University of Southern California Dissertations and Theses

The Development Of Western-Style Economic Planning: Theory And Practice

(USC Thesis Other)

The Development Of Western-Style Economic Planning: Theory And Practice

PDF

Download a page range

Download transcript

Copy asset link

Request this asset

Transcript (if available)

Content This dissertation has been microfilmed exactly as received 6 8 -1 0 ,2 3 0 GARNEY, Bernard Andaya, 1925- THE DEVELOPMENT OF WESTERN-STYLE ECONOMIC PLANNING: THEORY AND PRACTICE. University of Southern California, Ph.D„ 1968 Economics, theory University Microfilms, Inc., Ann Arbor, Michigan THE DEVELOPMENT OF WESTERN-STYLE ECONOMIC PLANNING: THEORY AND PRACTICE by Bernard Andaya Garney A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (Economics) January 1968 UNIVERSITY O F SOUTHERN CALIFORNIA THE GRADUATE SCHOOL UNIVERSITY PARK LOS ANGELES. CALIFORNIA 9 0 0 0 7 This dissertation, written by ..............B.erxiaT.d..And.«yA..GArney.............. under the direction of A.1&.. Dissertation Com mittee, and approved by all its members, has been presented to and accepted by the Graduate School, in partial fulfillment of requirements for the degree of D O C TO R OF P H IL O S O P H Y Dean Date January.,...1968 1SERTATION COMMITTEE Chairman TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION.............................. 1 Economic Planning ........................ 1 Statement o£ the Problem................ 5 Importance of the Problem................ 6 The Purpose of the Dissertation.......... 11 Scope of the Dissertation................ 12 The Hypothesis.......................... 13 Methodology.............................. 17 Definitions of Key T e r m s ................ 19 Sources and Review of the Literature . . . 22 Organization of the Remainder of the Dissertation .......................... 24 II. THE BACKGROUND TO CENTRAL ECONOMIC PLANNING IN WESTERN EUROPE . . . . .............. 27 The Absence of Central Economic Planning Prior to World War I I .................. 28 The Genesis of Central Economic Planning Prior to World War II ill CHAPTER PAGE Major factors......................... 32 The experience of four countries .... 40 The Common Unifying Thread.............. 45 Conclusions . 46 111. THE CONCEPT OF ECONOMIC PLANNING.......... 49 Traditional Views of Economic Planning . . 50 Classical economic theory .............. 51 Association of central planning with Soviet communism . . .............. 53 Marxian economics..................... 56 The Meaning of Economic Planning........ 57 Planning as a generic social process . . 59 Western-style economic planning ........ 61 National Styles of Planning .............. 73 Time horizons . ..................... 74 The relationship of planning agency to government....................... 75 The roles of the participants.......... 77 Economic philosophy ................... 79 Means of implementation................ 81 iv CHAPTER PAGE IV. THE CASE FOR ECONOMIC PLANNING............ 84 Introduction............................ 84 Decline of Laissez Faire and the Problem of Unemployment........................ 89 Economic Growth.......................... 98 Psychological gains .................... 98 The demand-expectations theory of growth.............................. 100 Integration of knowledge.............. 103 The total versus the incremental approach............................ 109 The empirical evidence . ............ 112 The Quality and Composition of Output . . . 120 Innovative planning .................... 124 Social benefits and social costs .... 127 Individual Economic Freedom.............. 130 V. THE PROCESS OF ECONOMIC PLANNING.......... 134 Goals or Objectives...................... 135 The determination of goals: for whom and by whom .................. 136 The multiple and conflicting nature of g o a l s ...................... 141 V CHAPTER PAGE Imprecise character of goals .......... 144 Economic Analysis........................ 148 Macroeconomics: The Keynesian contribution........................ 149 Input-output analysis .................. 152 Forecasting............................ 153 Economic measurement.................. 155 Execution of Economic Plans.............. 159 Attitude toward central economic planning............................ 160 The process of social control .......... 161 Conclusion............................ 174 VI. FRENCH ECONOMIC PLANNING.................. 176 Basic Features of French Economic Planning............ 178 The Objectives of French Planning........ 182 Organizational Features of French Planning.............................. 195 The Commissariat General du Plan .... 196 The Modernization Commissions.......... 197 Other bodies.......................... 199 i i I i vi CHAPTER PAGE Formulation of the Plan............. 201 The Execution of French Planning... 204 Appraisal of French Economic Planning • . . 208 Vll. THE LIMITATIONS OF ECONOMIC PLANNING .... 220 The Framework of Democracy......... 221 The Economic Environment........... 224 International trade and economic planning....................... 226 Technological change and economic planning....................... 229 Theoretical and Applied Economic Difficulties.............. 231 The Problems of Execution ........ 234 The Political Framework............. 239 The restraint imposed by the legislative-executive dichotomy .... 240 The restraint imposed by the short life span of the legislature... 242 The status of the planning agency .... 243 VIII. THE CONTROL OF ECONOMIC PLANNERS..... 246 The Traditional Political Process of Financial Control................. 247 vll CHAPTER PAGE The Concept of an Economic Parliament . . . 253 Control by Parliament...................... 255 Control Through Publicity.................. 256 IX. SUMMARY AND CONCLUSIONS...................... 260 Summary.................................. 260 Conclusions................................ 274 BIBLIOGRAPHY........................................ 281 LIST OF TABLES TABLE PAGE I. The Expansion of Real Gross National Product................................... 99 II. Annual Rate of Growth in Total Output .... 118 III. Exports and Imports As Percentage of Gross National Product— 1950, 1955, 1960, 1964 ................................. 227 CHAPTER I INTRODUCTION I. ECONOMIC PLANNING Unlike many other concepts in the study of economics, economic planning has not, at least as yet, acquired any very clearly understood meaning. Such concepts as competi tion, monopoly, free enterprise, laissez faire, etcetera have all taken on fairly well defined meanings which are generally well understood by the public at large and by students of economics. Asked to explain the essence of competition, or what is meant by monopoly, the student of economic theory has little difficulty in giving a fair description of these concepts. Not so with economic plan ning. The most probable response to the question, "What is economic planning?" would involve some reference to its being the opposite to competition, and/or to some notion of government intervention, possibly to the absence of a price system and to some sort of regulation and control. Indeed, 2 economic planning is more o£ten than not popularly associated with the economic systems of the U.S.S.R. and other East European countries, whereas there is a belief that a system of free enterprise, seen as the antithesis of economic planning, exists in the United States. Somewhere in between these two perceived extremes there is a half-way house, a system of partial planning and partial free enter prise, a category into which, it is generally believed, most West European countries fall. It is not surprising that these notions have gained currency, for, as will be shown later, a clear statement of the meaning of economic planning, let alone of the type of economic planning that has emerged in West European coun tries, is of very recent origin. Moreover, because of the association of economic planning with socialism, discus sions of economic planning are often, subconsciously if not openly, undermined by political persuasion. Recent contributors to the theory of economic planning have swept aside such political considerations in attempts to consider the economic rationale for economic planning. This is not to say that value judgments do not enter into economic planning— but value judgments are no more or less germane to economic planning than they are to other economic concepts. Before Identifying the problem It will be helpful to distinguish between the various qualified uses of the term planning. Planning can be defined as the process of formulating a scheme of action for the resolution of prob lems. In this very broad sense, planning Is appropriate to any number of activities— engineering, landscaping, travel, menus, social events, etcetera. Thus, a business firm plans the production and sale of Its products, and a house wife plans her shopping. Economic planning Is a qualification of the term which pertains to economic activity so that economic plan ning can be defined as the process of resolving society's economic problems through the ex ante application of reason and foresight to the ordering of human affairs and the attainment of human goals. It should be noted that the term economic planning does not require that government or a central planning authority be responsible for economic planning. Economic planning can be further qualified by the word central. Central economic planning is the process of resolving society's economic problems through conscious ex ante action by some central authority made responsible (in some degree and way) for the economic health and destiny of a society. The distinction between economic planning and central economic planning is that the latter concept encompasses the identification of who is to be responsible for the planning function, i.e., it designates a central authority to do the economic planning. Western-style central economic planning is that particular form of central economic planning which has emerged in the major West European countries. It is characterized by the conscious ex ante resolution of economic problems through (1) the organized but voluntary cooperation of government and the private sector, utilizing both government policy and institutions and private enter prise; (2) a primary reliance upon the "indicative" approach, i.e., inducements to achieve indicated goals, rather than the "imperative" approach, i.e., specific directives; to particular firms and industries. While Western-style central economic planning is the general form of central economic planning that has emerged in the major West European countries, different countries have developed variants of the general form. Thus, the form of cooperation between government and the private sector and the techniques and Institutions utilized by, say, France, differ from those of the United Kingdom which, in turn, differ from those of Sweden. II. STATEMENT OF THE PROBLEM Most treatments of the subject of economic planning are from the point of view of the experience of a particu lar country. They describe what is done, how it is done, and the philosophy behind the particular approach adopted in that country. The treatment covers a number of aspects strictly beyond the theory of economic planning. Moreover, economic planning is often not the subject of discussion per se but is incidental to a wider topic; for example, planning and economic growth, or comparative economic systems. As has been suggested above, a distinctly different type of central economic planning has recently emerged and is still being developed in West European countries; dif ferent , that is, from the type of central economic planning that was developed during the twenties and thirties in the Soviet Union and in other East European countries after World War II. It is difficult to get a very clear picture of the theory of central economic planning of the West European type (the subject of the present dissertation) from a reading of the literature. No synthesis of the recent contributions to the theory of this type of central economic planning has been attempted. No doubt this is largely due to the recent origin of this type of central economic planning and partly due to an interest in a wider scope than economic planning per se. There is an abundance of material on the subject scattered throughout the litera ture of economic systems in general. What is lacking is an organized, systematic treatment of the specific topic, i.e., of the contributions to the theory of central economic planning as practiced in West European mixed economies. III. IMPORTANCE OF THE PROBLEM For more than a century and a half, the Anglo-Saxon world, especially the United Kingdom and the United States, eschewed any belief in the efficacy of central economic planning as an approach to the solution of economic prob lems. Even as late as the close of World War II, the United Kingdom, after a period of strict wartime planning, renounced planning in the belief that the quickest and surest way to peacetime recovery was to dismantle the war time structure of planning and to return to the pre-war situation. For reasons to be examined later, France took the opposite course o£ action; it opted for central economic planning in the belief that this approach to its economic problems would speed economic recovery. Whatever the reasons or the logic of the British and French posi tions, it was evidently clear that throughout the decade of the fifties9>French economic recovery and growth were considerably better than those of the United Kingdom. The British, looking at the comparative performance of their own economy with that of the French, could no longer Ignore the French system of economic planning. After careful study of the French model, Britain, too, in 1962 (under a Conservative government), set up the National Economic Development Council (NEDC) , an economic planning body similar to the French Commissariat General du Flan. Thus, the United Kingdom, one of the last bastions against central economic planning, capitulated and committed itself to the idea of central economic planning. By the early sixties, every major West European country was committed to some form of national economic planning. The belief is that some form of central economic planning is necessary to ensure the maximum economic well being of the nation. This belief is now firmly entrenched 8 in the major West European countries. There can be little doubt that central economic planning will become even more important in these countries. Central economic planning has still not found much sympathy in the United States. Although there was some concern with the relatively slow rate of economic growth during the second half of the fifties, the fact remains that the real per capita income of the average United States citizen is considerably higher than that of the average West European. Moreover, since 1962, the United States has enjoyed a long period of prosperity and a much higher rate of economic growth than heretofore, at least up to the end of 1966.* Consequently, there has been no sense of falling behind in economic well-being as there was in Britain, even though the United States rate since 1962 has still been below major West European countries. In addition, there is still a residue of a tradition of individualism in the United States and a corresponding antipathy toward economic planning. This does not mean *The rate of economic growth during the first nine months of 1967 was 3.0 per cent, and it is unlikely that for the full year of 1967 it will be anywhere near as high as for the years 1962-1966. that the theory of central economic planning la of no Interest or of no use to the United States. On the contrary: It was on American urging that the OECD staff embarked on a series of close studies of the process of planning, and more generally of the Influence of the public authorities on the econ omy In selected member countries— France, Germany, Britain and Sweden.2 Again, while United States sentiment Is generally not In favor of central economic planning, It does not deny categorically the possibility that central economic plan ning can achieve a fair degree of success. During the second half of the fifties, the slow rate of economic growth in the United States prompted the late President Kennedy to ask the Council of Economic Advisers to consider particularly the case of France, which had demonstrated a very rapid growth rate, to see whether the French experi ence might suggest the reasons and the possible remedies for the slow growth of the United States economy. Should the United States rate of economic growth slow down in the future as it has in recent months, it can be expected that Andrew Shonfield, Modem Capitalism: The Changing Balance of Public and Private Power (New York and London: Oxford University Press, 1965), p. 73. Interest in central economic planning of the West European variety will receive an added fillip. Even if the rate of economic growth is held to be fairly satisfactory, there has been increasing concern both in the United States and in West Europe with the pattern of consumption. The French Fourth Plan lays particular stress on the need for social, as opposed to private, investment. The plan consciously seeks to change the quality as well as the quantity of production. No more articulate voice on this aspect of economic welfare is to be found than that of Professor John Kenneth Galbraith, whose major thesis in The Affluent 3 Society is the imbalance between private and social con sumption. Galbraith argues that there is too much private consumption in the United States relative to public or collective goods and that economic welfare could be aug mented by an increase in the latter through government action relative to the former. The Galbraithian argument is developed more fully in the discussion of the quality and composition of output in Chapter IV, "The Case for Economic Planning." Galbraith's view is shared by a number ^John Kenneth Galbraith, The Affluent Society (Boston: Houghton Mifflin Company, 1958). 11 of economists and is likely to gain more support as the pressure of living In a modern society Increases. For these reasons, Westem-style planning as an approach to the solution of economic problems Is likely to be the object of an Intensification of Interest even In the United States. IV. THE PURPOSE OF THE DISSERTATION It was argued earlier that, while there has emerged a considerable body of literature on the subject of central economic planning In Western Europe, the treatment of the subject has not had as Its specific objective the theory of Westem-style planning. Such treatment of the topic as there has been has usually been the by-product either of wider Inquiry Into the general subject of comparative economic systems; or of an Inquiry into a specific topic other than the theory of economic planning, for example, economic growth; or the experience of economic planning in or the forecasting techniques employed by various Western countries. Thus, there is no systematic and organised exposition of the theory of Westem-style economic plan ning. It remains scattered and intermingled with other , subject matter throughout the literature in a number of publications, journals , books, articles, pamphlets, 12 etcetera. The purpose of the present dissertation then, is to provide an organized and systematic treatment of the theory of central economic planning as it has developed in various West European countries. V. SCOPE OF THE DISSERTATION Economic planning is a generic term. It can be used in the context of any economic system. True, it can play a different role in one system from what it does in another system, but it can occur under capitalism or socialism, in democracies or dictatorships, in advanced economies or underdeveloped economies. All too often economic planning is identified with socialism, dictatorships, and under developed countries. The present study, on the contrary, does not concern Itself with economic planning under these conditions. Rather, it confines itself to the theory of economic planning that has emerged in West Europe, in countries which are basically capitalistic, democratic, and economically advanced. Thus, it excludes from considera tion economic planning of the centralized socialist model or of the Lange-type decentralized socialist model. Since such countries as France, West Germany, the Netherlands, the Scandinavian countries, and the United Kingdom are all 13 advanced economies, economic planning as It relates to underdeveloped countries Is Ipso facto ruled out. However, where appropriate, comparisons are made. The study will not attempt to cover all aspects of economic planning In West European economies. For example, mention of the various Institutions will be confined to how they relate to the theory of economic planning and their function and role In the planning process rather than their political or constitutional basis, or their administration. Of course, it is not always possible to separate these aspects, even in theory. The economics of a policy or program are Inextricably tied up with its administration. Again, there can be no neat dichotomy between the politics and economics of economic planning. The control of plan ners is a particularly difficult problem in a democratic society. Thus, it is necessary to include within the scope of the present study some political as well as economic aspects of economic planning. VI. THE HYPOTHESIS The hypothesis of this dissertation is that, for a variety of reasons, there is emerging in West European countries a certain style of central economic planning for 14 which there has developed a theory of economic planning distinguishable from the theory of planning underlying both laissez-faire capitalism and socialism. Since World War I, and particularly since World War II, the major countries of West Europe have been under going a transformation from an economic system which can be described as essentially laissez-faire capitalism to an economic system variously referred to as socially reformed capitalism, managed capitalism, or democratic capitalism. Fundamentally, the reason for this transformation was the emergence of certain economic problems with which laissez- faire capitalism failed to cope. The advent of this new form of capitalism projected government into the life of the nation to an extent unheard of heretofore. Increas ingly, governments were expected to take more and more responsibility for the economic health and destiny of their respective countries. The process was given added impetus after World War II, which ended in economic disruption in varying degrees in most of the economies of Western Europe. Either out of an immediate desire to rebuild a badly damaged economy or, later, from a concern with a low rate of economic growth, most governments were impelled to enter even more actively into the economic life of the nation. 