MAIN FEATURES OF A ECONOMIC PLANNING WITH RESPECT TO BUSINESS
Main Features of a Planned Economy If we have a look at the planned economies, say, Russian, Chinese or even Indian economy, we shall discover some characteristics. The formulation of the plan and its implementation call for a certain type of economic and administrative organization and a certain type of endeavor and set- up. It is only natural, therefore, that the planned economies reveal some common features.
1. Existence of a Central Planning Authority. All countries launching on economic planning have at the top of economic affairs a Planning Commission or a Central Planning Authority, e.g., Gosplan in the U.S.S.R. and a Planning Commission in India. Planning has no meaning unless it is centrally planned.
Planning by individual industries or organization will simply constitute plans and no planning.
2. Laying Down Objectives. Planning to be fruitful must keep steadily in view certain broad objectives which have to be realized. In the absence of such objectives planning will be merely a leap in the dark. Planning is not a policy of drift and the economic endeavor under planning has not to be haphazard.
Certain very desirable objectives are laid down beforehand. The usual objectives are the maximization of national income, rapid industrialization providing full employment, achieving a socialistic pattern, achieving self- sufficiency, etc. Of course, the objectives will be laid down in the context of the economic situation.
3. Fixed targets- Allied with the laying down of the objectives is the fixing of targets. The
objectives indicate the directions in which the economy is to move and targets are fixed for the realization of those objectives. Targets are fixed for each industry and for each sector of major industries, transport, and communication, for imports and exports, and also in the field of education and public health. Fixing of targets enables the Planning Commission to determine the success or failure of each component part of the economy.
4. Controls- A planned economy has of necessity to be subjected to a variety of controls. The working of a free market economy has to be modified and controlled in the interest of overall planned development. Thus, in a planned economy we have price controls, control on the distribution of essential goods and scarce raw materials, through fair price shops, co-operative stores, import control, export control, exchange control, control of capital issues, licensing of factories, etc. Laissez- faire is dead and gone in all planned economies and extensive State control takes its place.
5. Co-ordination. Economic planning has to be comprehensive and not isolated and piecemeal. All economic efforts aiming at accelerated economic development must be properly coordinated. Without co-ordination a country will land itself into chaos and economic mess.
6. Growing Public Sector. Another important feature of a planned economy is the vital role played by the public sector and its growing importance. Private sector cannot be expected to sink capital in enterprises in which the return is long-delayed and is uncertain. The State as the custodian of national interest must step in where private enterprise is shy and is found wanting. The public sector really provides the essential framework for spreading out the planned economic activity.
Better regional balance, more even distribution of economic power, greater economic stability, greater employment, fuller utilization of resources, greater security for the workers, elimination of recurring business cycles are some other features of a planned economy.
MAIN FEATURES OF ECONOMIC PLANNING WITH RESPECT TO BUSINESS:
The past half century has witnessed the emergence of a large literature devoted to economic methodology. That literature explores many methodological approaches and applies its conclusions to many schools and branches of economics. Much of the literature focuses on the fundamental theory of mainstream economics — the theory of the equilibria resulting from constrained rational individual choice, but macroeconomics has recently attracted increasing interest (Backhouse??). Since 1985, there has been a journal Economic and Philosophy devoted specifically to philosophy of economics, and since 1994 there has also been a Journal of Economic Methodology. This section will sample some of the methodological work of the past two decades.
Karl Popper's philosophy of science has been influential among economists, as among other scientists. Popper defends what he calls a falsificationist methodology (1968, 1969). Scientists should formulate theories that are ―logically falsifiable‖ — that is, inconsistent with some possible observation reports. ―All crows are black‖ is logically falsifiable, since it is inconsistent with (and would be falsified by) an observation report of a red crow. Popper insists on falsifiability on the grounds that unfalsifiable claims that rule out no observations are uninformative. They provide no guidance concerning what to expect. Second, Popper maintains that scientists should subject theories to harsh test and should be willing to reject them when they fail the tests. Third, sc ientists should regard theories as at best interesting conjectures. Passing a test does not confirm a theory or provide scientists with reason to believe it. It only justifies continuing to employ it (since it has not yet been falsified) and devoting increased efforts to attempting to falsify it (since it has thus far survived testing). Popper has also written in defense of what he calls ―situational logic‖ (which is basically rational choice theory) as the correct method for the social sciences (1967, 1976). There appear to be serious tensions between Popper's falsifications and his defense of situational logic, and his discussion of situational logic has not been as influential as his falsifications.
The Rhetoric of Economics
One radical reaction to the difficulties of justifying the reliance on severe simplifications is to deny that economics passes methodological muster. Alexander Rosenberg (1992) maintains that economics can only make imprecise generic predictions, and it ca nnot make progress, because it is built around folk psychology, which is a mediocre theory of human behavior and which (owing to the irreducibility of intentional notions) cannot be improved. Complex economic theories are valuable only as applied mathematics, not as empirical theory. Since economics does not show the same consistent progress as the natural sciences, one cannot dismiss Rosenberg's suggestion that economics is an empirical dead end. But his view that it has made no progress and that it does not permit quantitative predictions is hard to accept. For example, contemporary economists are much better at pricing stock options than economists were even a generation ago.
