Form of economic 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 resulting plans aim to supply economically valuable information as a public good that the market by itself cannot disseminate, or where
forward markets
are nonexistent. However, indicative planning takes only endogenous market uncertainty into account, plans the economy accordingly, and does not look into exogenous uncertainty like technology, foreign trade, etc. Indicative plans serve to complement and enhance the market, as opposed to replace the market mechanism, hence they are adopted in market-based and mixed economies and were most widely practiced in France and Japan before the 1980s.
[1]
When utilizing indicative planning, the state employs "influence, subsidies, grants, and taxes [to affect the economy], but does not compel".
[2]
Indicative planning is contrasted with
directive
or
mandatory planning
, where a state (or other economic unit) sets quotas and mandatory output requirements. Planning by inducement is often referred to as indicative planning.
In practice
[
edit
]
Indicative planning is coordinated information that guides the choices of separate state and private entities in a
market economy
or
mixed economy
.
[3]
India
[
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]
Eighth Five Year Plan (1992 - 1997) adopted Indicative Planning in India. Eighth Five Year Plan (1992 - 1997) was for managing the transition from a centrally planned economy to market led economy through indicative planning.
France
[
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]
Indicative planning originated in
France
after the
Second World War
by
Charles de Gaulle
in 1946 to strengthen the French economy and offset the demands of socialists and Communists calling for
socialization of the means of production
and/or
Stalinist command planning
. Indicative planning was one aspect of
dirigisme
that lasted until the 1980s. Indicative planning was carried out by the
General Planning Commission
. The underlying concept behind indicative planning is the early identification of oversupply, bottlenecks and shortages so that state investment behavior can be modified in a timely fashion to reduce the incidence of market disequilibrium, with the goal being a concerted economy.
[4]
Policy tools used included
export subsidies
,
R&D
funding,
tax breaks
, preferential lending by
state-owned banks
, and a relaxed
antitrust
policy.
People's Republic of China
[
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]
Since the 1978 economic reforms in China, the state reduced its role to directing economic activity rather than managing it through directive plans. By the early 21st century, the Chinese government had limited the role of directive mandatory planning to goods of national importance and large-scale construction, while increasing the scope of indicative planning and market forces in all other sectors of the economy.
[5]
The current Chinese
socialist market economy
is largely based on market forces for consumer goods and indicative planning for heavy industry in the
public sector
.
Union of Soviet Socialist Republics
[
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]
The
Soviet Union
utilized indicative plans for its state-run economy up until 1928, before they were integrated into mandatory planning under the
Supreme Council of the National Economy
and later by the
Gosplan
.
[6]
Alexei Kosygin
's
1965 Soviet economic reform
tried to introduce some sort of indicative planning in the USSR.
Japan
[
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]
The Japanese government practiced indicative planning through the Japanese
Economic Planning Agency
.
National economic planning
[
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]
The term
National Economic Planning
is associated with government's effort to coordinate the working of both the public sector and the
private sector
through a structured mechanism. Although, during the 20th century, the term was more associated with the communist and eastern economies, through the 1970s, theorists and practitioners documented the growth of this practice amongst western economies too
[1]
[2]
[3]
[4]
[
permanent dead link
]
. In the latter part of the 20th century and till date, economists have demanded that underdeveloped and developing countries ? especially in continents like Africa ? should embrace National Economic Planning to a large extent
[5]
[6]
. Famous proponents and practitioners of National Economic Planning have been Nobel Prize?winning Russian politician
Leonid Kantorovich
, John M Hartwick
[7]
, Carl Landauer (who, in 1947, wrote one of the first western books on the subject, titled Theory of National Economic Planning),
[
citation needed
]
American Republican politician
Alf Landon
, the Russian born Canadian politician
David Lewis
, Chinese politician
Zhang Baoshun
and German sociologist
Adolph Lowe
.
See also
[
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]
References
[
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]
- ^
Nielsen K. (2008) Indicative Planning. In: Palgrave Macmillan (eds) The
New Palgrave Dictionary of Economics
. Palgrave Macmillan, London. "Indicative planning aims to coordinate private and public investment and output plans through forecasts or targets. Compliance is voluntary. The underlying logic is that the plan can supply economically valuable information which, as a public good, the market mechanism cannot disseminate efficiently. It may be perceived as a substitute for non-existing forward markets. However, indicative planning takes into account only endogenous market uncertainty, not exogenous uncertainty (technology, foreign trade and so on). Indicative planning has been most consistently and continuously implemented in France and Japan but has been used in many other countries, although decreasingly so since the 1970s."
- ^
Alec Nove
(1987), "Planned Economy,"
The New Palgrave: A Dictionary of Economics
, v. 3, p. 879.
- ^
"Indicative Planning | Encyclopedia.com"
.
- ^
"Archived copy"
. Archived from
the original
on 2020-05-15
. Retrieved
2022-07-10
.
{{
cite web
}}
: CS1 maint: archived copy as title (
link
)
- ^
"China | Culture, History, Maps, & People"
. 23 February 2024.
- ^
"Indicative Planning | Encyclopedia.com"
.
Literature
[
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]
- Carl Landauer:
Planwirtschaft und Verkehrswirtschaft
Duncker & Humblodt, Munchen und Leipzig 1931.
- Carl Landauer:
Theory of national economic planning
, Berkeley, California: University of California Press, 1944 first edition; 1947 2. edition.