15 By and large, the process of increasing government intervention in economic affairs resulted in piecemeal, particular, and generally uncoordinated, activity. There was no economic plan for the nation until after the first French plan in 1946. The first British economic plan had to wait until 1962. West Germany still has no long-term (four to five years) plan. Nevertheless, economic plan ning, understood as a generic process rather than as a particular economic system, has come to be recognized and adopted as a necessary condition in order to maximize the effectiveness of government action. Unlike the U.S.S.R., the countries of Western Europe wished to preserve as much of their economic and political tradition as possible. There was to be no revolution. Capitalism was not to be overthrown and socialism substi tuted in its place. The West European countries recognized the strengths as well as the weaknesses of capitalism. Moreover, central economic planning had to be fitted into the framework of democracy. Thus, while embracing central economic planning, Westem-style planning retained certain institutions and social processes which were dispensed with by Soviet-style planning. Public ownership of the means of production was not accepted as a general principle. Individual gain was still to be the prime motivating force: producers were to be induced rather than commanded to follow the plan. The market mechanism was to be retained as an important social process for coordination and con trol. A maximum of individual freedom was to be preserved consistent with the economic welfare of society. Thus, there emerged a style of planning distinctly different from the type of economic planning developed in the East European countries. The hypothesis contends that economic planning is a generic process (not a particular economic system) appli cable to all systems, but that different economic systems call forth different styles of planning. It is not a question of planning or not planning but rather, what is to be planned, who is to do the planning, and what processes and techniques are to be used in the execution of planning. Since West European countries accept many of the tradi tional principles of laissez-faire capitalism, the theory underlying Western-style economic planning draws heavily on the economic theory of market capitalism. In so far as West European countries reject certain principles of laissez-faire capitalism, they have had to develop a theory of economic planning which differs from the theory of 17 economic planning that explains laissez-faire capitalism. What is emerging in Western Europe is a style of economic planning which calls for a particular theory of economic planning. It should be noted that, while there are differ ences in the methods and techniques of planning utilized by different countries in Western Europe, there is a common unifying thread running throughout the planning activities of these countries which permits one to speak of a Western style of economic planning. VII. METHODOLOGY The methodology utilized in this dissertation can best be described as eclectic in that it embodies a number of research methods. However, as a general statement it is accurate to say that the methodology is (1) qualitative rather than quantitative, (2) theoretical rather than historical or applied, and (3) that it rests very heavily on a comparative analysis of social processes. To some extent, especially in the case of France, it also makes use of the case method. Very little use is made either of mathematical or statistical methods. Illustrative of the qualitative, as opposed to the quantitative methodology employed, for example, is that the rationale for adopting central economic planning in West European countries is developed in terms of propositions, 18 largely of a theoretical nature, of what might be expected to result If a certain plan were adopted. No attempt Is made to demonstrate the results of adopting a given plan in a very precise way, for example, by presenting statistical evidence to that effect. Quantitative methodology is used occasionally, for example, to measure rates of economic growth, to measure the number of people involved in the total planning activity in France, etcetera. However, by and large, the analysis is a literary rather than a mathe matical or statistical exposition. The comparative method is particularly in evidence. Comparison is made at a number of levels. First, compari son is made between the process of central economic planning of laissez-faire capitalism, and between Western- style economic planning (i.e., the type of economic planning emerging in the major countries of Western Europe) and Soviet-style planning. Within Western-style economic planning, comparisons are made between the particular styles of France, Great Britain, Sweden, Germany, and the Netherlands. The comparative method is also evident in the discussion of different economic philosophies (the statist tradition of France versus the laissez-faire tradition of Great Britain), of different institutions (the commercial 19 banking systems of the Anglo-Saxon world and the quasi-governmental control of the French banking system) , of different means of Implementing planning (general con trols, I.e., fiscal and monetary policy as opposed to specif1c controls , depreciation allowances, low Interest loans, etcetera), and In comparing national rates of economic growth. Finally, use Is made of the case method. Since It was In France that the prototype of Western-style planning was developed, and It Is In France that this type of economic planning has reached Its highest development, French experience Is examined In Chapter VI as a case study. VIII. DEFINITIONS OF KEY TERMS The nature of the subject matter Is such that the number of terms which need to be defined Is minimal. Economic Planning In Its most general form economic planning can be defined as the process of resolving society's economic problems through the ex ante application of reason and foresight to the ordering of human affairs and the 20 attainment of human goals. However, the term is rarely used throughout this dissertation in this very general form. Unless otherwise specifically indicated, economic planning is used to mean the resolution of a society's economic problems through conscious ex ante action by some central authority which is made responsible (in some degree and way) for the economic health and destiny of a society. Indicative and Imperative Planning Two subclassifications of economic planning are identifiable— indicative planning and imperative planning. Indicative planning aims to steer the economy. It indi cates in an over-all way the direction the economy should take, rather than, as in the case of imperative planning, to set specific goals and targets which each Individual industry and firm must achieve so that the plan can be realized. Capitalism A full treatment of the term is not attempted here. The important thing in the present context is an explana tion of capitalism from the standpoint of economic planning. Capitalism is an economic system characterized by an absence of a central economic plan. Economic 21 decisions and the execution of economic plans are dispersed among many individuals. A capitalist economy is thus not "unplanned"; but no one person or small group of persons, for example, a Central Planning Board (CPB), establishes goals for society. Socialism Again, the term is defined with respect to economic planning. Two species of socialism are distinguishable, centralized socialism and decentralized socialism. Both economic systems are characterized by a central plan and a Central Planning Board. In the former case, however, the CPB establishes a physical plan specifying quantities of inputs and outputs to be produced and consumed by gov ernment plants and industries. It also sets prices of consumer goods and wage rates. Under decentralized socialism, the CPB does not establish a physical plan specifying quantities of inputs and outputs to be produced and consumed by government plants and industries. In this regard, the CPB merely imposes on government managers and officials the parametric function of prices as an account ing rule. 22 Neither does the CPB under decentralized socialism set prices of consumer goods or wage rates. These are market-determined. It does, however, determine the volume, of Investment, and It does set the prices of Intermediate goods, capital goods, as well as the rate of Interest. IX. SOURCES AND REVIEW OF THE LITERATURE Probably the most important contributors to the A theory of economic planning per se have been Jan Tinbergen and Neil Chamberlain.^ There have been a number of other very Important contributions to the theory of economic planning, but these have not focused attention on economic planning per se. The works of such authors as Andrew 6 7 8 Shonfield, Thomas Wilson, Ursula Hicks, and John ^Jan Tinbergen, Economic Policy: Principles and Design (Amsterdam: North-Holland Publishing Company, 1956); and Central Planning (Newhaven and London: Yale University Press, 1964). ^Neil W. Chamberlain, Private and Public Planning (New York: McGraw-Hill Book Company, 1965). ^Shonfield, op. cit. ^Thomas Wilson, Planning and Growth (London: Macmillan and Company, Ltd., 1964). ^Ursula Hicks, Development Finance: Planning and Control (New York: Oxford University Press, 1965). 23 9 Elliott treat economic planning aa part of a wider field of inquiry. For example, Shonfield's book deals with the wider issue of how the new modern capitalism has evolved in a number of West European countries and in the United States. His contribution to the theory of Western-style planning is very real Indeed, but the student interested in the theory of Western-style planning has to abstract it from a wealth of interesting and related, but different, material. Wilson's contribution is equally pertinent, but his main focus is the subject of economic growth and the extent to which planning can help achieve it. There are virtually hundreds of articles and reviews bearing on the subject scattered throughout the various professional journals and periodicals. Again, the relevant contribution to the subject matter proper, the theory of Western-style planning, has to be culled from among a wealth of other matter. 9 John E. Elliott, "Comparative Economic Systems: Theories, Philosophies, and Strategies" (Los Angeles, 1966). (Mimeographed.) 24 X. ORGANIZATION OF THE REMAINDER OF THE DISSERTATION In Chapter II, "The Background to Economic Planning in Western Europe," the genesis of central economic plan ning in Western Europe is traced. The major reasons for the emergence are discussed and the particular experiences of four countries are examined to reveal a common unifying thread which justifies the identification of the term Western-style economic planning. Chapter III focuses attention on the concept of economic planning. After a discussion of the newness of the concept and of the popular misunderstanding of the term, economic planning is established as a generic process rather than a particular economic system. The character istics of Western-style planning are next identified and the similarities and differences among the major countries Are examined. The case for central economic planning is the sub ject of Chapter IV. There is still considerable contro versy as to whether central economic planning of any kind is or is not a better way to promote the fulfillment of economic goals than is the unplanned interaction of 25 individuals seeking their own self-interest within a framework of competition. The question, to plan or not to plan, is taken up. The arguments for and against central economic planning are then discussed in terms of such ques tions as, does economic planning of the West European genre increase the probability of economic stability, of a higher rate of economic growth, of a better quality of output, or of greater individual economic freedom? Chapter V is a discussion of the process of economic planning. It takes up the major functions of planning, the establishment of social goals, economic analysis, and the execution of plans. First, the nature of social goals is discussed; then how they are established under Western- style planning. The contribution of economic analysis lies in its ability to reveal the relationships between the strategic variables of the system, to forecast economic variables, and to measure economic phenomena. A discussion of these topics is followed by an examination of the ways in which planning is executed in Western Europe. This includes the method of inducement, the role of monetary and fiscal policy and of specific controls. At one and the same time the French model of central economic planning was the prototype and is the most 26 developed form of Western-style economic planning. Chapter VI examines In detail the French experience. In Chapter VII the limitations of Western-style economic planning are discussed. Even if a logical case for this kind of planning can be made, a number of formi dable obstacles of a political and economic nature present themselves in western democratic economies. These obstacles are analyzed under the headings of the framework of democracy, the economic environment, theoretical and applied economic difficulties, problems of execution, and the political framework. Peculiar to the problem of central economic planning in western democratic economies is the problem of control ling the planners. How, in a parliamentary democracy, can anything as complex as, for example, a four year economic plan, be controlled by the typical parliamentary body? The various institutions and techniques that have or are beginning to emerge in answer to this problem are examined in Chapter VIII. Chapter IX presents a summary and the conclusions of the dissertation. CHAPTER II THE BACKGROUND TO CENTRAL ECONOMIC PLANNING IN WESTERN EUROPE The present chapter seeks to show how and why central economic planning came to be adopted In the major West European countries. After establishing the historical fact that central economic planning in Western Europe did not emerge in any major, conscious, or systematic way until after World War II, it is argued that it emerged in differ** ent countries at different times essentially because of a decline in the belief in laissez faire as a system for resolving society's economic problems and partly because of apparent advantages of collective action. The major factors contributing to this change in attitude toward central economic planning are then examined. Briefly, they are economic instability, sluggish economic growth, and the economic destruction wrought by World War II. Accompanying this change there has also been an evolution in the value structure of Western societies, in that there has been a 28 growing recognition of social goals and welfare and, relatively less emphasis on economic individualism. The experience of four countries— Sweden, France, Great Britain, and the Netherlands— is then presented. It is argued that, while the problems they faced, and their routes to central economic planning were different, there exists a common unifying thread in their experience, namely, a recognition that the spontaneous and automatic solution of the free play of the forces of supply and demand is not always the best solution to every economic problem. Finally, the conclusion is reached that to be effective, government action has to be coordinated in a more logical and integrated manner. In short, government has to plan. I. THE ABSENCE OF CENTRAL ECONOMIC PLANNING PRIOR TO WORLD WAR II Historically, central economic planning in Western Europe did not emerge in any major, conscious, or system atic way until after World War II. This is not to say that government intervention in the economic life of a nation was nonexistent prior to 1940 or that government had no economic policies. On the contrary, even in Great Britain, with its tradition of classical economic liberalism and general antipathy toward government intervention, there were important instances where the impact of government was strongly felt. To all intents and purposes the Bank of England, for example, was controlled by the government. Moreover, despite the firm belief in the private enter prise system, it was not felt that mass communications should be entrusted to private entrepreneurs. Right from the start radio broadcasting was established as an inde pendent government monopoly (in the form of the British Broadcasting Corporation, established in 1926). To this day there is a strong sentiment in Britain that the mass communications media of radio and television are more properly sponsored by a government agency than by private enterprise. By contrast, government direction of the economic life of the nation was both philosophically and practically much more acceptable in France than in England. As Andrew Shonfield puts it, The essential French view, which goes back to well before the Revolution of 1789, is that the effec tive conduct of a nation's economic life must depend on the concentration of power in the hands of a small number of exceptionally able people, exercising foresight and judgement of a kind not possessed by the average successful man of business. 