ECONOMICS A LEVEL(FORM SIX) NOTES – ECONOMIC PLANNING

ECONOMIC PLANNING

Introduction

• Economic plan is the set of goals or objectives that a person or government intends to achieve within a specified period.
• Economic planning is the process of organizing available resources of a country or individual to fulfill certain predetermined objectives.

Planning can be done by government, producers, or consumers in the following ways:

• To the government

Planning is the conscious or deliberate government effort to influence, direct, and control economic variables. Economic variables are phenomena that affect economic activities or cause economic changes. Examples include investment, inflation, population changes, etc.

• Planning to producer

This involves decisions on how to use or allocate available economic resources to produce goods and services. It concerns decisions on how to produce, when to produce, and for whom to produce, aiming to satisfy human wants while maximizing profit if that is the producer’s goal.

• Planning to consumer

This is the process of deciding how to use available resources (income) to consume or purchase goods and services to maximize utility or satisfy human wants.

PLANNING IN ECONOMIC SYSTEMS

Economic planning differs depending on the economic system under which it is performed. It mainly differs in objectives and who makes the plans, as follows:

• PLANNING IN CAPITALIST ECONOMIC SYSTEM

In capitalist systems, there is no central planning. Planning is done by individual firms, companies, or persons through the price mechanism, which influences resource allocation and decisions about what, how, and for whom to produce. The government provides a conducive environment and guidance but does not make decisions. Most plans in capitalist economies are partial plans.

• PLANNING IN SOCIALIST ECONOMIC SYSTEM

In socialist countries, central planning is conducted by the government, which formulates and implements comprehensive economic plans covering the entire nation. The aim is to improve living standards and achieve equitable development.

• PLANNING IN MIXED ECONOMIC SYSTEM

In mixed economies, both government plans and price mechanisms coexist. The government plans resource allocation in some areas, while individuals make decisions for their firms. The government focuses on economic improvement and stability, while private firms aim for profit maximization.

CLASSIFICATION OF PLANNING

A/ Classification by Coverage

1. Comprehensive Planning

This planning considers all sectors of an economy and is conducted by the central government to meet the needs of the entire economy. It accounts for sectoral priorities and interdependence, covering both private and public sectors. An example is the annual national budget.

2. Partial Planning

Also called secretarial planning, this covers only one sector of the economy. For example, the basic industrialization plan/program of 1995–2000 aimed to develop the industrial sector over 25 years.

B/ Classification According to Time Taken to Accomplish Objectives

1. Short-Term Planning

This covers a period of up to 2 years to achieve objectives, such as the annual budget covering one year.

2. Medium-Term Planning

This covers 2 to 7 years, for example, the villagization program of 1972.

3. Long-Term Planning

This covers a long duration, typically 20 years or more, such as the import substitution strategy of 1995–2000.

C/ Other Classifications

• Centralized planning

Plans are formulated by the central government but implemented by local governments or societies. The central government directs local authorities to achieve predetermined goals.

• Decentralized Planning

Plans are formulated by local governments but implemented by the central government, which directs resources for implementation.

• Indicative planning / directive planning

The central government prepares plans indicating to sectors or firms how to allocate resources and provides a conducive environment. This mostly occurs in capitalist economies, where the government guides but does not make decisions.

• Authoritarian planning

Plans are prepared and implemented by the government. They are comprehensive, systematic, rigid, but efficient.

• Democratic planning

Prepared by an expert body called the planning authority outside the government, based on a free market economy system.

THE OBJECTIVES OF ECONOMIC PLANNING

When formulating economic plans, governments aim to achieve several objectives, including:

1. Rapid economic growth and development.
2. High employment levels, reducing unemployment.
3. Reduction of poverty and income inequality.
4. Price stability, addressing inflation.
5. Favorable balance of payments.
6. A diversified and self-reliant economy.

BASIC IMPLICATIONS OF PLANNING / THE PLANNING PROCESS

Planning is a continuous process. The main stages are:

1. Formulating objectives or goals to be achieved.
2. Plan formation: setting targets and ways to achieve objectives and priorities.
3. Mobilizing financial and other resources for implementation.
4. Plan implementation: creating organizations and transforming plans into action.
5. Plan evaluation: assessing progress and revising plans as needed.

CHARACTERISTICS OR PROPERTIES OF ECONOMIC PLANNING

Economic plans should have the following features:

1. Plan objectives/goals. Clearly defined goals related to future economic development.
2. Plan policies and strategies.

Development plans should set strategies and policies as means to achieve objectives, translated into specific targets.

(c) Comprehensiveness.

