INTEGRATED PLANNING
In the State of Cryptobiosis
Sray Agarwal Deputy Editor, The IIPM Think Tank, New Delhi 1/20/2011 4:55:13 AM
A brand new round of introspection seems to have started at the Yojna Bhavan. The Planning Commission was incepted with an aim of fuelling and catalyzing (at least with economic plans, if not with execution) growth and development plans of India; it is now finding the need for refurbishing itself. Since the beginning it has been a non-political body having members inducted from intellectual capital of India. It obviously played a vital role during pre-liberalization phase and subsequently during the 90s. However, the role had started diminishing. With India gradually metamorphosing itself into a market driven economy, the very need of such centralized planning body is being questioned. Centralized planning commission saw itself flourishing in early 90s especially in socialist countries. Even countries like the United States and the United Kingdom — who had a capitalist model — had followed a pseudo-centralized-planning (in the form of active state intervention) model earlier, especially during the Great Depression. But today centralized planning system is more confined to a handful of developing countries where economizing resource is the main concern and also the main need. Even these countries, which came out from the clutches of imperialism relatively recently didn’t have strong market mechanism unlike those developed capitalist economy which primarily flourished on their strong market economy and price mechanism. However, centralized planning in these countries came with its own loopholes. Since most of these recently freed developing economies lacked competent and strong administrations, these nations saw corruption creeping in their central planning modules.
For the uninitiated, the Planning Commission played a major role till late 80s primarily because the State intervention was quite extensive. The power corridor, in that period, was more obsessed with establishing heavy and basic industries, critical investment in infrastructure, transport etc. However, since liberalization, most of the ministries, bureaucratic departments, corporate entities, industry federations etc, started enjoying numerous flexibility and functional authorities, which to large extent were previously constituted the job description of our Planning Commission. The very objective of planning in a market economy is yet to be realized. In other words, in spite of market economy getting stronger, our Planning Commission failed to reinvent itself in order to sync with this economic metamorphosis. In fact, almost all wonderful plans devised by our Planning Commission never saw themselves bearing fruits in reality. The plan always oscillated between time and cost overruns. The political pressure forced the Planning Commission to come up with projects without any justifiable feasibility report on financial or economic viability of the same.
Across the world, with change in economic model, the centralized planning system saw its gradual demise. Starting with the Soviet Union, the Central Committee of the Communist Party of the Soviet Union that was designed as the highest body of the Communist Party of the Soviet Union (CPSU) started off well but with time was reduced to just a rubber stamp body and saw its closure in 1991 with demise of the Communist Party itself. Present day, the Economic, Social and Environmental Council of France is actually a consultative assembly with limited roles. Unlike ours, it does not play a role in the adoption of statutes and regulations but is only there as an advisory body assisting the lawmaking bodies on social and economic areas and policies, if any. Most of the time the body is largely dormant or inactive and responds only when the executive arm asks for proposal on social or economical issues. Talking cue from France’s Economic and Social Council, the United Kingdom (UK) designed its own planning body called the National Economic Development Office or NEDO, which later on was restructured to assist its new corporatist economic planning forum called National Economic Development Council (NEDC). The main work of NEDC (with assistance from NEDO) was to act as a forum for collective bargaining between management, trades unions and government in an attempt to address Britain's relative economic decline. However, this was abolished in 1992 and UK now is a member of the European Union's Economic and Social Committee (EESC or EcoSoc). EESC is more of a consultative assembly comprising employers, employees, trade unions and representatives of various sectors. In simple word it’s like CII or FICCI from India. The role of the EESC is largely consultative though it sometime gets involved in the matters of social policy, social and economic cohesion, environment, education, health, customer protection, industry, transport, indirect taxation and few more. It is nowadays focusing on boosting the role of civil society organisations in non-member countries. As recent as 2008 China also have remodelled its centralized planning body (State Planning Commission and State Development Planning Commission) to create the National Development and Reform Commission (NDRC). The NDRC mainly works to formulate policies for economic and social development and advice on streamlining economic system of the country. The NDRC is actually a remodelled body of the State Planning Commission (SPC).
During early 1980s and 1990s, many governments who used to follow a planned economy model began deregulating in a big way and started adopting more market-oriented planning model. In case of USSR, the change of economic system itself became the reason for its closure. Attributes and agendas, which were previously scrutinized by central planning body, were now left to the private sector wisdom. Today centralized planning system exists in very few countries like Cuba, Libya, Saudi Arabia, Iran, North Korea, Burma and India, to a limited extent. Countries like France, China and Russia, to a large extent follow a planning process wherein the main objective is to maintain a coordination (and develop synergy) between state and private entity. These countries follow Indicative planning model (aimed to bridge information gap in economies and increase economic performance). The main work of the body is to advice the state to design subsidies, grants, and taxes but then it limits itself to advising on broad planning issues only. The main reason behind the writing off of planned economy body is the way today consumers react in a market-oriented system. In a market economy, where free price system dominates, centralized planning fails to recognize and track consumer preferences, and thus fails to co-ordinate production. This problem was also discussed by economist Ludwig von Mises as economic calculation problem and economist János Kornai as shortage economy theory. Centralized planning also fails to address issues of surpluses, efficiency and competitive pricing. Central planning system is less likely to encourage innovation compared to a free market system. This is evident from the way the US made advancement in science in technology even during cold war in spite of being economically weaker than the Soviets.
Economist Robin Hahnel extends the thought and explains, “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 impending 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.”
Coming back to from where we started, the whole debate on transforming the Planning Commission to Systems Reform Commission does hold a lot of rationale. The commencement of transition should not be too fast and sudden as it may lead to wastage of resources and give rise to dead-lock among ongoing project. The transition should be gradual and the intervention of the state should not be lifted at one go. There should be minimum regulatory involvement, particularly where common resources are concerned. In order to make sure our ministries have sound assistance from policy experts at all levels, involvement of technocrats would be a requirement too. This will not only allow flexibility but will also increase the use of latest technology (which today is not use extensively); besides it will also introduce the plan panel to internationally practiced standards. Moreover, along with all this process in place, it must be made sure that the information flow is very transparent and accessible. In order to gain trust and acceptance of majority (from various stake holders) the planning process should have provision of disclosure of information. This will also help the market to function without any major hiccups and will also reduce the probability of market failure. The planned agenda should further be audited by an independent third party body (may be Comptroller of Auditor general aka CAG) to check the feasibility of the project. With Planning Commission moving towards more indicative planning than directive planning, it makes less sense for states to follow the conventional model of planning model. In the era of market economy, the state has to realize that its emphasis and priorities needs a change. The conventional role of state are (were) Planning, Promotion, Regulation and Production, but with change in economic model the state should focus more on planning and production rather than regulation. The problem here is not with the process but with the system that defines the process. Afterall, when a system fails, it is not enough to just fix the pipes but the institutions that fix the pipes.
(The views expressed in the write-up are personal and do not re?ect the official policy or position of the organization.)
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