30 The long view and the wide experience, systematically analyzed by persons o£ authority, are the Intellec tual foundations of the system.1 Consequently, public participation In the economic life of France was much greater than It was In England. In France, for example, the shipping Industry was subsi dized by the government; the canal system was state run as, eventually, were the railroads; and the tobacco Industry became a state monopoly. In fact, In France, such things as the railroads, the tobacco Industry, the coal mines, electricity, gas, radio, and television are all publicly owned. Generally speaking, Great Britain represented one end of the spectrum and France the other end. Most West European countries fell somewhere between these two models, with a tendency toward the British model. The significant point, however, Is not that there was considerably more government participation In French economic life than there was In British or German economic life, but that In both types of economy there was a near absence of central economic planning. Government control or even government ^Andrew Shonfield, Modern Capitalism: The Changing Balance of Public and Private Power (New York: Oxford University Press, 1965), pp. 71-72. ownership o£ the means of production is not economic planning, as was to become evidently clear in Great Britain, even after such industries as coal, iron and steel, electricity, and transportation were nationalized after World War II. There was no Commissariat General du Plan, no minister for economic affairs responsible for the economic development of the country. There was no economic plan setting forth the national objectives for the next four or five years. There was a finance minister or a chancellor of the exchequer, to be sure, but his concern was essentially with the government's expenditures and its receipts for the fiscal year. His function was more that of a treasurer or controller rather than that of a planner. He was more concerned with the short run (the fiscal year) than with the long run (the period of the plan, say, four or five years). He was not responsible for coordinating the economic activity of the private sector. Undoubtedly, public ownership or public control of the means of production facilitates the process of plan ning. Central economic planning came more easily for that reason in France than in_other West European countries. But, because there is a correlation between the degree of public involvement in economic affairs and central economic 32 planning, it is a mistake to regard the former as something that is tantamount to or identical with the latter. Con ceptually, there is no reason why a public ownership economy could not be entirely without a central plan. Public ownership does not necessitate central economic planning any more than private ownership necessarily pre cludes it. II. THE GENESIS OF CENTRAL ECONOMIC PLANNING PRIOR TO WORLD WAR II Central economic planning of the kind that has become established in West European countries today did not emerge until after World War II. As is often the case in human affairs, it was not the theoretical exposition of the concept that brought central economic planning to the fore as an operational technique. More than anything else, it was the pressure of economic and political events that was finally responsible for the adoption of central economic planning. Maior Factors Probably the four most important factors in this respect were: (1) the increasing concern with economic 33 depressions; (2) even more importantly, the destruction of the economic bases of so many countries during World War II; (3) later, the concern with fostering economic growth; and (4) a changing value structure in Western societies. Economic instability. Economic instability had plagued most West European countries since the nineteenth century, and by the end of World War II economic stability had become a major economic objective of most governments. By the 1950's, Keynesian economics had convinced all but a few diehards that the problem of cyclical fluctuations could not be solved by the time-honored solution offered by classical theory. The equilibrating forces of supply and demand would not necessarily result in an equilibrium at full employment. An economy could just as easily be in equilibrium at some output less than full employment. The new economics recognized the fundamental problem that aggregate demand could be less than aggregate supply, and sought the remedy by increasing aggregate demand until it did equal aggregate supply at the full employment level. How, then, was aggregate demand to be increased? In tradi tional theory, reliance was placed on the market mechanism 34 to solve these problems, as J. B. Say had convinced several generations of economists. The nub of the argument Is that supply creates Its own demand. But If It does not, as Keynes averred, then what? Then some other force Is required to Increase aggregate demand. Inevitably, that force would have to be one that lay outside the traditional framework of classical theory. Analyzing aggregate demand In terms of Its components of consumption, Investment, and government, the solution Is now seen In terms of government action to Increase any one or all three of these components through fiscal and mone tary policy. There Is now little controversy In the matter. Businessmen, as well as economists and the public at large, do not look to the automatic forces of the market to solve the problems accompanying cyclical fluctuations: unemployment, depression, and Inflation. Indeed, It Is doubtful If any government would survive very long If It argued that the correct policy of the government was to do nothing because Its Intervention would obviate the auto matic correction induced by the market forces. Rather, society looks to the government to have a macroeconomic strategy to counteract any deficiency or excess of aggre gate demand. It expects its government to have a plan of 35 action and if necessary to put it into action. Curiously enough, however, Keynes's analysis did not lead him to any full or systematic development of the theory or even the concept of central economic planning, for he believed that once full employment had been achieved the classical doctrine came into its own: the market forces of supply and demand would allocate resources cor rectly to the desired ends. But if our central controls succeed in estab lishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards.2 Of course, Keynes was preoccupied with the problem of securing full employment and not with the problem of con trolling a more or less sustained prosperity. Moreover, Keynes believed that Western society had essentially reached a stage of material satiety, so that the rate of economic growth was not of special interest, let alone of concern. Thus, the typical problem of economic planning, how to allocate resources in order to take advantage of more rapid technological change, did not concern him. 2 John Maynard Keynes, The General Theory of Employ ment . Interest and Money (London: Macmillan and Company, Ltd., 1936), p. 378. 36 Economic growth, Schumpeter's criticism of Keynes and his own view of capitalism— the process of creative destruction and innovation— was much more in keeping with the situation today. Schumpeter was concerned with the rate of economic growth rather than with full employment. / • In fact, he argued that cyclical fluctuations are part and parcel of the process of economic development. But central economic planning did not suggest itself to Schumpeter. On the contrary, Schumpeter's fears were that innovation and the very essence of capitalism, the process of creative destruction, would be destroyed by precisely such concepts as government intervention and central economic planning. More recently, that is since World War II, another economic objective has come to the fore— that of economic growth. Indeed, economic growth now dominates the scene and has become so omnipresent that already some voices have questioned whether modern society in the Western world is ; sacrificing too much for the sake of an ever**Increasing Gross National Product (GNP). In any event, economic growth is now regarded as a major objective not only in West European countries but in practically every country in the world. The pursuit of this goal has raised the 37 question of whether It would be more certain and more rapid In an economy In which the rate of growth Is allowed to evolve as a function of the free play of market forces, or where the rate of growth Is set as a matter of policy and an attempt Is made to Influence economic variables so that the rate Is realized. If there Is little controversy as to whether market forces or some sort of economic planning Is appropriate to achieve the goal of economic stability, the agreement Is far from being unanimous In the case of economic growth. There are ardent supporters In both camps. Moreover, the empirical evidence Is not very helpful. True, France has shown a remarkable rate of growth In the last twenty years, but then so has West Germany, where central economic plan ning has not been embraced In any major way. Moreover, both the United Kingdom and the United States have shown rather sluggish rates of growth. It can only be repeated that the evidence Is not definitive, and the theoretical arguments pro or con are not conclusive. Nevertheless, there Is substantial support for the hypothesis that a high rate of growth has to be the result of positive action, I.e., of central economic planning, and that reliance on the Interplay of Individual decisions In the marketplace 38 will result in a slower rate of growth. Economic destruction of World War II. Of prime Importance was the impact of World War II. As Professor Chamberlain puts it: World War II brought planning as a matter of necessity, without the need for disputation over doctrine or dogma. It was thrown up under urgent pressure to meet specific purposes, with every intention that the jerry-built structure would be dismantled as soon as possible.3 While this is true as a general statement, the reasons for adopting economic planning in different West European countries were not the same. Different countries with different historical backgrounds were presented with different problems. Moreover, central economic planning was not embraced by every one at the same time. Indeed, of special interest is the recency of the acceptance of cen tral economic planning. Even though certain countries^ flirted with planning in the fifties, the phenomenon in ^Neil W. Chamberlain, Private and Public Planning (New York: McGraw-Hill Book Company, Inc., 1965), pp. 1-2. ^France, the Netherlands, Norway, and Sweden in particular. Great Britain did not really join the ranks ‘ until the sixties, despite the nationalization of several I industries and the social welfare programs of the Labor Party between 1945 and 1950, which were continued in the main by the Conservatives in the fifties. 39 general belongs to the 1960's rather than to the 1950's. Changes In the values of Western society. In West ern societies the Increasing recognition of the Importance of social values has made some form of central planning essential. Only through planned action can certain goals be realized. For example, only through government action can the distribution of income and wealth be made more equal; an adequate level of social investment— medical care, recreation facilities, highways, education, etcetera be maintained; and a reasonable standard of life be pro vided for those who, for any number of reasons, are unable to earn an income. An ever increasing social consciousness is forcing government to undertake an ever increasing num ber of social goals which private enterprise cannot supply. If government is to undertake to provide this ever increas ing load of social consumption and social investment in an economic manner, then its actions must be less piecemeal land less based on ad hoc decisions. It has to be well conceived, better coordinated, and the parts integrated into a consistent whole. In short, government has to plan. 40 The Experience of Four Countries The fundamental question to be answered is: why did these countries adopt central economic planning when here tofore they had eschewed it so completely? Is there a fundamental reason, or is it merely an historical accident that so many different countries, with very different cir cumstances , came around to the acceptance of central economic planning? Why, for example, did countries like Sweden, untouched by World War II, as compared with, say, France, which very early during the war suffered defeat and severe economic disruption, both opt for central planning? Even more intriguing, why did Germany— the vanquished— which suffered complete political and economic collapse, and Great Britain— one of the victors — not adopt any form of central economic planning until almost twenty years after the war? In order to attempt an answer to this question, an ! examination of the experience of some of the countries I | concerned will be helpful. The hypothesis now being con- I ! sidered is that there is a fundamental reason for the I |revived interest in central economic planning, and that it is not a matter of historical accident that several of the 41 leading West European countries have now adopted central economic planning. In the musical analogy of Shonfield, . . . it is basically the same tune which is being played in so many places, though you have to listen carefully sometimes in order to be sure, because each orchestra is performing with a different set of instruments and is determined to make the most of its own very special variations. Still the tune is the thing.^ Sweden. The Swedish experience illustrates per fectly how concern with a short-run goal, the maintenance of full employment, leads to concern with the long-run goal, the supply of labor, in the years ahead. Essentially, the problem facing Sweden has been how to utilize a scarce resource (labor) so as to produce the maximum national output, given an abundant capital structure and a rapidly improving technological situation. With a relatively small population, and hence labor force, Sweden, in order to maintain a high and growing standard of living, has to ensure two things. First, it has to keep its labor force ifully employed— which amounts to ensuring sufficient i investment. More importantly, she must see to it that her i labor force is utilized in the most efficient manner, i.e., I ^Shonfield, op. cit. . p. 224. 42 that the skill of the labor force Is constantly abreast of technology. This requires a conscious effort of training and retraining— a long-term investment in training and education in order to take full advantage of the economic opportunities offered by technological advances. France. France offers a study in contrast. The major problem after World War 11 was not a shortage of labor but rather a shortage of capital. French industry had been seriously disrupted during the war. Moreover, France had never reached the stage of industrialization that England and Germany had achieved. The Immediate prob lem was how to build up the industrial base as quickly as possible. The solution proffered and generally quite readily accepted was that the limited amount of capital investment, mainly in the form of Marshall Plan aid, should be channeled into basic sectors of the economy. The theory was that the economy would not grow as rapidly if the ilimited supply of capital was diffused throughout every ! sector of the economy. Concentration of investment in the basic sectors would bring about a more rapid rate of i growth, for unless these industries grew rapidly the rest i of the economy could not grow rapidly. Consequently, the 43 first plan was to Invest heavily in six basic sectors— coal, electricity, iron and steel, cement, agricultural machinery, and transportation. Subsequently, in later plans, capital investment was allowed to take place in other industries, but the over-all objective was to promote as high a rate of economic growth as possible. More and more, however, French thinking has been to direct the quality as well as the quantity of the national product, i.e., to produce more social consumption— education, parks, hospitals, etcetera— relative to private consumption— tele vision, automobiles, etcetera. In no other country has the acceptance of central economic planning been so complete; and the French model has received much attention. Great Britain. In the case of Britain, the post-war problem was not that of how to maintain full employment. Indeed, in this respect the British have been singularly successful. Nor was British industrial capacity badly i damaged, as it was in France, although it was sadly ; neglected and its equipment had become obsolete. The prob- i ; lem was, rather, one of how to maintain prosperity without running into an adverse balance of payments so that pros- | | parity (and hence economic growth) would have to be curbed in order to protect gold and foreign exchange. Britain had steadfastly clung to its traditional economic philosophy even in the case of the nationalized industries. Central economic planning, even of the French type, was not embraced. Continuing financial difficulties and the "stop- go" policies of the government forced Britain into a re-evaluation of her economic heritage. Eventually, the authorities came to the view that if economic decisions were made according to long-run objectives, rather than to the fluctuating circumstances of the market, the rate of economic growth would be steadier, and therefore in all probability over the long run, would be higher. The mani festation of this acceptance of central economic planning was the creation of the National Economic Development Council (NEDC) in 1962, patterned somewhat after the French Commissariat General du Plan. The Netherlands. The other West European country which adopted central economic planning was the Nether lands. The problem facing the Dutch after World War 11 was somewhat akin to, but different from, that of Sweden. The fear was that the Dutch industrial structure would not support the size of its labor force. The authorities 45 implemented a policy of direct wage control on the theory that if Dutch wages were kept below the general European level the economy could compete on equal terms for an out let for its Industrial products in world export markets. The Netherlands consequently adopted a very compre hensive degree of price control; and since business is highly concentrated in several Dutch industries, the Cen tral Planning Bureau is able to keep in close touch with firms. Such comprehensive price control involves an over all view of economic strategy. 111. THE COMMON UNIFYING THREAD Other West European countries have also adopted forms of central economic planning, albeit to a lesser extent than those countries cited above. However, the experience of these four countries suffices to make the point. Although in all cases the route to central economic planning was different, springing out of different problems and evolving out. of different circumstances, there is a common unifying thread, namely, a recognition that the spontaneous and automatic solution of the free play of the forces of supply and demand is not always the best solution I to every economic problem. In other words, much responsible 46 thinking is no longer o£ the opinion that the market solution is the best, i.e., the most efficient and the most rapid way of solving economic problems. More funda mental, perhaps, is the recognition that there are other economic problems than the allocation of resources. It has long been recognized, for example, that the market mecha nism cannot achieve the goal of a more equal distribution of income and wealth. The attainment of such an objective involves redistribution of income and wealth. Indeed, there are a number of goals that only the planned action of government can achieve. IV. CONCLUSIONS The object of briefly tracing the experience of some of those countries which have embraced the concept of cen tral economic planning was to ascertain whether there is any common underlying reason for them to do so, or whether it was the result of sheer historical accident. The con clusion to be drawn from the four cases examined strongly suggests that there is a common element in the experience of those four countries. Admittedly, the economic problems facing the four were different, as were the objectives; but the central point is that in every case the solution to the 47 problem involved the rejection o£ the belief that the automatic and spontaneous interplay of the forces in the marketplace would solve the problem. No longer can the market mechanism be relied upon to bring about full employ ment; no longer is it believed that it will necessarily promote the maximum rate of economic growth. In short, the market is still seen as serving a useful function, but it is not the panacea that it was once believed to be. More and more, the idea is that some other means have to be found to ensure the achievement of the nation's economic goals • Those means have manifested themselves, first, in piecemeal government action which was, and still is to a large extent, uncoordinated. As time passed, it became evident that to be most effective government action had to be coordinated in a more logical and comprehensive manner. Government has to plan. It has to set out the several national objectives desired, realizing, of course, that some of them will conflict with one another, and that there has to be a degree of compromise. It then has to formulate an economic plan in order to achieve these goals. It is no longer merely adopting this policy to cope with this prob lem and that policy to deal with that problem. The plan has to consider the goals and the problems in relation to 48 one another, so that the over-all effect Is that the action taken Is consistent and coordinated. In some cases, for example In France, the concept was seized on almost Imme diately; central economic planning was adopted right from the start, the mechanism being established by act of par liament. In other cases, notably Great Britain, government action was piecemeal for a number of years, and has only recently been Integrated Into the concept of a central economic plan. CHAPTER III THE CONCEPT OF ECONOMIC PLANNING Considerable controversy still exists as to the merits of central economic planning as a process for the resolution of society's economic problems. Much of the ,discussion, however, resolves itself into an argument over ideologies, usually between capitalism on the one hand and socialism or communism on the other. The aim of the pres ent chapter is, first, to examine critically the concept with a view to clarifying what is meant and what is not meant by the term. After looking at some of the attitudes toward economic planning, the meaning of the term is estab lished. The second aim of the present discussion is to examine the major dimensions of Western-style economic planning. Even though central economic planning, as it is evolving in the major West European countries, is somewhat different from country to country, what is emerging is basically a fairly distinctive style of planning common to all. 50 I. TRADITIONAL VIEWS OF ECONOMIC PLANNING The recency of the adoption of central economic planning has already been noted.