Plans must cover the whole economy or sometimes a specific sector (partial).

3. A plan period.

Plans typically cover a specific time frame, such as one or five years, for achieving objectives.

(e) A planning machinery.

This refers to ministries, institutions, firms, individuals, or authorities established to formulate, execute, and evaluate plans.

(f) Internally consistent.

Plans should present a centrally coordinated, consistent set of principles and policies to implement strategies and objectives.

Note: Successful plans require sufficient human, financial, and other resources.

DISADVANTAGES OF ECONOMIC PLANNING

1. May lead to misallocation of resources, such as investing in unproductive sectors or areas with low demand, often for political reasons.
2. Discourages competition, leading to inefficiency and low-quality products.
3. Increases government expenditure due to resources used in planning implementation.
4. Encourages bureaucracy, causing delays in decision-making and achieving objectives.
5. Some plans fail, wasting resources and time.
6. Increases public debt and economic dependence in LDCs, as many plans rely on borrowed or donor resources.

ADVANTAGES OF ECONOMIC PLANNING

1. Ensures effective and efficient allocation and utilization of resources, avoiding misuse.
2. Promotes equitable distribution of wealth, maintaining income equity and reducing inequality.
3. Ensures optimum utilization of scarce resources to maximize output.
4. Helps maintain economic stability by addressing unemployment, inflation, and balance of payments issues.
5. Facilitates seeking foreign aid by preparing plans demonstrating resource use to donors.
6. Controls negative externalities like pollution and environmental degradation.
7. Supports achieving and maintaining high rates of economic growth and development.
8. Eliminates price mechanism failures by providing welfare and public goods not supplied by the market.
9. Controls quality and standards of goods and services within a country and broadens consumer choice.

DEVELOPMENT PLANNING

A development plan is a comprehensive government document aimed at achieving long-term objectives, primarily improving economic development.

Development plans are mostly classified into three main levels:

1. Macro level planning
2. Secondary level planning
3. Tertiary level planning

Macro level planning

This government plan considers the entire economy and all economic variables. In developing countries, these plans typically cover 4 to 5 years or more.

Macro planning includes annual plans and perspective plans, with perspective plans covering longer periods.

Secondary level plans

These plans cover either one sector or a region, not the whole country. Examples include:

Secretarial plan – a detailed plan for a specific sector, such as agriculture.

Regional plan – focused on a particular region or area within a country.

Tertiary level plans

These plans identify possible projects in terms of cost and benefit and oversee their implementation to improve project performance. They are also called project plans.

THE STRUCTURE OF PLANNING IN TANZANIA

Planning in Tanzania is twofold: economic plans are either initiated or formulated at the top by government authorities and routed downwards for implementation (centralized planning), or originate from the bottom and are routed upwards for implementation (decentralized planning). All plans are coordinated, integrated, and prepared for the whole economy.

The Ministry of Planning currently oversees the process. After government experts formulate plans, they are discussed and approved by parliament, which endorses necessary resources. During implementation, plans are continuously evaluated to assess performance and make amendments to achieve goals.

THE PHASES OF ECONOMIC PLANNING IN TANZANIA

Since independence, Tanzania has passed through two main phases of economic planning:

1. Phase I
2. Phase II

PHASE I: ECONOMIC PLANS

This phase includes all economic plans from 1961 to the early 1980s, emphasizing “equity” and guided by the Arusha Declaration.

The plans aimed to combat illiteracy, disease, and poverty.

Following the Arusha Declaration’s goal of making Tanzania socialist and self-reliant, major means of production were government-owned. This phase included the 1^st, 2^nd, and 3^rd five-year development plans, aiming to raise per capita income, improve living standards, develop manpower, and increase life expectancy.

PHASE II: ECONOMIC DEVELOPMENT PLANS

This phase covers plans from the 1980s to the present, emphasizing government efficiency and economic performance. These plans are guided by international donors such as the IMF and World Bank. Examples include the Phase II Economic Survival Programme (NSSP) and Structural Adjustment Programmes (SAPs).

HANDICAPS / HINDRANCES TO SUCCESSFUL PLANNING IN LDCs LIKE TANZANIA

1. Insufficient knowledge and lack of skilled planners.
2. Large private sector with limited government influence, potentially acting against government plans.
3. Weak planning machinery failing to coordinate formulation and implementation.
4. Lack of reliable information and statistical data, leading to inaccurate plans.
5. Political instability and unstable administration causing frequent changes in goals.
6. Dependence on foreign aid, which may arrive late or with conditions contrary to plans.
7. Lack of specific, workable policies and poor coordination among planners.
8. Weak government participation and political will.