
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 Industrial democracy is an arrangement which involves workers making decisions, sharing responsibility and authority in the workplace. While in participative management organizational designs workers are listened to and take part in the decisi ...
. Computer-based forms of democratic economic planning and coordination between economic enterprises have also been proposed by various computer scientists and radical economists. Proponents present decentralized and participatory economic planning as an alternative to
market socialism Market socialism is a type of economic system involving the public, cooperative, or social ownership of the means of production in the framework of a market economy, or one that contains a mix of worker-owned, nationalized, and privately owne ...
for a post-capitalist society. Decentralized planning has been a feature of anarchist and
socialist economics Socialist economics comprises the economic theories, practices and norms of hypothetical and existing socialist economic systems. A socialist economic system is characterized by social ownership and operation of the means of production that may ...
. Variations of decentralized planning such as
economic democracy Economic democracy is a socioeconomic philosophy that proposes to shift decision-making power from corporate managers and corporate shareholders to a larger group of public stakeholders that includes workers, customers, suppliers, neighbour ...
, industrial democracy and
participatory economics Participatory economics, often abbreviated Parecon, is an economic system based on participatory decision making as the primary economic mechanism for allocation in society. In the system, the say in decision-making is proportional to the impa ...
have been promoted by various political groups, most notably
anarchists 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 necessari ...
,
democratic socialists Democratic socialism is a left-wing political philosophy that supports political democracy and some form of a socially owned economy, with a particular emphasis on economic democracy, workplace democracy, and workers' self-management within ...
, guild socialists,
libertarian Marxists Libertarian socialism, also known by various other names, is a left-wing,Diemer, Ulli (1997)"What Is Libertarian Socialism?" The Anarchist Library. Retrieved 4 August 2019. anti-authoritarian, anti-statist and libertarianLong, Roderick T. (201 ...
,
libertarian socialists Libertarian socialism, also known by various other names, is a left-wing,Diemer, Ulli (1997)"What Is Libertarian Socialism?" The Anarchist Library. Retrieved 4 August 2019. anti-authoritarian, anti-statist and libertarianLong, Roderick T. (20 ...
, revolutionary syndicalists and
Trotskyists Trotskyism is the political ideology and branch of Marxism developed by Ukrainian-Russian revolutionary Leon Trotsky and some other members of the Left Opposition and Fourth International. Trotsky self-identified as an orthodox Marxist, a re ...
. 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 Anarcho-syndicalism is a political philosophy and anarchist school of thought that views revolutionary industrial unionism or syndicalism as a method for workers in capitalist society to gain control of an economy and thus control influence i ...
Diego Abad de Santillan in the book ''After the Revolution''.


Models


Negotiated coordination

Economist
Pat Devine Pat Devine is a Political radicalism, radical Socialist economics, socialist economist concerned mainly with industrial economics and comparative economic systems. Devine made one of the most thorough descriptions of a future Post-capitalism, post- ...
has created a model of decentralized economic planning called "negotiated coordination" which is based upon
social ownership 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 ...
of the
means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
by those affected by the use of the assets involved, with the allocation of
consumer A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...
and
capital goods The economic concept of a capital good (also called complex product systems (CoPS),H. Rush, "Managing innovation in complex product systems (CoPS)," IEE Colloquium on EPSRC Technology Management Initiative (Engineering & Physical Sciences Researc ...
made through a participatory form of decision-making by those at the most localized level of production. Moreover, organizations that utilize modularity 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 A consumers' co-operative is an enterprise owned by consumers and managed democratically and that aims at fulfilling the needs and aspirations of its members. Such co-operatives operate within the market system, independently of the state, as a f ...
. Producers and consumers, or their representatives, negotiate the quality and quantity of what is to be produced. This structure is central to
guild socialism 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 ...
,
participatory economics Participatory economics, often abbreviated Parecon, is an economic system based on participatory decision making as the primary economic mechanism for allocation in society. In the system, the say in decision-making is proportional to the impa ...
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 India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
, most notably in
Kerala Kerala ( ; ) is a state on the Malabar Coast of India. It was formed on 1 November 1956, following the passage of the States Reorganisation Act, by combining Malayalam-speaking regions of the erstwhile regions of Cochin, Malabar, South ...
. 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 The Spanish Revolution was a workers' social revolution that began at the outbreak of the Spanish Civil War in 1936 and for two to three years resulted in the widespread implementation of anarchist and, more broadly, libertarian socialist org ...
.


Similar concepts in practice


= Community participatory planning

= The
United Nations The United Nations (UN) is an intergovernmental organization whose stated purposes are to maintain international peace and security, develop friendly relations among nations, achieve international cooperation, and be a centre for harmoniz ...
has developed local projects that promote participatory planning on a community level. Members of communities take decisions regarding
community development The United Nations defines community development as "a process where community members come together to take collective action and generate solutions to common problems." It is a broad concept, applied to the practices of civic leaders, activists ...
directly.