* It is not surprising that central economic planning, both as a concept and as an operationally useful technique, is relatively new. In the first place, the study of economics itself as a sepa rate but Integrated body of knowledge is fairly recent. Recognizing the dangers of dating the emergence of histori cal events, one might yet be justified in claiming that the study of economics commences with the publication of Adam Smith's Wealth of Nations in 1776. Thus, even if the con cept had emerged at the same time as the study of economics, it would still be barely two hundred years old. To be sure, planning in some sense must have emerged with the dawn of mankind. Even the earliest known man, the famous Java man, surely did not shamble out of his cave in search of food with no plan of action at all. But in the sense in which it is used today, central economic planning Is 1Supra, pp. 28-29. ^William Howells, Back of History: The Story of Our Own Origins (New York: Doubleday & Company, Inc., 1963), p. 75. 51 Indeed of recent origin. As has just been noted, even if central economic planning had evolved with the beginnings of the study of economics, it would be a relatively recent concept. Classical Economic Theory As it was, however, far from being a concept in economics, classical economic theory took pride in explain ing the economic system in terms of the very absence of a central economic plan. The triumph of classical economics was that it demonstrated the working and the beneficial results of a system precisely because of the absence of a central economic plan. Smith showed that it was not the conscious design of man to help his fellowmen that led to the beneficial results of the competitive economic system, but rather the interaction of self-interest and competi tion. Far from seeking to promote the social good through some consciously organized effort such as central economic planning it was the pursuit of individual self-interest within a framework of free competition that led men, in spite of themselves, to that happy state wherein the pur suit of private interest was also the pursuit of the social good. It was as if man was led by an invisible hand. 52 He intends only his own gain, and he Is In this, as In many other cases, led by an Invisible hand to promote an end which was no part of his Intention. Nor Is It always the worse for the society that It was no part of It. By pursuing his own Interest he frequently promotes that of the society more effec tually than when he really Intends to promote it.3 Such was the beauty of the system; and so persuasive was the economic theory that the concept of central economic planning was to find no firm place In the history of eco nomic thought for more than a century and a half. Even the attack on classical economics, both by the course of economic events and by the theoretical challenges of dis senters from classical theory, produced no conception of central economic planning within orthodox economic thought. Neither rapid Industrialization and Its concomitant social upheaval nor severe economic crises led to the conclusion that perhaps classical theory was Incorrect, that the Invisible hand was not at work, and that a more visible mechanism, such as central economic planning, might be required. On the contrary, it was held that interference in the economic affairs of men, by way of such notions as central economic planning, would only thwart the subtle 3Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: The Modern Library, 1937), p. 423. 53 working of the Invisible hand and thereby Intensify the economic Ills that It sought to cure. The advice was to leave the system alone. Economic Ills existed, but they were considered temporary. "Lalsser falre et lalsser passer. Le monde va de lui-meme!" Association of Central Planning with Soviet Communism If classical thinking rejected any notion of central economic planning on the grounds that It was Inimical to the economic system In that It subverted the delicate workings of the market mechanism, is there a logical antipathy toward the market on the part of economic plan ners?^* Comprehensive central planning was advocated on the premise that it was to replace the market mechanism since the latter was founded on and worked through the profit motive. It was also argued that central economic planning was a more rational approach to the solution of the economic problem than was that of the classical She past tense Is appropriate because in recent years, beginning with the Lieberman proposals in 1962, the market mechanism has been subject to re-evaluation in Soviet thinking. 54 tradition, so eloquently expounded by Smith.^ The sincerity o£ the thesis should be granted. In any event, the association of central economic planning with Soviet Communism was undoubtedly a major factor contributing to its unpopularity in the West prior to World War II. One of the distinguishing characteristics of Western-style planning today is that this view does not now form part of the thinking of economic planners in the West. Central economic planning is not now identified with Soviet-type economics or perceived as a substitute for the market. The two are not mutually exclusive: each performs a different function which complements the other rather than substitutes for the other. The power of the market mechanism is fully recognized and is supportive of Western- style planning. In fact, Western-style planning could not operate in the absence of a market mechanism. The market economy is thus not antithetical to planning, or vice versa, as is often alleged to be the case. Western-style planning could not take place in the absence of an effectively functioning market at the same time that it recognizes the limitations of the market in performing certain functions.6 Smith, loc. clt. **Neil W. Chamberlain, Private and Public Planning (New York: McGraw-Hill Book Company, Inc., 1965), p. 137. 55 In a similar vein, Professor Wilson contends that the planners' task will be easier if they can work through the price system instead of trying to supercede it by force of law. He makes the interesting observation, corroborat ing the contention in Chapter II, that planning has nothing necessarily to do with public ownership. Quite elaborate central planning is possible while the larger part of industrial capital remains in private hands. This was particularly true of Germany, Great Britain, and even of the United States during World War II. It is certainly true of France today. Moreover, it is particularly noteworthy that social ism and the price system are not mutually exclusive. It is also worth recalling that the first serious economic analysis of socialism— Marx, of course, contributed nothing to this--assumed that a price system would be in operation. The reference is to the works of such economists as Lemer, Lange, Dickinson, and Meade. In fact, one of the argu ments advanced in favour of socialism was that the price system might work better with public owner ship than with private. . . It should be carefully observed that the argument does not accord the market the same powerful status with ^Thomas Wilson, Planning and Growth (London: Mac mlllan and Company, Ltd., 1964), p. 16. 56 which it was endowed by the classical and neo-classical economists. (The subject of the shortcomings of the market will be discussed later in Chapter IV, "The Case for Economic Planning.") Marxian Economics Nor did the theoretical attack on classical econom ics lead to the establishment of central economic planning as a concept. The most thoroughgoing critical analysis of capitalism and classical economic theory was that of Karl Marx. Marx's analysis of capitalism pointed up the weak ness of the system; yet, curiously enough, Marx's conclu sions did not lead to any concept of central economic planning. As John Elliott puts it: Whereas Marx was an analyst and forecaster, and a bit of a visionary prophet he was not really much of a planner. Beyond his very vague and visionary statements about socialism and communism, Marx refrained from developing detailed blueprints for post-capitalist economic organization.^ Indeed a plausible hypothesis is that, since it is the state that is generally, if not exclusively, thought of as the instrument by which central economic planning is o John E. Elliott, "Comparative Economic Systems: Theories, Philosophies, and Strategies" (Los Angeles, 1966), Ch. XI, p. 8. (Mimeographed.) 57 Implemented. Marx held no special brief for central economic planning because he rejected the state as the agency of economic and social reform. Once the revolution was over, the workers owned the means of production, and socialism was the order of the day, the worker would no longer be exploited and he would work In free cooperation with his fellow worker. All this granted, the economic problem still exists; and the question still to be answered Is how should the workers go about solving such problems as the allocation of scarce resources among a multiplicity of ends, the maintenance of economic stability, the promotion of economic growth, and the distribution of Income? In a socialist or communist society, some form of central eco nomic planning thus becomes almost Inevitable. However, Marx had little to say on this subject. It Is not until we come to the post-Marxian socialists that central economic planning as a concept makes Its debut. II. THE MEANING OF ECONOMIC PLANNING / What, then, Is meant and what Is not meant by the term economic planning? The popular conception of economic planning Is, at worst, that It has something to do with socialism or communism. At best It Is looked upon as involving irksome and often uneconomic controls and regulations on the part of some bureaucratic government agency. The tendency is to see a dichotomy between plan ning and not planning, between planned and unplanned. Planning is equated with socialist and communist economic systems whereas capitalist or free enterprise systems are thought of as unplanned economies. While it is not diffi cult to understand this interpretation of economic plan ning, one is immediately faced with the difficulty of classifying many economies which are generally considered to be essentially capitalist but which rely to a large extent on some form of economic planning. Such, for example, is the case of France. In his introduction to * 9 Pierre Masse's article, "French Methods of Planning," Bornstein characterizes the French system as a variant of regulated mixed capitalism. If the French economic system is a capitalist system, albeit a regulated and mixed one, how can economic planning, an integral part of the French economy, be reconciled with a system that is essentially capitalist? 9 Morris Bornstein, Comparative Economic Models and Cases (Homewood: Richard D. Irwin, Inc., 1965), p. 212. 59 Planning as a Generic Social Process The seeming paradox is readily resolved if, instead of viewing economic planning from the popular point of view, i.e., of identifying economic planning with a par ticular type of economic system, one perceives economic planning as a general concept applicable to all systems. Economic planning then becomes an approach to the problem of resolving society's economic problems. It is no longer a question of planning versus not planning. As Jan Tinbergen puts it: This use of the word planning has nothing to do with the type of policy involved. Planning in our sense can be applied to any type of policy, includ ing, of course, that type of policy sometimes called 'planning.'1® John Elliott expresses the point less succinctly but more cogently. Part of the confusion . . . arises from a failure to distinguish between economic planning as a general concept and the specific types and forms of planning in particular times, places, and circumstances: or, as a biologist might phrase it, between planning as a genus and its various specie.H ^Jan Tinbergen, Economic Policy: Principles and Design (Amsterdam: North-Holland Publishing Company, 1956), p. 10. ^Elliott, o p . cit. . Ch. Ill, p. 1. 60 Professor Chamberlain, in defining economic planning as the systematic management of assets, expresses the same sentiment. This [planning] is a generic definition, applying to any economic unit from the individual to inter national "communities" or associations.^ Thus, there is nothing incongruous or illogical in the fact that a capitalist system, such as that of France, accepts the general concept of economic planning in the resolution of its problems. The leaders of the French economic system are fond of describing themselves in newspaper articles as champions of free enterprise, but it would never occur to them to question the need ^for Social Security or for the Commissariat General du Plan.13 This is, of course, not to say that the methods and techniques of economic planning employed by the French are the same as those employed by the U.S.S.R. or those of Poland or Yugoslavia; they are decidedly not the same. The point is that economic planning is not the exclusive property of socialist or communist economic systems. ^Chamberlain, op. cit., p. 4. 13 Pierre Bauchet, Economic Planning: The French Experience. trans. Daphne Woodward (London: Heinemann Educational Books, Ltd., 1964), p. 8. 61 Weatern-Stvle Economic Planning What then is economic planning, or, to be more precise, what is Western-style economic planning? Unfor tunately, no really succinct and adequate definition is to be found in the literature. One of the purposes of this dissertation is to attempt such a definition. Most defi nitions are either so broad that they encompass other forms of economic planning, or so narrow that they are appropri ate only to a particular type of planning.^ Consider Chamberlain's definition: "Planning is the systematic management of assets.He further states: At its simplest, then, we define planning at the level of the economy as the systematic management of the nation'8 assets to achieve such objects as may be sufficiently accepted to provide a measure of executive authority in seeking them by means of such instruments and devices as similarly are permitted. ^Of particular note is the fact that often leading authorities on the subject make no attempt at a formal definition of Western-style economic planning. Andrew Shonfield, for example, in his Modern Capitalism, devotes a whole chapter to "Planning in General," but nowhere does he say very precisely what Western-style planning is. Even more surprising is the absence of a definition in Jan Tin bergen's, Central Planning, which is exclusively devoted to this type of economic planning. ^Chamberlain, o p . cit.. p. 4. 16Ibid., pp. 14-15 62 In fairness to Professor Chamberlain, in the context in which he defines economic planning, his purpose was more to convey the nature of the concept in general rather than to provide (what most of his book is about) a definition of Western-style economic planning. At the other end of the scale is the definition pro vided by the French authorities as quoted by Bernard Cazes. . . . planning was given an "official" definition in the text of the law approving the Second Plan (1954-57): The Second Plan for Modernization and Investment, defined in the document annexed to the present law, is approved as an instrument for orienting the econ omy and as a framework for investment programs in the metropolitan overseas territories. The formula was used almost unchanged in the texts of the decrees approving the four year plans which followed— the Third (1958-61) and the Fourth (1962- 1965).17 Note, however, that these are not definitions of Western-style planning in general, but definitions of French ways and means of planning. This is precisely the point. What is required is not a general definition nor a specific definition of Bernard Cazes, "French Planning," Quantitative Planning of Economic Policy, ed. Bert G. Hickman (Washington: The Brookings Institution, 1965), p. 180. 63 economic planning as it relates to the French, the Dutch, or the British, but a definition which encompasses the essence of economic planning as it applies to Western Europe. The definition proposed for the purposes of this dissertation is that economic planning of the West European variety is a system for the ex ante resolution of economic problems through the organized but voluntary cooperation of government and the private sector, utilizing both gov- ernment policy and institutions and private enterprise. This definition encompasses several dimensions. The ex ante resolution of economic problems. As with other economic systems, the basic function of economic planning is how to achieve the objectives of society in some optimal fashion. The first dimension to be noted is that Western-style economic planning is ex ante. It seeks to act upon the economic variables in advance in such a manner that the ex post reality corresponds as closely as possible to the ex ante goals of society. The whole pur pose of economic planning is to determine beforehand what action needs to be taken to bring about a desired result. For example, the government may agree upon a desired rate 64 of economic growth of 4 per cent per annum over the period of the plan. The object of the planners is to determine, among other things, what level of investment will be required to produce an increase in Gross National Product of 4 per cent per annum. They need to estimate in advance what contribution is required from the steel industry, from the various energy industries, from agriculture, from transportation, etcetera. In turn this may require a fore cast of the impact of certain changes that are on the horizon, for example, the increase in atomic power and the decline in the output of coal, the increase in air trans portation at the expense of rail and sea transportation. In short, what the planners attempt to do is to influence the actions of entrepreneurs, including those of government enterprises, so that the actual ex post level of output at the end of the planning period will approximate as closely as possible the planned ex ante level of output. The organized but voluntary cooperation of govern ment and the private sector. The second dimension of Western-style economic planning is the organized but volun tary cooperation of government and the private sector. In fact, it is this dimension which is the truly novel feature 65 of this kind of planning. The planning process is the joint product of the major economic interests of the nation. Representatives from business, labor, agriculture, the professions, independent experts, and public officials are brought together in formal arrangements to produce an economic plan for the nation. In contrast to Soviet-style planning, the plan is not the exclusive product of govern ment officials. Moreover, it does not rest on government ownership and control of the means of production. It rests fundamentally on the principle of private ownership but on cooperation with government. Keynes himself was very specific on this point, and it is worth quoting him at some length. For whilst it [The General Theory] indicates the vital importance of establishing certain central controls in matters which are now left in the main to individual initiative, there are wide fields of activity which are unaffected. The state will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly*, perhaps , in other ways. Furthermore, it seems unlikely that the Influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I con ceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employ ment; though this need not exclude ail m*nn*r of compromises and of devices bv which public authority will cooperate with private Initiative. 