An equally radical but opposite reaction is Deirdre McCloskey's, who denies that there are any non-trivial methodological standards that economics must meet (1985, 1994). In her view, the only relevant and significant criteria for assessing the practices and products of a discipline are those accepted by the practitioners. Apart from a few general standards such as honesty and a willingness to listen to criticisms, the only justifiable criteria for any conversation are those of the participants. Economists can thus dismiss arrogant pretensions of philosophers to judge economic discourse. Whatever a group of respected economists takes to be good economics is automatically good economics. Philosophical standards of empirical success are just so much hot air. Those who are interested in understanding the character of economics and in contributing to its improvement should eschew methodology and study instead the ―rhetoric‖ of economics — that is, the means of argument and persuasion that succeed among economists.
McCloskey's studies of the rhetoric of economics have been valuable and influential (1985, esp. ch. 5–7), but much of her work consists not of such studies but of philosophical critiques of economic methodology.
These are more problematic, because the position sketched in the previous paragraph is hard to defend and potentially self-defeating. It is hard to defend, because epistemological standards for good science have already infected the conversation of economists. The standards of predictive success which lead one to have qualms about economics are already standards that many economists accept. The only way to escape these doubts is to surrender the standards that gave rise to them. But McCloskey's position undermines any principled argument for a change in standards. Furthermore, as Alexander Rosenberg has argued (1988), it seems that economists would doom themselves to irrelevance if they were to surrender standards of predictive success, for it is upon such standards that policy decisions are made.
McCloskey does not, in fact, want to preclude all criticisms that economists are sometimes persuaded when they should not be or are not persuaded when they should be. For she herself criticizes the bad habit some economists have of conflating statistical significance with economic importance (1985, ch. 9). Sometimes McCloskey characterizes rhetoric descriptively as the study of what in fact persuades, but sometimes she characterizes it normatively as the study of what ought to persuade (1985, ch. 2). And if rhetoric is the study of what ought rationally to persuade, then it is methodology, not an alternative to methodology. Questions about whether economics is a successful empirical science cannot be conjured away.
Realism in economic methodology
Economic methodologist have paid little attention to debates within philosophy of science between realists and anti-realists (van Fraassen 1980, Boyd 1984), because economic theories rarely postulate the existence of unobservable entities or properties, apart from variants of ―everyday unobservables,‖ such as beliefs and desires. Methodologists have, on the other hand, vigorously debated the goals of economics, but those who argue that the ultimate goals are predictive (such as Milton Friedman) do so because of their interest in policy, not because they seek to avoid or resolve epistemological and semantic puzzles concerning references to unobservables.
Nevertheless there are two important recent realist programs in economic methodology. The first, developed mainly by Uskali Mäki, is devoted to exploring the varieties of realism implicit in the methodological statements and theoretical enterprises of economists (see Mäki 1990a, b, c, 2007). The second, which is espoused by Tony Lawson and his co-workers, mainly at Cambridge University, derives from the work of Roy Bhaskar (1978) (see Lawson 1997, Bhaskar et al. 1998, and Fleetwood 1999). In Lawson's view, one can trace many of the inadequacies of mainstream economics (of which he is a critic) to an insufficient concern with ontology. In attempting to identify regularities on the surface of the phenomena, mainstream economists are doomed to failure. Economic phenomena are in fact influenced by a large number of different causal factors, and one can achieve scientific knowledge only of the underlying mechanisms and tendencies, whose operation can be glimpsed intermittently and obscurely in observable relations. Mäki's and Lawson's programs obviously have little to do with one another, though Mäki (like Mill, Cartwright, and Hausman) shares Lawson's and Bhaskar's concern with underlying causal mecha nisms. See also the entry on Scientific Realism.
Economic methodology and social studies of science
Throughout its history, economics has been the subject of sociological as well as methodological scrutiny. Many sociological discussions of economics, like Marx's critique of classical political economy, have been concerned to identify ideological distortions and thereby to criticize particular aspects of economic theory and economic policy. Since every political program finds economists who testify to its economic virtues, there is a never-ending source of material for such critiques. For example, in the wake of the near collapse of the international financial system in 2008, American economists who argued for austerity were mostly Republicans, while those who defended efforts to increase aggregate demand were mostly Democrats.
The influence of contemporary sociology of science and social studies of science, coupled with the difficulties methodologists have had making sense of and rationalizing the conduct of economics, have led to a sociological turn within methodological reflection itself. Rather than showing that there is good evidence supporting developments in economic theory or that those developments have other broadly epistemic virtues, methodologists and historians such as D. Wade Hands (2001); Hands and Mirowski 1998), Philip Mirowski (2002), and E. Roy Weintraub (1991) have argued that these changes reflect a wide variety of non-rational factors, from changes in funding for theoretical economics, political commitments, personal rivalries, attachments to metaphors, or mathematical interests.
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