Meaning and Need for Economic Planning and Laissez faire

Economic Planning

Meaning and Need for Planning

The 20 ^th century was an era of planning. Almost every country had some sort of planning. In socialist countries, planning is almost a religion. Even in countries like the U.S.A. and the U.K. with a capitalistic system, they have partial planning. The 19^th century State was a Laissez faire state. It followed a policy of non - intervention in economic affairs. But the modern State is a Welfare State. The two World Wars, the Great Depression of 1930s and the success of planning in former Soviet Russia have underlined the need for planning. Planning is a gift of former Soviet Russia to the world. For, it was the first country to practise economic planning on a national scale.

According to Lionel Robbins, 'strictly speaking, all economic life involves planning…. To plan is to act with a purpose, to choose and choice is the essence of economic activity'.

In the words of Barbara Wootten, 'Planning may be defined as the conscious and deliberate choice of economic priorities by some public authorities'.

Many economists today agree that planning is an organized, conscious and continuous attempt to select the basic available alternatives to achieve specific goals. Planning involves the economizing of scarce resources.

Most of the underdeveloped countries of the world became independent only fifty or sixty years back and most of them were poor at that time. So it became the main business of the Governments of the newly emergent nations to provide food, clothing and shelter to their people. For that, first of all, they had to increase their national income. Since most of them were agricultural countries, they had to evolve some programmes for agricultural development. Not only that, they had to industrialize their economies. And they had to provide more jobs to their people. That means, they had to do something for expanding employment opportunities. Further, as most of them were wedded to some kind of socialism, they had to reduce inequalities of income and wealth. All these things, the poor countries attempted to do by means of economic planning.

Laissez faire policy is a luxury for modern governments. So they have economic plans. In the developed nations of the world, they plan for economic stability. But in the underdeveloped nations, they plan for economic growth and development.

Another main reason for the emergence of planning in underdeveloped countries is the failure of the market mechanism. The capitalist economy is basically a market economy and price mechanism works through the market system. The price system is a basic institution of capitalism. The allocation of resources and distribution of rewards are done through the price system. All decisions of the businessmen, farmers, industrialists and so on are guided by the profit motive. If the market is perfect, price system is good. But if there is monopoly and other types of imperfect competition, the market system fails. And it calls for government intervention by way of planning.

The dispute between planning and Laissez faire is essentially about efficiency. The case against Laissez faire rests on the following grounds:

1. Under Laissez faire, income is not fairly distributed. As a consequence, less important and less urgent goods are produced for the wealthy people while the poor lack basic goods like education, health, housing, good food and ordinary comforts. Under such a situation, the State can control economic activity by means of planning and reduce inequalities of income and wealth.

2. The market economy is a victim of trade cycles. And there will be alternating periods of prosperity and depression. And during depression, there will be bad trade, falling prices and mass unemployment. So there is need for state intervention. By means of proper planning, the State can control trade cycles as they did in the case of former Soviet Russia.

During the latter half of the 20^th century, planning was popular in many underdeveloped countries, in addition to former Soviet Russia and Eastern European countries. It does not mean that they believed in complete central planning. The central issue in planning is not whether there shall be planning but what form it shall take. The debate, in fact, centered on whether the State shall operate through the price system or by getting rid of it.