66 But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community. Although Keynes himself never mentioned economic planning per se, the underlined passage from the General Theory is truly the essence of Westem-style economic planning and it is submitted that Keynes did indeed provide the spirit and the concept of this type of economic plan ning, even though it was in a different context and even though he did not elaborate on the concept of economic planning. Thus it is that most West European countries have adopted a form of economic planning (in the spirit of Keynes). While they do not accord the market mechanism the significance bestowed on it by classical economics, they do not reject it in favor of the detailed and compre hensive process of Soviet-style planning. Rather, they have seen and have accepted the possibility that economic problems can also be resolved through the voluntary cooperation of government and the private sector. 18 John Maynard Keynes, The General Theory of Employ ment. Interest and Money (London: Macmillan and Company, Ltd., 1936), pp. 377-378. Essentially, this cooperation takes the form of an economic council on which representatives of the chief interest groups--the government, business, agriculture, the professions, labor, etcetera serve. The work of the council is carried out by a number of industry working committees whose members are drawn from people within the industry or connected with the industry. How this coopera tion works in practice will be more fully outlined in Chapter VI, which examines in some detail the French experience with economic planning. Suffice it to say at this point that the plan emerges as the joint effort of government planners, who approach the problem with the tools of economic analysis, statistical techniques, and econometrics; and the estimates of informed persons such as businessmen, labor leaders, farmers, and independent experts. At this juncture two things need to be noted. First is the changed attitude on the part of private enterprise, especially that of the businessman, toward government. At one time the typical attitude toward government in economic matters was that it was grossly Inefficient, if not down right stupid, and quite incapable of making intelligent judgments. Such matters required the art and the ethos of the private entrepreneur. Partly for reasons already discussed and partly because of the change In the structure of capitalism, this view has all but disappeared in the Western world. In fact, as has been alluded to already, in certain matters the private sector looks to and expects government to take upon itself this responsibility, accept ing the fact that private enterprise is unable to achieve certain goals, especially those of growth and stability. The second point of note is the idea of involvement. To be effective, cooperation requires involvement. It would appear that it is a fundamental characteristic of human nature to reject or at least not to accept readily, proposals in which the person who is asked to Implement them has no sense of having had a hand in their formation. Even if the involvement is no more than that of having been consulted, it is much more likely that a plan will be successful than if it is simply imposed as a command. Probably one of the weakest features of the centralized planning of the Soviet variety is that managers of plants have received their production plans from a higher authority without having had any significant part in their formula tion. Not only is it more likely that plans will have a better chance of success vis a vis their implementation; 69 they are also more likely to be better plans 1£ they have had the benefit of the more detailed knowledge of those who are closer to the day-to-day operations of businesses. It Is more likely that plans will be more realistic and hence more achievable If they have been drawn up with the help of line management. This aspect of planning has only recently been given any serious attention by economists, but social psychologists have been aware for some time of the need of people to participate In establishing those goals which 1 9 they are asked to achieve.*1 ' 7 Private enterprise. One further point needs to be elaborated In connection with this definition of Western- style planning— that of the role of private enterprise. Enough has been said already of the place that the market plays In this type of economic planning. One of the most 19 See, for example, Kurt Lewln, "Group Decision and Social Change," Readings In Social Psychology, eds. Swanson, Newcomb and Hartley (New York: Holt and Company, 1952); L. Coch and J. R. P. French, "Overcoming Resistance to Change," The Journal of Human Relations. I (1948) , 512- 513; J. R. P. French and others, "Employee Participation In a Program of Industrial Change," Personnel. XXXV (1958), 16-29; and D. Katz, "Employee Groups: What Motivates Them and How They Perform," Advanced Management. XIV (1949), 119-124. 70 interesting and important features of Western-style economic planning is that it introduces a new dimension into planning. It demonstrates a remarkable flexibility with respect to values. It can and does embrace and inte grate the concepts of cooperation and private gain in a harmonious blend. An appeal is made to individuals to cooperate in the formulation and the execution of a national plan which is calculated to foster the general welfare, but this does not mean that the individual is asked to sacrifice his personal goals in order to be cooperative. Cooperation does not mean that people are expected in some way to act out of the goodness of their hearts, or to put society's goals before their own. The private entrepreneur is not asked to give up his profit for some other reward such as the respect of his fellowmen or for the prestige of high office. Western-style planning does not make an appeal to patriotism, to the good of society, or to some other noble virtue. The businessman is still expected to seek as large a profit as his business acumen can command, the worker is still expected to go where his labor will command the highest wage and the ^®In fact, in Sweden the government undertakes to invest a considerable amount of money in moving expenses and in retraining workers. 71 capitalist is still permitted to invest in those ventures which will return him the highest yield. No one is asked to behave in a way contrary to his own interests. Of course, his own best interests may not always be as he perceives them, and it may well be that his judgment is influenced by the planners. For example, a manufacturer may be influenced by a subsidy, or a low rate of interest, or even penalized by higher rates of taxation, to build his plant in place A rather than in place B. The point is that he is not forced to build in place A. In France, for example, the authorities have tried to restrict further industrial development in the Paris region and to encourage it in regions such as Brittany, in order to redress the balance of economic opportunity between regions. This they have tried to accomplish through the restriction of building permits and higher tax rates in the Paris region. Nevertheless, the Paris region has continued to grow beyond what the authorities deemed desirable. Despite the great deal of ingenuity which has gone into formulating and applying a policy for regional balance . . . the main task for a coherent regional development policy still lies ahead. The figures available on decentralization operations, although they are not always easy to Interpret, indicate that the results achieved have been rather modest up to now. Between 1955 and 1960, 561 requests to install industrial firms in the Paris region were refused 72 but 1,914 or 80 percent o£ the total, were accepted. In 1960, 43 Industrial establishments employing more than 200 workers were set up in the Paris region, but only 24 disappeared due to decentralization or other causes. The hopes entertained a few years ago that it would be possible to put a stop practically to the growth of the Paris region have been disappointed.21 Again, comparison with Soviet-style planning, or rather with its philosophy, points up a characteristic dif ference between the two styles. Under the Soviet system the profit motive is, theoretically at least, rejected in favor of the preference functions of the planners. Exhor tation to greater effort for the glory of the state, similar to that found in wartime in all countries, plays an important role, as does recognition in the form of the stakhanovite.22 Both rent and interest are virtually non existent in the U.S.S.R. 21 John Hackett and Anne-Marie Hackett, Economic Planning in France (London: George Allen & Unwin, Ltd., 1963) , pp. 258-259. 22 An interesting parallel, however, is found in the business world of the private enterprise system— that of the sales award, the trophy, and the leaders' conference, where outstanding salesmen receive the plaudits of a grate ful management and the admiration of their fellow salesmen. 73 III. NATIONAL STYLES OF PLANNING It is correct and meaningful to speak of Western- style planning, the essential nature of which is common to those countries in Western Europe which have adopted cen tral economic planning. Still, this is not to say that there are no differences among them with respect to the theory and practice of economic planning. This is hardly very surprising. With different economic problems, differ ent economic philosophies, traditions, techniques and institutions, it would be purely accidental if the approach- to planning in the major nations were all exactly alike. The present discussion is not intended to be a comprehen sive treatment of planning in each of the major countries, but rather to indicate some of the differences that exist among countries which admittedly adhere to a common style.^ 23 During the early 1960's an Organisation for Economic Co-operation and Development (OECD) working party conducted a series of studies on the economic policies of six different European countries: Germany, France, Britain, Sweden, Norway, and Holland. The report states, "There is of course a wide variety of practices to be found in the various countries studied. These, however, proved to have much more in common than would be thought from the countries' own theoretical definitions and statements of principles." Organisation for Economic Co-operation and Development, Policies for Economic Growth (The Organisa tion: Paris, 1962), Part I, para. 20. 74 Time Horizons Since it was in France that the prototype of Western-style planning was developed and where it has reached its highest development, a detailed examination of the French experience is presented in Chapter VI. It is appropriate to note that right from the start the French were concerned with the long run, perceiving the economic problem they faced as one of rapid recovery and economic growth. Only subsequently did the French identify and address themselves to short-run problems. In Sweden, on the contrary, economic planning was at first concerned with the short-run problem of maintaining full employment and only later did the longer term problem of planned training, related to an estimate of future national needs for various types of labor, emerge. Until 1963, Dutch economic plan ning was also short range, i.e., an annual forecast, rather than looking ahead over a period of four or five years. In Britain, too, it was concern with the business cycle (but with inflation rather than recession) and its effect on the balance of payments, necessitating the curtailment of economic expansion in order to preserve sterling, that dominated the British view of economic planning. However, 75 both Sweden and Britain were impelled toward systematic long-term planning. The Germans also tended to view economic planning as a short-term exercise, and even today the German economic report is an annual perspective, whereas the French, and now, the British, Dutch, and Swedish plans cover a period of four years and in some cases involve even longer projections. The Relationship of Planning Agency to Government In yet another important aspect the French approach to planning was quite different from that of other coun tries. The Commissariat General du Flan, while it has no executive power, is a government agency and was given an important status inside the official administration. Other countries, notably Britain, Sweden, and Germany purposely adopted a different arrangement. The National Economic Development Office (NEDO) in Great Britain, for example, was given an official status, but was placed outside the machinery of government. Only subsequently, in 1964, was the planning function brought inside the government with the transfer of the responsibility for planning to the 76 Department of Economic Affairs (DEA). It was not until 1962 that the Swedish government established the Economic Planning Council within the government administration. To this day, the German Council of Economic Experts, estab lished in 1964 as an independent agency, is an advisory board which stands apart from the government.^ Since the early 1960's, however, all these coun tries , with the exception of Germany, have come to the view that, to be effective, the work of the economic planning body must be an integral part of the apparatus of public power. The rationale of this point of view is summed up very succinctly by Shonfield: The regular and systematic analysis of economic policy, whether in the framework of a long-term plan or an annual forecast, must, if it is to have practical relevance to what is actually decided by the government, be something more than a detached academic exercise. The economic advisers must engage; they must have an intimate awareness of which policy decisions are, or may be, in the mak ing inside the government, and what the motives, implicit as well as explicit, behind them really are. Otherwise there is little prospect that ^^The law establishing the Council of Economic Experts specifically denied the Council the power to make any recommendations to parliament but to confine itself to the offering of alternative choices based on different assumptions. 77 the Rational and the Real will mesh with one another.25 The Roles of the Participants In still another respect there is a marked differ ence to be found in the planning process as it is conducted in France on the one hand and in Britain and Sweden on the other hand. In France the working relationship between the interest groups, particularly between the government offi cials and the industrialists has been described by several writers as one of collusion, albeit collusion with the public interest in mind. The process in Britain and Sweden is more in the nature of a bargain between the three inter est groups— the government, business, and labor. Government officials of Britain do not, as in France, collude with selected industrialists in what the officials and the industrialists agree is the public interest. Rather the government nego tiates with representatives of private associations, at arm's length, and those private associations include powerful labor unions as well as groups of industrialists.26 25 Andrew Shonfield, Modern Capitalism: The Changing Balance of Public and Private Power (New York: Oxford University Press, 1965), p. 295. ^Everett E. Hagen and Stephanie F. T. White, Great Britain: Quiet Revolution in Planning (New York: Syracuse University Press, 1966), p. 113. 78 The difference in style with respect to the role of the participants is in large measure primarily due to the greater relative strength of the trade unions in Great Britain and Sweden. Moreover, in the case of Sweden, the outlook of the trade unions has been singularly more pro gressive than in other countries, and as a result the trade union movement has played a significantly more positive role in the guidance of the national economy than it has in other countries. The role of the independent expert in France is also quite different from that of his British counterpart. In Britain the work of the expert is regarded as a necessary but purely technical assignment. He is not expected, as in France, to render any views of his own, and his status is more that of a servant than that of an equal. He is not regarded as having any initiative in the execution of policy. In France, on the other hand, civil servants and independent persons represent nearly 50 per cent of the total number of people concerned with the planning process.^7 Moreover, they generally occupy leading posi tions— the chairmanship, the vice-chairmanship, etcetera— 27Infra. p. 213. 79 on the "commissions de modernisation," and have a major role in guiding and interpreting the work of the commissions. Economic Philosophy As might be expected, differing economic philoso phies also influence the particular style of economic planning. As has been noted by several writers, histori cally there has been a marked distinction between the etatist tradition of France and the British tradition of laissez faire. Consequently, the French have found no par ticular difficulty in discriminating between economic sectors, or of singling out particular companies for special treatment. In fact, right from the start, with the First Plan, discrimination has been a major tenet of French planning. In its fiscal policy, Germany is much closer to France than to Britain and Sweden, in spite of the popular belief that, in some way, Germany is "free" from state intervention. The levels of subsidies, cheap loans pro vided by the state, and, especially, discriminating tax allowances to industry and trade, as well as to agriculture, is much greater in Germany than it is in Great Britain. 80 Both in Great Britain and in Sweden, although for different reasons, the idea of discrimination has been difficult to accept. In the case of the former, the dif ficulty springs from the traditional economic philosophy of laissez faire, and, in so far as the state has to intervene in the economic affairs of the private sector, from a belief in the principles of fiscal neutrality. Moreover, discriminatory intervention in the private sector on the part of public officials is alien to the spirit and tradition of the British civil service. With the transfer of the planning function to the DEA in 1964, accompanied by the appointment of a number of businessmen to positions of responsibility in the DEA, the traditional distaste for discriminatory intervention may be to some extent miti gated. Commenting on this aspect of British and German planning, Shonfield observes, ... it is Britain that has been moving during the 1960s towards more discrimination in its tax system, as part of the policy changes associated with economic planning. It nas been a cautious and thus far reluctant movement away from the tra ditional Anglo-Saxon ideal of a fiscally neutral state. Officially this is the German ideal too, but as we have had occasion to observe before, economic doctrine is on the whole a less useful f ulde to economic practice among the Germans than t is among the British or Americans.28 2®Shonfield, pp. cit.. p. 297. The Swedes, too, have exhibited a reluctance to make use of discriminatory intervention in the Franco-German fashion. The reason is to be found in the appreciation, on the part of business and of the trade unions, of the economic position of Sweden. Being severely subject to international competition, the Swedes have argued that to remain competitive, labor and capital must be very mobile so that they can move rapidly to the areas of greatest productivity. This they have maintained is more important than to encourage the growth of particular sectors of industry. Economic planning must be geared to adaptation to international market forces. Means of Implementation The execution of economic planning is taken up in Chapter V, but apropos of the present discussion, the dif ferences in economic planning among West European nations, it is relevant to mention some of the differences in the techniques of implementing economic plans. All the West European countries rely on some form of fiscal and monetary policy, supplemented by a combination of specific tech niques of control, to implement their planning activities. As might be expected, certain countries have developed certain techniques that are not found in other countries. Unique to France is the particular system of the control of the flow of capital to business. Historically, the French commercial banking system failed to provide French industry with the capital that industry in the Anglo-Saxon world was able to obtain from their respective national banking systems. Consequently, in France the flow of capital to Industry was channeled through a few specialized quasi- govemment controlled financial institutions.