See also

* Adhocracy *
Communist state A communist state, also known as a Marxist–Leninist state, is a one-party state that is administered and governed by a communist party guided by Marxism–Leninism. Marxism–Leninism was the state ideology of the Soviet Union, the Comi ...
*
Creative destruction Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics which since the 1950s is the most readily identified with the Austrian-born economist Joseph Schumpeter who derived it from the work of Karl Marx and pop ...
*
Critique of political economy Critique of political economy or critique of economy is a form of social critique that rejects the various social categories and structures that constitute the mainstream discourse concerning the forms and modalities of resource allocation and ...
* Distributed economy *
Economic equilibrium In economics, economic equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the ( equilibrium) values of economic variables will not change. For example, in the s ...
* Economic interventionism *
Inclusive democracy Inclusive Democracy (ID) is a project that aims for direct democracy; economic democracy in a stateless, moneyless and marketless economy; self-management (democracy in the socio-economic realm); and ecological democracy. The theoretical p ...
* Input–output model *
Laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups ...
*
Material balance planning Material balances are a method of economic planning where material supplies are accounted for in natural units (as opposed to using monetary accounting) and used to balance the supply of available inputs with targeted outputs. Material balancing ...
* Nationalization *
Peer-to-peer economy In capitalism, the sharing economy is a socio-economic system built around the sharing of resources. It often involves a way of purchasing goods and services that differs from the traditional business model of companies hiring employees to produc ...
*
Production for use Production for use is a phrase referring to the principle of economic organization and production taken as a defining criterion for a socialist economy. It is held in contrast to production for profit. This criterion is used to distinguish commu ...
*
Public ownership State ownership, also called government ownership and public ownership, is the ownership of an industry, asset, or enterprise by the state or a public body representing a community, as opposed to an individual or private party. Public ownershi ...
*
Resource-based economy A resource-based or natural-resource-based economy is that of a country whose gross national product or gross domestic product to a large extent comes from natural resources. Examples The economies of Gulf Cooperation Council (GCC) countries ...
*
Social peer-to-peer processes Social peer-to-peer processes are interactions with a peer-to-peer dynamic. These peers can be humans or computers. Peer-to-peer (P2P) is a term that originated from the popular concept of the P2P distributed computer application architecture which ...
* Steady-state economy *
Technocracy Technocracy is a form of government in which the decision-maker or makers are selected based on their expertise in a given area of responsibility, particularly with regard to scientific or technical knowledge. This system explicitly contrasts wi ...
*
Workers' self-management Workers' self-management, also referred to as labor management and organizational self-management, is a form of organizational management based on self-directed work processes on the part of an organization's workforce. Self-management is a def ...
* The Venus Project ; Case studies (Soviet-type economies) *
Analysis of Soviet-type economic planning 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 Soviet ...
*
Eastern Bloc economies 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 ...
*
Economy of Cuba The economy of Cuba is a mixed command economy dominated by state-run enterprises. Most of the labor force is employed by the state. In the 1990s, the ruling Communist Party of Cuba encouraged the formation of worker co-operatives and self-emp ...
*
Economy of North Korea The economy of North Korea is a centrally planned economy, following '' Juche'', where the role of market allocation schemes is limited, although increasing. , North Korea continues its basic adherence to a centralized command economy. With a ...
* Five-year plans of the Soviet Union *
OGAS OGAS (russian: Общегосударственная автоматизированная система учёта и обработки информации, "ОГАС", "National Automated System for Computation and Information Processing") was ...
, a plan for creating a computer network to supervise the Soviet economy *
Project Cybersyn Project Cybersyn was a Chilean project from 1971 to 1973 during the presidency of Salvador Allende aimed at constructing a distributed decision support system to aid in the management of the national economy. The project consisted of four modul ...
, a project for a computer network controlling the economy of Chile under
Salvador Allende Salvador Guillermo Allende Gossens (, , ; 26 June 1908 – 11 September 1973) was a Chilean physician and socialist politician who served as the 28th president of Chile from 3 November 1970 until his death on 11 September 1973. He was the fir ...
; Case studies (mixed-market economies) *
Five-year plans of China The Five-Year Plans () are a series of social and economic development initiatives issued by the Chinese Communist Party (CCP) since 1953 in the People's Republic of China. Since 1949, the CCP has shaped the Chinese economy through the plenums o ...
* Dirigisme (indicative planning in France) *
Economy of India The economy of India has transitioned from a mixed planned economy to a mixed middle-income developing social market economy with notable state participation in strategic sectors. * * * * It is the world's fifth-largest economy by nomin ...
*
Economy of Singapore The economy of Singapore is a highly developed free-market economy with dirigiste characteristics. Singapore's economy has been previously ranked as the most open in the world, the joint 4th-least corrupt, and the most pro-business. Singapo ...
* First Malaysia Plan *
Five-year plans of Argentina The Five Year Plan was an Argentine state-planning strategy, during the first government of President Juan Domingo Perón. First Five Year Plan (1947–1951) Preparations Early in the second half of 1946, the Technical Secretariat of the Pre ...
*
Five-year plans of South Korea The Five-Year Economic and Social Development Plans () were an economic development project of South Korea. Background Both North and South Korea had survived the Korean War (1950–53). From the end of World War II, South Korea remained largely ...


References


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"
''Common Voice'' (3). * Damier, Vadim (2012)
"The Economy of Freedom"
* Devine, Pat (2010). ''Democracy and Economic Planning''. Polity. . * Ellman, Michael (2014)
''Socialist Planning''
(3rd ed.).
Cambridge University Press Cambridge University Press is the university press of the University of Cambridge. Granted letters patent by King Henry VIII in 1534, it is the oldest university press in the world. It is also the King's Printer. Cambridge University Pre ...
. . * 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). * . * Nove, Alec (1987). "Planned economy". ''The New Palgrave: A Dictionary of Economics''. 3. pp. 879–885.


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