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.
In some models of socialism, economic planning completely substitutes the market mechanism, supposedly rendering monetary relations and the price system obsolete.
This involves social control over the allocation of the surplus product and in its most extensive theoretical form calculation-in-kind in place of financial calculation.
", Albert Einstein wrote:[10] I am convinced there is only one way to eliminate (the) grave evils (of capitalism), namely through the establishment of a socialist economy, accompanied by an educational system which would be oriented toward social goals.
The education of the individual, in addition to promoting his own innate abilities, would attempt to develop in him a sense of responsibility for his fellow-men in place of the glorification of power and success in our present society.The concept of a command economy is differentiated from the concepts of a planned economy and economic planning, especially by socialists and Marxists who liken command economies (such as that of the former Soviet Union) to that of a single capitalist firm, organized in a top-down administrative fashion based on bureaucratic organization akin to that of a capitalist corporation.
The theoretical postulates for models of decentralized socialist planning stem from the thought of Karl Kautsky, Rosa Luxemburg, Nikolai Bukharin and Oskar R.
[12] This model involves economic decision-making based on self-governance from the bottom-up (by employees and consumers) without any directing central authority.
This system emerged in a haphazard manner during the collectivization drive under Joseph Stalin and emphasized rapid growth and industrialization.
Eventually, this method became an established part of the Soviet conception of socialism in the post-war period and other socialist states emulated it in the latter half of the 20th century.
In the case of the Soviet Union, this task fell on Gosplan and its subsidiaries: the industrial ministries and (under Khrushchev) the regional sovnarkhozy.
More sophisticated methods include open models where production satisfies exterior demand, and generally takes the form
Many modern firms also use regression analysis to measure market demand to adjust prices and to decide upon the optimal quantities of output to be supplied.
According to J. Bradford DeLong, many transactions in Western economies do not pass through anything resembling a market, but rather they are actually movements of value among different branches and divisions within corporations, companies and agencies.
[17] In The New Industrial State, the American economist John Kenneth Galbraith noted that large firms manage both prices and consumer demand for their products by sophisticated statistical methods.
Industrial policy includes government taking measures "aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation".
Under dirigisme (dirigism), France used indicative planning and established a number of state-owned enterprises in strategic sectors of the economy.
The concept behind indicative planning is the early identification of oversupply, bottlenecks and shortages so that state investment behavior can be quickly modified to reduce market disequilibrium so that stable economic development and growth can be sustained.
Soviet-type economic planning took form in the 1930s and largely remained unchanged despite mild reforms until the Soviet Union's dissolution.
[28] According to historian Sheila Fitzpatrick, the scholarly consensus was that Stalin appropriated the position of the Left Opposition on such matters as industrialisation and collectivisation.
Stalin's formulations of national plans in terms of physical quantity of output was also attributed by Daniels as a source for the stagnant levels of efficiency and quality.
The Conservative Party largely agreed, producing the postwar consensus, namely the broad bipartisan agreement on major policies.
Since the start of the Cold War, the federal government has directed a significant amount of investment and funding into research and development (R&D), often initially through the United States Department of Defense.
The government performs 50% of all R&D in the United States,[33] with a dynamic state-directed public-sector developing most of the technology that later becomes the basis of the private sector economy.
[34] Examples include laser technology, the internet, nanotechnology, telecommunications and computers, with most basic research and downstream commercialization financed by the public sector.
[35] The most notable critique of central economic planning came from Austrian economists Friedrich Hayek and Ludwig von Mises.
In his analysis of socialism in 1938, Oskar R. Lange addressed this theoretical issue by pointing out that planners could gain much of the information they required by monitoring changes in plant inventory levels.
[38] Trotsky further specified the need for Soviet democracy in relation to the industrialisation period to the Dewey Commission:“The successes are very important, and I affirmed it every time.
[39]In his work, The Revolution Betrayed: What is the Soviet Union and Where is it Going?, Trotsky argued that the excessive authoritarianism under Stalin had undermined the implementation of the first five-year plan.
He noted that several engineers and economists who had created the plan were themselves later put on trial as "conscious wreckers who had acted on the instructions of a foreign power".