^ Thus, when economic planning became the order of the day, "The instruments for guiding investment were there already, waiting to be used; all that the planners had to do was to pick them up and wield them in unison."'*0 In Britain, while the government has all the con ventional fiscal and monetary powers at its disposal, it has none of the . . . quasi-government supervision of bank loans, discretionary governmental control over issues of corporate securities, or the discriminatory appli cation of tax laws between enterprises whose 29The Banque de France, the Fonds de Developpement £conomque et Social, the Caisse de Depots et des Consigna tions and the Credit National. 30 Shonfield, o p. cit. . p. 171. 83 actions are consistent with the economic plan and those whose actions are not.31 If the British authorities do not have as much control over the flow of capital to industry through the banking system as the French, the German authorities have still less. The German government has little control over the banking system or over the Bundesbank, Germany's cen tral bank, as an instrument of economic policy. Also unique as a technique of planning is the Swedish instrument of investment reserves. Companies which have made high profits during times of prosperity can avoid taxes on them if they hold these profits in a special reserve fund for later investment to be specified by the planners. Primarily, the reserves are held for investment to come into play in the contractionary phase of the busi ness cycle. However, the anti-cyclical policy of the government is supplemented by a planned timetable of investment projects in the public sector. ^Hagen and White, op. cit., p. 114. CHAPTER IV THE CASE FOR ECONOMIC PLANNING I. INTRODUCTION To plan or not to plan; that is not the question. Unlike the Prince of Denmark, economists are faced with no such simple dichotomy. The point is made by a number of authorities on the subject, some of whom are somewhat skeptical of the claims of the advocates of economic plan ning. Consider, for example, Thomas Wilson's view, whose book Planning and Growth, is a critical, if not unsympa thetic, examination of the effect of planning on economic growth. The case for planning then is clear enough, pro vided--and this is the crucial proviso--the range of the state's activities has been determined . . . It is now generally agreed that the state should inter vene or even take the initiative in various aspects of economic affairs. Complete laisser-faire has few supporters and we need not waste time in flogging a dead horse. It is more profitable to ask what are the right limits to state control and to consider the forms this control should take. Which decisions are the proper responsibility of the central planners and which had better be le£t to the judgment of indi vidual consumers or workers or farmers or factory managers?1 Neil Chamberlain is sympathetic toward economic planning, but he raises a very interesting point when he says: . .. it is suggested here that the old "forced choice" of plan or no plan did not present very mean ingful alternatives. For unless one has reference to some very specific kind of plan, such as the Soviet system, that choice, if translated into the more gen eral concepts employed here, would come down to a choice between systematic and pragmatic ("seat-of-the- pants") management. Would anyone really opt for the latter?^ Professor Chamberlain's point is well taken and intel lectually accepted by the writer. Yet it is also suggested that while many businessmen, if asked explicitly, would agree wholeheartedly with his reasoning, implicitly their actions and true beliefs indicate that they most decidedly do not always opt for systematic management and often re sent attempts of planning or research departments to get them to adopt a systematic approach. Chamberlain goes on to say: ^Thomas Wilson, Planning and Growth (London: Macmillan & Company, Ltd., 1964), pp. 3-4. o Neil W. Chamberlain, Private and Public Planning (New York: McGraw-Hill Book Company, 1965), p. 14. There is of course no dichotomous division of countries into those which plan and those which do not. There are varying degrees of inclination toward the planning philosophy and varying types of organization to carry off whatever inclination exists— just as there are varying degrees and kinds of planning in the business sector.3 John Elliott sums up the point nicely when he says: Plan or no plan is thus a highly misleading question .... The leading issues are questions like these: Who is to plan? Toward vritiat goals should planning be directed? How much planning should take place? What kinds or types of planning should be used? What methods or techniques should be used to enforce the plans in practice? Who is to plan the planners?^ Before discussing the arguments in favor of and against Western-style economic planning, two further general observations need to be made. First it is curious that in time of war there is no question as to whether an economy should plan. All manner of devices and techniques are employed and the normal peacetime mechanism is largely dispensed with. Goods and services are rationed, prices are controlled, labor is directed, taxes are increased, rents are controlled, and profits are curtailed. Yet all this is accepted without any particular doctrinal dispute; 3Ibid.. p. 62. ^John E. Elliott, "Comparative Economic Systems: Theories, Philosophies and Strategies." (Los Angeles, 1966), Ch. Ill, p. 2. (Mimeographed) 87 planning in short is not only accepted, but is also expected. The existence of an emergency is justification for planning. The reason given for this acceptance is usually that all resources must be geared to the over riding importance of winning the war. As soon as the war is over this whole planning structure is swept away in the belief that it has served its purpose and is of no further use now that peace has ensued. The reason usually ad vanced for such action is that planning is all right, even necessary, when there is an overriding goal (winning a war) but with peace there returns the normal situation, i.e., the simultaneous pursuit of a number of goals. The multi plicity of goals, so the argument goes, makes it impossible to plan. This argument has never appeared to the writer as having much force. Undoubtedly, having only one really / important goal makes planning easier than if there are many goals to be pursued simultaneously. But this is a practical matter which requires a practical solution. It does not involve the logic of the case. Logically, if planning is regarded as a rational approach to achieving one economic objective (the winning of a war) then there 1 is no reason to believe that it is not a rational approach [to achieving two, three ... or n objectives. Quite 88 recently a similar view has been expressed by E. A. 6. Robinson. I have always felt that one of the questions econo mists should ask themselves Is why there should be almost complete unanimity that a wartime economy should be a controlled economy and almost equally complete disagreement as to whether a peacetime economy should be planned . . . nor do I think one can say that In wartime the objectives are unanimously agreed .... It Is much truer, I suggest, to say that war requires the very rapid re-deployment of resources to meet changed and changing objectives and that that can only be done with a measure of planning and control and direction. When one has the same need for rapid re-deployment In a peacetime economy 1 think it is not irrelevant to ask why the answer should be different.5 The second observation to be made concerns the attitude toward planning in the private sector and in the public sector. The point is a perceptive observation by Chamberlain. His contention is that there is acceptance of the value of planning within the private corporation and even within public units as respects their own opera tions. However, when it comes to management of the assets of the economy, there is some reservation as to the value of planning. He concludes: E. A. G. Robinson, Economic Planning in the United Kingdom: Some Lessons (Cambridge: Cambridge University Press, 1967), p. 5. 89 The notion o£ "managing" an economy sounds so imposing, so authoritative, so foreign, that we in stinctively withdraw from the prospect. But it is because of that withdrawal that we allow such national assets as cities to deteriorate into slums, countrysides to be eroded, recreational areas to be despoiled, transportation systems to wither, even such basic assets as our water supply to become defiled. What business management would tolerate such wastage of its company's assets? But what public management now exercises systematic supervision over the preservation of the value of our national wealth comparable to the solicitude which private management shows for the assets which are its responsibility?^ So much for the general question, to plan or not to plan? We now turn to the case for Westem-style planning. II. DECLINE OF 1AISSEZ FAIRE AND THE PROBLEM OF UNEMPLOYMENT The principal argument for Westem-style planning was largely covered in Chapter III. There it was argued that the fundamental reason for the acceptance and adoption of central economic planning was the decline of the doc trine of laissez faire, i.e., in the belief that, left to it8 own, the free enterprise system working through the institutions of self interest and free competition, would automatically and spontaneously lead to the best resolution ^Chamberlain, op. cit., p. 14. 90 of the economic problems facing society. Professor Wilson's judgment^ has already been cited. Jan Tinbergen puts the matter thus: The formulation of aims of policy became more necessary after the belief in laissez faire was given up. Before that time there was no need for planning, since it was believed that free economic forces would lead to the best development conceivable. When this belief died it became necessary to formulate norms for optimum development.^ Moreover, it was argued earlier that it was specifi cally the failure of the market system under private enter prise to bring about equilibrium at full employment that' lead to the beginning of the demise of laissez faire and the beginning of the recognition of the role that govern ment had to play in the economic life of a nation. No less an opponent of economic planning than the British economist Professor Jewkes acknowledges the point in his published lecture, Striking the Balance. I suppose there would be wide agreement that the outstandingly successful new function of government in our time has been the maintenance of full employment. ^Wilson, loc. cit., ®Jan Tinbergen, Central Planning (New Haven and London: Yale University Press, 1964), p. 43. 91 It is proper to describe this addition to our economic knowledge, and the major policies which depend on it, as revolutionary.9 The case £or central economic planning rests on its ability to bring about the desired goals of society. The corollary to the decline in the belief in laissez faire to achieve national goals, particularly economic stability at a high level of employment and high rate of economic growth, was the growing conviction that some alternative system, some form of government management of the economy could accomplish what laissez faire was incapable of doing. The most important cause for turning away from the doctrine of laissez faire to a pholosophy of government management was the problem of unemployment. During the nineteenth century and the early twentieth century, i.e., up to World War II, the experience of western industrial countries had been one of cyclical business fluctuations. Periods of prosperity were followed by severe depressions in output and employment. It was not until Keynes pro vided the theoretical analysis that permitted an under standing of the causes of the problem that any government 9John Jewkes, Public and Private Enterprise (Chicago: The University of Chicago Press, 1966), p. 59. 92 could Intervene effectively to control the instability of the system. How could any government plan a course of corrective action in the absence of an understanding of what caused cyclical fluctuations? Once Keynes had demon strated the root cause of the problem--a deficiency of aggregate demand--and had identified the strategic vari ables upon which governments could operate, all that re mained was for them to develop the techniques and insti tutions to put into effect the policies that were implied in the theoretical solution. As has been argued the Keynesian analysis did not immediately lead to economic planning, but the theoretical solution to the problem of unemployment was the most significant factor in the argu ment for some fora of central economic planning. Andrew Shonfield, while denying that the change from old-style capitalism to the new style depended solely on the process of intellectual conversion grants that . . . the control over the business cycle, which owes so much to Keynes's work, has been one of the decisive factors in establishing the dynamic and prosperous capitalism of the postwar era. Indeed it is probably the single most important factor in this change. 10 ^Andrew Shonfield, Modem Capitalism: The Changing Balance of Public and Private Power (New York and London: | Oxford University Press, 1965), p. 64. 93 The first argument for economic planning, then, is that only through some form of central control can the goal of economic stability be achieved. In the first instance, it is only the government that has the resources to set up the necessary informational system to measure the performance of the economy. One of the characteristic features of a planned policy is an informational system that will enable the government to estimate future develop ments as a basis for policy decisions instead of having to rely on the past evidence available at the moment of decision. The government alone can monitor such variables as the national levels of investment, consumption, savings, unemployment, prices, etcetera, that enables it to predict likely developments and to judge when to activate appropri ate policies. The capability to predict, especially investment, is essential to the achievement of economic stability. It is for this reason that governments have invoked the cooperation of leading industrialists in the planning process. The cooperation of the leaders of in dustry serves to improve the accuracy of industry estimates of production and investment and thereby the prediction of over-all action required to achieve national objectives. 94 Moreover it is only the government that has the legal and economic power to take action once it has been decided that action is necessary. Government alone has the legal power to tax and to change the monetary supply. Consequently, only the government has the powerful instru ments of fiscal and monetary policy, i.e., control to manipulate the strategic variables of investment, con sumption and government spending. Given that the solution to the problem of economic instability involves some form of central economic control, the solution did not call for detail plans of production and investment at the plant level all that was required was control over certain key variables. Control, partic ularly over such things as the level of investment and consumption was sufficient to achieve the goal of economic stability with a minimum amount of interference with the traditional features of a capitalist system. Consequently under Westem-style planning, not only is no case made for abolishing private ownership, no case is made for abolish ing the market mechanism or the institution of private gain. If the case for economic planning rests largely on I its ability to achieve the goal of economic stability at 95 high levels of output and employment the evidence should support the hypothesis that during the post World War II period, when some form of central economic planning was emerging, there was generally greater prosperity and higher levels of employment in Western Europe than during any comparable period prior to World War II, When there was an absence of economic planning. The facts are that, not only has there been greater prosperity and milder recessions, but that the problem of unemployment has been virtually nonexistent in most West European countries. Economic depression of the type wit nessed during the 1930's has been completely absent in the post-war period. Since the end of World War II, output and employment have been at record levels. Far from suffering from the problem of unemployment, several coun tries, notably Switzerland, Sweden and Germany have ex perienced the phenomenon of a shortage of labor necessi tating the importation of foreign workers. In a very comprehensive study of economic growth in the west, Angus Maddison has this to say on the subject of unemploy ment, The post-war period has been one of very high em ployment in France, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom, with unemployment 96 usually running below 2.5 per cent of the labor force (Appendix Table E-l). There has been a steady move in the same direction in Germany, which has been a member of the high-employment group since 1959. In Belgium, Italy, and Denmark, unemployment has been higher than average, but all three countries have reduced it in recent years, and Denmark is now in the high-employment group. This is in striking contrast with the inter-war years when unemployment was allowed to reach levels which would now be unthinkable in many countries. In the 1930's the unemployment rate averaged about 10 per cent or more. In Germany it went as high as a sixth of the labor force.H The level of national output has also been high. Examining the exhaustive statistics assembled by Maddison, Shonfield writes: The 'bad' years for France, Italy and Germany have been those in which the national product has grown by only 2-3 per cent. In Britain and Sweden, which did on one or two occasions actually experience a reversal of the upward trend in output, the size of the drop from the previous peak to the deepest trough of recession was limited to 1/2 per cent. Belgium had the worst record in the 1950's, where the maximum downswing was 1.8 per cent. This was exceptional; no other West European country experienced a fall of more than 1 per cent in its GNP.*2 Granted that the post-war period has been one of high levels of output and employment, a more rigorous ^Angus Maddison, Economic Growth in the West (New York: The Twentieth Century Fund, 1964), pp. 34-35. 12shonfield, °p « cit.« p. 9. 97 comparison to establish the case for some form of central planning would be to compare the most favorable comparable pre-war period with the post-war years. Shonfield compares the twelve year period 1901-1913 (The Golden Years) with the period 1950-1962. The rate of increase in industrial production in the advanced industrial countries of West Europe during the later period was about twice that of the earlier period. The contractionary phases of the cycles in the earlier period, admittedly mild by comparison with other pre-World War II standards, were deeper except in the case of France and Belgium. Comparing the two periods, Shonfield concludes, What emerges from this broad comparison of the two eras of prosperity separated by forty years is that the relative performance of. the dynamic countries who set the pace of economic growth in Western Europe--Germany, Italy, and France— was much better during the later period: they moved ahead a great deal faster in the good years and suffered from smaller fluctuations in the poor ones than a slow-growing country like Britain. But Britain itself, although lagging behind the others, also did better during the period after the Second World War than in the earlier phase of prosperity: in particular the downswings in British business reces sions were very much milder than they had been during the Edwardian period of economic expansion. *-3 13Ibid.. p. 10. III. ECONOMIC GROWTH 98 0£ still more recent origin has been the concern with economic growth; it is particularly in the context of the problem of growth that planning has received its greatest impetus. It was to speed economic recovery and economic growth that France adopted planning in 1946 and it was the desire to escape from the cycle of "stop-go" policies which finally moved the British government to adopt economic planning. Britain's rate of economic growth, during the 1950's, as can be seen from. Table I, was considerably below those of the continental European countries. It was argued that economic planning would result in a steadier rate of growth from year to year, and being steadier, it was likely that the average rate for the period as a whole would also be higher. The question to be answered is, does economic planning result in a higher rate of growth and, if so, how does it generate this higher rate? Psychological Gains What are the reasons for the belief that economic planning will promote a higher rate of growth? One argu- \ ment is that management and labor are stirred to greater 99 TABLE I THE EXPANSION OF REAL GROSS NATIONAL PRODUCT Country Annual Average Percentage Rates of Increase 1950-55 1955-60 1960-65 Belgium N.A. 2.5 4.5 Denmark 2.1 4.7 4.9 France 4.3 4.6 5.1 Germany FR 9.3a 6.3a 4.8b Italy 6.0 5.5 5.1 Netherlands 5.5 4.2 4.8 Norway 3.5 3.2 5.2 Sweden 3.2 3.6 5.1 United Kingdom ro • 2.8 3.3 N.A. “ Not Available aExcluding the Saar and West Berlin ^Including the Saar and West Berlin I Source: Country submissions to the Organisation for Economic Co-operation and Development. i 100 efforts by being made to realize both the desirability of a high rate of growth and the possibility of achieving it. The comment of Pierre Masse is now classic. I remember the shock we received at Electricite de France, where I had just been appointed director of the equipment department, when we heard that the target had been set at 39.5 billions of kilowatts com pared with 21 billion kilowatts at the most consumed in the best pre-war year. Success was the reward of this act of faith since the consumption of electric power in France is today double the figure set in the initial objective. The psychological gain may be important, but after a time the stimulus will begin to wear off, especially if success is long in coming. Mass£'s words, "this act of faith" are interesting. Acts of faith are undoubtedly real enough but most economists are unlikely to put much store by too many acts of faith. The Demand-Exoectations Theory of Growth The argument, however, does not rest on acts of faith but derives its plausibility from the possibility of altering demand expectations, the theory of which was developed by W. Beckerman. His thesis is that the ^Pierre Masse, "French Methods of Planning," Com j parative Economic Systems Models and Cases, ed. Morris iBomstein, (The Irwin Series in Economics. Homewood: jRichard D. Irwin, Inc., 1965), p. 217. 101 alteration of demand expectations is more important to economic growth than any other single factor, such as the quantity of capital and labor inputs or the level of education, etcetera. . . . the productive system, at least in most of the industry, is believed to be very flexible, and the rate of growth that can be achieved is, within limits, partly a matter of the growth rate that the relevant bodies in society (particularly entrepreneurs) expect to be achieved.15 Beckerman continues, Capacity will not grow fast enough to sustain a pro longed acceleration of the growth rate, unless the acceleration is accompanied by changing expectations concerning the longer run prospects.16 Whether the alteration of demand expectations is as important in promoting growth as Beckerman claims is open to question. Be that as it may, changing demand expecta tions cannot be considered in isolation from the supply of labor and capital. An important advantage to be derived from economic planning, if it is successful in creating confidence about long-term expansion, is that capital in vestment may be maintained during a period when short-term 15W. Beckerman and Associates, The British Economy in 1975. National Institute of Economic and Social Research (Cambridge: Cambridge University Press, 1965), p. 46. l^Ibid., p. 49. / factors would Indicate to businessmen the need for re trenchment. Business managers, for example, may elect not to dismiss workers and curtail Investment In capital equip ment because demand Is temporarily down. But changing the expectations of those responsible for Investment decisions would Increase only the demand for capital, not Its supply. If the expansion runs Into a labor supply constraint, the only result might be Inflation and not economic growth. Of course, economic planning can try to work on expecta tions of labor shortages so as to encourage labor-saving Investment, by stressing the probability of a "manpower gap." In summary, the planned growth rate can succeed In accelerating growth by changing expectations only If there are no major constraints to growth at the Indicated rate. For example, in an open economy such as the United Kingdom, exports might be a constraint on growth, whereas they would be less likely to be so in an economy such as France or the United States where exports are less critical to the economy. However, the demand expectations theory does appear to have some validity. If economic planning can persuade investors and the government to stick to the long-term |trend and ignore short-term fluctuations in demand, it will 103 contribute to growth. It may also help to expand as well as stabilize investment, provided it does not run up against constraint. Integration of Knowledge Another argument is that a limited amount of re sources will be put to better use as a consequence of cooperation in forecasting the resources likely to be available and the demand that will be made upon them. Industrial development may be more rapid if it is, in fact, more orderly, with expansion less likely to be held up by shortages here and surpluses there. For example, if the automobile industry and the steel industry are made aware, through the plan, of the demand for and supply of steel, their respective plans are much more likely to result in a higher rate of growth, so the theory holds, than if their plans for future production are inconsistent. The theory is not held by those economists who subscribe to "the theory of unbalanced growth." Although some business doubts may be lessened by this type of cooperation, there are plenty of others that cannot be thus dispelled. This is especially true of the uncertainties of technological change and of foreign trade. 104 Moreover, cooperation may take on the aspect of decision by committee, and decisions by majority vote are not always very imaginative. The danger of stifling the dynamic maverick has been raised by several of the pro ponents and opponents of economic planning. French plan ning ha8 been held to be voluntary but Professor Wilson, for example, poses the question: Is it possible to have a form of planning suffi ciently liberalized to permit a manager of unusual vision to go ahead and follow his own bent in the face of the scepticism of the majority of his colleagues?17 Wilson also raises the issue whether French planning is less free from compulsion than has sometimes been claimed. The firm need not follow the planners, but, as Wilson argues, There are, however, some important financial inducements and financial penalties .... It is possible, therefore, that the unorthodox innovation may be at a serious disadvantage even under French planning. It is important to insure that those managers of unusual vision are given the opportunity to set the pace. They must not be held back by the mean, which is likely to l^Wilson, op. clt. pp. 39-40. l8Ibld., p. 40. 105 be too conservative. Rapid technological change may, in fact, require unbalanced growth. Tensions nay be necessary (indeed nay be the essence of growth) to provoke changes elsewhere. Are these two conflicting views irreconcilable? One interpretation of the two theories is that it depends on the weight to be assigned to the state of technological development in the country under consideration. Unbalanced growth may be more relevant to the United States which has long been at the frontier of technical change than to France or to Japan where there has been so much scope for raising output by merely imitating what has already been achieved elsewhere. French-style planning may encourage restrictive practices, since essentially it is a discussion of offi cials with representatives of the larger firms. If small firms are included, they have to do so via their repre sentatives which makes for fairly strong trade associa tions. They may find it easier to maintain prices and to keep out newcomers. There is a real danger that market sharing will be encouraged and competition seriously curtailed. It is this aspect of economic planning, i.e., the 106 possible evolution of monopolistic practices in the form of "cooperation" which bothers many economists. Professor Jewkes, for example, argues that the profit motive and competition have been responsible for a marked Improvement both in the material and cultural well-being of Western society. He cites a number of examples where competition, in the dynamic Schumpeterian sense (not cheaper oil lamps, but the creative destruction of the oil lamp by the inno vation of the electric light bulb) recently achieved this desirable end. To cite but three examples from his lecture: Has anything in recent years done more to foster that [civilizing influence] than the appearance of the 'paperback,1 which has brought the larger part of human knowledge within the reach, at low cost, of virtually every interested person in the Western world . . . . The interest in great music has been stimulated in recent years by many inventions but especially by the long-playing record and refined devices for reproducing sound, which were invented in the laboratories of commercial firms and widely distributed by many firms in vigorous competition. The sense of form and colour has been fostered all over the world by the opportunity of amateur activity and experiment through the cheapening of the camera; the competition in the international market for cameras has in recent years gone on with a quite primitive gusto.W *^Jewkes, op. clt.. p. 70. 107 Professor Jewkes' examples and arguments give new life and lustre to the not very persuasive and skeletal doctrine of competition. In support of his anxiety over cartel arrangements and his deep belief In the freely competitive market sys tem, Professor Jewkes also appeals to empirical evidence. My feeling Is that all such discussions should start out with the challenging and undisputed fact that the United States has a much higher standard of living than other countries and to ask to what this can be attributed If not to private enterprise and free markets.20 Professor Wilson does not go as far as Professor Jewkes, but he also expresses considerable concern over the very same problem. Far from viewing the problem as a possibility he suggests It may be a fact. French planning may thus encourage Incidentally the growth of cartels. A much bolder Interpretation Is that French planning depends upon cartels. Indeed, It may largely amount to planning by cartels with the officials participating by helping to set national targets for production and the like.21 He also raises the Issue that the real danger Is that minority opinions may be suppressed and that 20Ibid.. p. 69. 21wilson, op. clt.« pp. 41-42. 108 innovating newcomers kept out of the industry by the orthodoxy of the cartel and of official planners. His conclusion is: It is, therefore, most important that, if there is to be centralized industrial planning by means of targets, it should operate largely without controls. The planning should really be without teeth, as it has been somewhat misleadingly held to be in France.22 One might then object that planning will be useless if no means to enforce it exists. Wilson's rejoinder is that this is hard to believe without abandoning some of the claims made in favor of planning. If it is true that the exchange of information will be a great help and the preparation of national targets a great inspiration, then these gains should not be lost because a few mavericks are tolerated. One other point that Wilson makes is of particular significance in view of the nature of the capitalist sys tem, even of the mixed economy type. Dynamic entrepreneurs may not be, indeed are most unlikely to be, available to planning commissions, so that the membership of commissions can be somewhat unimaginative. Economic planning could then be soporific rather than stimulating. 22Ibid..p. 42. 109 The Total Versus the Incremental Approach Related to but distinguishable from the integration of knowledge argument is the argument which has been termed here the total versus the incremental approach. The essence of the argument is that in an economy where economic planning is non-existent the typical modus operandl of the decision maker, whether business firm or government agency, is that a decision is made on an incre mental basis. For example, the entrepreneur may decide to open a branch here or a branch there; a railroad carrier may decide to open a new line between point A and point B. Essentially, decisions are made at the margins in response to changes in expectations as they manifest themselves through changes in demand or supply. Thus if a manufacturer of automobile tires sees that car registrations have been increasing on the West Coast he will consider opening a tire plant in, say, Los Angeles rather than ship tires from Akron, Ohio, even though the manufacture of automobile tires grew up historically in Akron. It is only after the expectation of an increase in demand has manifest itself that the incremental in vestment in tire production capacity is made. This | process of decision making, i.e., making an incremental 110 change in response to another Incremental change, Is common to most economic activity. In fact much of our present economic theory is based on incremental decisions taken at the margin. The approach is defended on the grounds that this is the most economically rational way to conduct any economic activity; one does not undertake additional net investment unless there is some expectation of an increase in demand. The merit of the approach is its flexibility and its conservatism in that resources can be increased or decreased in any given economic activity in response to an increase or decrease in the demand for the goods or services provided by the investment of those resources. The theory of the incremental approach is most persuasive. What possible case is there for trying to forecast ahead of expectations of, for example, an increase in demand, especially as such forecasts are likely to be inaccurate. Action based on such forecasts is likely to be uneconomic. Why not wait until expectations of an increase in demand become manifest? There can be no total or ultimate view of investment. It is beyond human knowledge to plan the right amount and type of investment, especially through time. The best that one can hope for !is that, through a series of incremental alterations, the Ill right amount of Investment can be approximated. The question to be asked Is, Is this necessarily true? Un doubtedly It Is for a number of kinds of Investment, but It Is not always true that the path taken as a result of a series of Incremental steps Is superior to the path that results from an attempt to forecast ahead of demand. If no one attempts to predict future needs some years ahead, certain kinds of Investment would always be late— with the result that the rate of growth of the economy as a whole would be less. The port capacity needed to take the extra exports and Imports In a period of rapid eco nomic growth would never be ready on time; the road con necting with the port would always be congested; factory order books would be over-full and deliveries would be delayed. In the end It would be the customer who would be compelled to plan ahead, anticipating his own needs In order to get them met on time. Something of this sort of thing appears to have happended to the Port of New York. Although the New York harbor curves In a sinuous perimeter of 700 miles, the hub of the port Is the four or five miles of piers and landings along the west side of Manhattan. Here the ocean-going vessels dock. Here the tremendous amount of cargo and produce that Is consumed In the city, or shipped Inland, and the cargo sent from the Industrial east for export abroad are loaded and unloaded. Although much of the general cargo tonnage Is handled on narrow Manhattan, 112 the island does not have a single steamship pier with direct track connection to a trunk line railroad. Rail freight has to be delivered to or taken from the ships by lighters which float across the harbor, or, by truck. But the width of the slips between piers is insufficient both for the berthing of ocean-going freighters and the squat lighters which hover along side the ships to unload or deliver the bulk cargo. Hence, serious congestion and delay create costly shifting expenses. And the narrowness of the piers themselves works havoc on the dock for the trucks. Only a small percentage of New York's piers can accommodate the 40-foot mammoth trucks which carry cargo, so that for the most part freight must be handled in the choked marginal streets outside the piers. Congestion is so fierce and waiting time so high that the large motor carriers publish penalty rates for deliveries to steamship piers within the metropolitan area.23 The Empirical Evidence Table I presented the economic growth rates of the major European countries for the periods 1950-1955, 1955- 1960, and 1960-1965. The respective percentages for the United States were 4.3, 2.2 and 3.3, and for Japan, 12.1,24 9.7 and 9.6. Even a cursory intercountry com parison of rates leads to the conclusion that one cannot conclusively demonstrate that growth has been more rapid 23])aniel Bell, "The Racket-Ridden Longshoremen: A Functional Analysis of Crime," Labor and Trade Unionism, eds. Walter Galenson and Seymour Martin Lipset, (New York: John Wiley A Sons, Inc., 1960), p. 247. 24por i-jjg period (1952-1955). 113 In those countries where economic planning has played an important part in the economic lift of the nation. Professor Wilson sums up his findings by stating: "There is, then, no simple correlation between planning and the 25 rate of growth of output." It is true that rates in France and the Netherlands, two countries where economic planning has been most actively adopted, are higher than those for the United Kingdom (and incidentally for the United States), where planning had not received serious attention until 1962. On the other hand, economic planning played little part in Germany; yet the German Federal Republic's growth has, by and large, been better than that of France and the Nether lands. But the growth rates for Germany for the three periods suggest that perhaps Germany's superior performance during the fifties was due to the fact that her industrial capacity was so completely devastated during World War II that, starting from a lower base point, her rate of growth was bound to be higher than those of other countries whether they adopted planning or otherwise. As can be seen from Table I, her rates of growth have declined ^^Wilson, op. cit.. p. 6. 114 substantially over the decade and a half, to the point where the German rate (4.8 per cent) for the period 1960- 1965 was no higher than that of the Netherlands (4.8 per cent), and somewhat less than that of France (5.1 per cent). These statistical data do not confirm the hypo thesis that economic planning promotes a higher rate of economic growth, but they at least give it a reasonably high degree of plausibility. The fact of the matter is that there are a number of difficulties attendant on making international com parisons of economic growth. First there are the statis tical problems of comparing real output as between coun tries. International comparisons can be made only with large reservations. There is the question of the accuracy of the figures themselves; then there is their coverage and the comparative way in which they are deflated for price changes. These are partly statistical in nature but are not for that reason unimportant. More important is the second difficulty. There are many other factors besides the degree and type of planning which determine the rate of growth. Mention has already been made of the fact that countries like West Germany, i and to a lesser extent France, started off from a lower i________________________________________________________________________ 9 base. Consequently, their rate of growth was Ipso facto higher than those of countries like Great Britain or Sweden, which were less affected by World War II. More over, countries which start off at very low levels of pro duction are able to achieve rapid growth rates merely by copying what was to more advanced countries difficult pioneer work often with much trial and error. In a more advanced country a larger proportion of income is spent on services where increases in productivity are slower than in manufacturing industries. There are a whole host of other reasons why one country has a higher rate of growth than another country which transcend the fact of whether the country has adopted economic planning or not. More over, these other reasons go beyond the strictly economic; they are partly religious, philosophical, social, and political. Most authorities, whether sympathetic or unsympa thetic to economic planning, subscribe to the view that the factual evidence to confirm the hypothesis that eco nomic planning will promote a higher rate of economic growth, is lacking. In so far as they do subscribe to the hypothesis it is on the basis of belief, supported by plau sible reasoning, rather than on the basis of statistical 116 evidence. Thus, Pierre Bauchet, Director of Studies at the Ecole Nationale d'Administration, who has been closely associated with the French Economic Plan and was at one time an adviser to the Commissariat General du Plan, poses the question, Is the French economic expansion attributable to the existence of a Plan? There can be no definite answer to that question, but we may note that growth has been particularly vigorous since planning was introduced.26 But, examining the growth rates for the gross national product per employed person from 1959-1961, he too states, These figures show that a Plan is no guarantee of exceptional expansion.27 Having endorsed the view that government planning has been successful in maintaining full employment, Pro fessor Jewkes asserts that it is in the area of economic growth that government planning has been ineffective. On the other hand, it seems to me that the recent efforts of government positively to engineer economic growth have been among their most palpable failures.28 28pierre Bauchet, Economic Planning. The French Experience, trans. Daphne Woodward (London: Heinemann Educational Books, Ltd., 1964), p. 182. 27Ibid.. p. 191. 28jewkes, op. cit. pp. 60-61. 117 If the advocates of economic planning cannot con clusively demonstrate that It will promote higher rates of economic growth, It Is equally true that Professor Jewkes' somewhat extreme position Is just as untenable. He offers no more evidence In support of his view than that the British economy between 1962 and 1964 failed to achieve the planned growth rate of 4 per cent. While this Is a fact, It seems somewhat slight evidence on which to rest the claim that "recent efforts of government positively to engineer economic growth have been among their most pal pable failures." While It Is true that Great Britain has been the laggard In economic growth, the generalization that "recent efforts of government positively to engineer economic growth have been among their most palpable failures", cannot rest on the extremely limited experience (1962-1964) of one country. If one examines the growth rates of a number of countries over a number of years, the hypothesis that there Is a correlation between economic growth and economic planning becomes very much more plausible. Table II pre sents the annual rates of growth In total output for ;several countries. TABLE II ANNUAL RATE OF GROWTH IN TOTAL OUTPUT Country 1870 to 1913 1913 to 1950 1950 to 1960 1956 to 1961 Belgium 2.7 1.0 2.9 2.5 Denmark 3.2 2.1 3.3 5.0 France 1.6 0.7 4.4 4.2 Germany 2.9a 1.2 7.6 5.9 Italy 1.4 1.3 5.9 6.7 Netherlands 2.2b 2.1 4.9 3.9 Norway 2.2a 2.7 3.5 3.4 Sweden 3.0 2.2 3.3 4.0 Switzerland 2.4C 2.0 5.0 5.2 United Kingdom 2.2 1.7 2.6 2.1 Average 2.4 1.7 4.4 4.3 fl871-1913 b1900-1913 C1890-I913 Source: Angus Maddlson, Economic Growth In the West (New York: The Twentieth Century Fund, 1964) , p. 28. Since 1950, every country has grown faster than In the two earlier periods (1870-1913 and 1913-1950). The average rate of growth for 1950-1960 was 4.4 per cent, and 4.3 per cent for the period 1956-1961, which was con siderably higher than the average for the two earlier periods, 2.4 per cent and 1.7 per cent respectively. Un doubtedly part of the explanation for the higher post- World War II rates, was due to economic recovery from the war. However, the growth rates in the late fifties and early sixties were still very high. In fact, averaging the rates over the ten countries, the 1956-1961 rate (4.3 per cent) was practically the same as the 1950-1960 rate (4.4 per cent). Only in the case of Belgium, Germany, Norway, and the United_Kingdom was the decline significant, while in the case of Denmark, Italy and Sweden there was actually a substantial increase in the rate of growth. The above statistical evidence does not prove the hypothesis that central economic planning promotes a higher rate of economic growth, but it does reinforce the plausibility of the argument. One further point needs to be mentioned apropos of economic growth. The failure of a country to reach a planned rate of growth Is in any case a dubious criterion on which to evaluate the effect of economic planning on economic growth. The question can be put, what would the rate of economic growth have been had there been no plan? Might not the rate have been still more disappointing in the absence of planning? The fact is that the purpose of planning is not to predict the future but to guide policy. Thus, if a forecast made on the assumption of unchanged policies shows, for example, a potential gap in GNP, and as a result certain measures are taken to close the gap, then the actual outcome will, of course, differ completely from the picture indicated by the forecast. In such a case the falsification of the forecast provides its entire raison d'etre. Planning may not guarantee the desired rate but it might possibly detect the factors which could lead to an undesirable rate. Failure to achieve perfection is a harsh criterion on which to judge success. IV. THE QUALITY AND COMPOSITION OF OUTPUT The essence of economic growth is a sustained in crease in the quantity of valued goods and services per unit of time. The usual method of expression is in terms j of the increase in the deflated monetary value of the 121 output produced during a year. Thus in the United States, economic growth is the percentage increase in the Gross National Product, between time period t and t +1 after allowance has been made for changes in prices. The con cept is strictly quantitative. While the economic growth argument commands the center of the stage, more and more central economic plan ning has tended to concern itself not only with the size of the output, but also with the composition of that out put, i.e., with the quality of output. It was to this aspect of economic life that Galbraith directed his attention in The Affluent Society. The essence of Galbraith's argument is that, under the contemporary United States' economic system there is an urgent need to rectify the imbalance between the opulent supply of pri vately produced goods and services and the niggardly pro vision of publicly produced goods and services, that the system promotes. The private sector of the economic system is permitted to produce an abundance of automobiles, televisions, exquisitely packaged foods, sporting and camping equipment, tobacco, alcohol, magazines, motion pictures, and a thousand other goods and services. On the ! other hand, it permits a profusion of such things as 122 overcrowded housing conditions, inadequate educational, recreational and medical facilities, pollution of the nation's air and water, inadequate police and traffic control, and other services usually provided by the public sector. Galbraith concludes, By failing to exploit the opportunity to expand public production we are missing opportunities for enjoyment which otherwise we might have had. Presumably a community can be as well rewarded by buying better schools or better parks as by buying bigger automobiles. By concentrating on the latter rather than the former it is failing to maximize its satisfactions. As with schools in the community, so with public services over the country at large. It is scarcely sensible that we should satisfy our wants in private goods with reckless abundance, while in the case of public goods, on the evidence of the eye, we practice extreme self-denial.29 The Plan may explicitly contrive to shape part of the anticipated increase in GNP in the form of social consumption and social investment rather than in the form of private consumption and private investment. One of the major objectives of the French Fourth Plan was to achieve "a more complete view of man,"30 i.e., production 29 John Kenneth Galbraith, The Affluent Society (Boston: Houghton Mifflin Company, 1958), pp. 259-260. 3®Pierre Masse, Revue du Marche Commun. February 1963, p. 51. 123 should not be used merely to satisfy consumer demands as expressed in the marketplace, but should be devoted to the deeper social objectives, for which the average citizen would eventually be happy but which he presently does not elect because he is not sufficiently educated. The basic principle is not new. For example, it is now almost universally accepted in most Western societies that some level of education for everybody is not an objective that should be left to be determined in the marketplace. A certain level of education is now prescribed by law, i.e., is the result of a sociopolitical decision rather than of an economic one. Similarly a minimum wage law did not spring from considerations, made in the marketplace, but found its rationale in an ethical judgment. In short, economic planning involves other criteria— social, political, ethical as well as economic. The principle is thus not new; what is new is the degree to which economic planning should impose choices about the uses of resources other than those which the market would produce. What this comes down to is a denial of the range of appli cability of the principle of consumer sovereignty. The consumer may be the best judge of what he thinks he wants i but he may not be the best judge of what he really wants, 124 I.e., what he should want. Unfortunately, what he really wants Is an Illusive and possibly dangerous presumption on the part of whoever presumes to know what persons really want. Consumers may be poor kings, but the planners may turn out to be poor advisers. The only way the two prin ciples can be satisfactorily resolved In a democratic society, at least In theory, Is by the democratic process Itself, I.e., by the Inclusion of representatives of the major economic Interests— business, labor, farmers, con sumers, Independent experts, etcetera, In the formulation of the plan. As a further safeguard, the plan must also be subject to the final authority of the legislature. This Is precisely what, In theory, Indicative type economic planning found In West Europe attempts to accomplish, although the writer Is not aware that this point— the reconciliation of the principle of consumer sovereignty and that of planners' preferences— has been explicitly recognized In the literature. Innovative Planning Up to this point, the argument has been couched In terms of social consumption and social investment as opposed to private consumption and private investment. 125 There is, however, a further dimension to the problem, that of innovation. The quality of life is not a static concept which concerns the composition of consumption, of goods and services both public and private, at a point in time. Of far more importance is the progress made in the welfare of man over time. This is the essence of the Schumpeterian view of capitalism, which has already been alluded to. Businessmen are now more than ever conscious of the need for innovation. Statements to the effect that "fifty per cent of our products today were not pro duced ten years ago" are now commonplace. The dramatic advances in the fields of electronics, chemicals, jet propulsion, etcetera, are so routine as to go past almost unnoticed. This process of innovative planning goes be yond the integrating of the firm's day-to-day activities, and has resulted in the establishment of separate depart ments whose function it is to plan for the long run. The notion is aptly expressed by Professor Chamberlain. This process of innovating--changing the pattern of firm's operations— while at the same time con tinuing "normal" operations constitutes a different dimension in planning from that which we normally associate with the coordinating functions based on existing, known relationships•^1 ^Chamberlain, op. cit., p. 174. 126 Innovative planning is something which is readily and naturally associated with the private sector, but hardly ever with the public sector. This is hardly sur prising in view of the nature of social consumption. The traditional activities of government, and even those that it has become responsible for in recent years, do not appear to lend themselves to the kind of change that one normally associates with innovation. Economic planning in the public sector is more in the nature of an extension of social capital: more schools, roads, better health measures, etcetera. Conceptually, however, innovative planning is as appropriate to the public sector as it is to that of the private sector. The difficulty is that it is hard to think of what form innovative planning can take, which is probably why the institution of long-range plan ning departments in the public sector has been largely neglected. Again Professor Chamberlain gives a hint as to what innovative planning might mean in the public sphere. With few exceptions, the renovation of cities proceeds along relatively familiar lines, piecemeal and uncoordinated. It offers a more modern version of what it is displacing. There has been virtually no political consideration of "new" cities built on radically new lines, although there is a substantial literature dealing with the subject. Additional 127 schools are constructed--the most modem, to be sure--but there is remarkably little examination of the desirability of restructuring the Whole educational system in line with contemporary needs.32 In the Los Angeles metropolitan area one possibility for social innovative planning suggests itself. There is a need for a completely new and revolutionary approach to transportation. What this should be is not appropriate to this dissertation. What is appropriate is that this is the kind of thing that is meant by social innovative planning. Social Benefits and Social Costs The arguments for economic planning discussed above rest heavily on social, political, and ethical grounds rather than on economic criteria. While not new conceptually, the economic considerations of social bene fits and social costs have received new vitality. With the increasing complexity of modem life, especially in large metropolitan areas, the need to consider social benefits and, more especially, social costs, has become even more pressing. In turn this has provided an added 32Ibid.. pp. 175-176. 128 dimension to the case for economic planning. Briefly the theory of social benefits and social costs takes account of the fact that the normal market mechanism only measures private benefits and private costs and falls to assess Individuals for possible social benefits or social costs. Simply because some amenity— let it be a pleasant view or an uncongested road or a reasonably quiet environment--is not paid for directly by those who enjoy it, there is no measure of the cost of the disinvestment which occurs when a profitable economic activity destroys what already exists.33 If the market does not and cannot take into account these variables then the economic system is functioning below its optimum level of performance. This limitation of the market provides a rationale for government inter vention, but an even stronger rationale for economic planning, where social benefits and social costs are par ticularly important. The effects of social benefits and social costs can be minimized if they are planned for in advance. The point can be nicely illustrated by an example noted by Shonfield which concerned the building of a new underground railway across the most congested area of central London. Studies of the feasibility of the line ^Shonfield, op. clt.. p. 227. 129 had been made for well over a decade always with the con clusion that the line would not pay for Itself. Early In 1960 the social benefit of having this extra route across London, I.e., the saving In travel time and automobile operating costs which would result for those not using the new line, from the reduction In traffic congestion In the central streets. The Inclusion of these savings Increased the return on the Investment sufficiently to warrant the Investment and construction on the Victoria Line was finally Initiated. Shonfield comments: It Is Instructive to observe how the slow advance In Intellectual techniques, In this case the technique of measuring costs, may result In denying to millions of people for several years the benefit of some desirable piece of Investment.3^ It was suggested earlier that one possibility of social Innovative planning In the Los Angeles metropolitan area was the need for a completely new and revolutionary approach to transportation. Whether or not the system could be made to pay for Itself, one of the principal social benefits could well be some degree of alleviation in the severity of air pollution which plagues the Los Angeles and surrounding areas. Some estimate of the 34Ibid.. p. 228. 130 benefits arising from a reduction In air pollution as a result of, presumably many fewer private automobiles, should be made and added to the direct benefits. The conceptual simplicity of the social benefits and social costs principle unfortunately does not carry over Into the actual calculus of those benefits and costs. The Imputed values are, at best, rather gross estimates and are often quite arbitrary. Imprecise as they are, however, some attempt should be made to assess them. It is not sufficient to dismiss the whole principle of social benefits and social costs on the grounds that they are not measurable and arbitrary. The gains and losses are very real phenomena--as the deaths in London, during particu larly bad spells of air pollution, testify. V. INDIVIDUAL ECONOMIC FREEDOM Among the arguments against economic planning there is probably none more powerful than that the economic j freedom of the individual will, in some sense, be still further emasculated. It is argued that, in a complex modern industrial society, the intrusion, albeit necessary, of government into the economic life of the individual has | already severly circumscribed his freedom. Economic 131 planning, even of the West European kind, is seen as one more step in an historical process o£ the gradual but steady erosion o£ individual freedom. The concern is a genuine one, even if, at times, the argument is couched in highly emotional and very subjective language. One does not require recourse to wartime conditions to demonstrate very real restrictions on individual economic behavior. To this day, for example, citizens of Great Britain, are restricted as to the amount of sterling they can take out of the United Kingdom. Such a minor luxury as being able to spend a fortnight's holiday on the Continent in reasonable comfort is denied the individual. Tedious and vexatious licensing restrictions often prevent the indi vidual from setting up in business for himself. Building codes, oftentimes arbitrary and inappropriate, restrict the well being of the individual. In countries such as those in West Europe, where freedom is highly valued, would economic planning further deprive the citizen of one of the cardinal tenets of life--economic freedom? The .answer is not clear cut. One difficulty, of course, lies in the very con cept of freedom. What is freedom? This is a philosoph- i ical question which is far beyond the scope of this 132 dissertation. Suf£ice it to say that economic freedom is a relative term.- Freedom to do one thing may limit ones freedom to do something else. Just as economic goals are often conflicting, so too are different freedoms. Neil Chamberlain makes the point that economic planning may limit discretion in certain directions, but increase it in other directions. It [the exercise of authority in a planning program] creates alternatives Which would not have existed in the absence of planning. There is no point in urging on unemployed workers or near bankrupt firms the loss of their individual freedoms if they consent to a measure of planning for full employment or growth. Consumer sovereignty may be better preserved, it can be admitted to make the point, by allowing individuals to spend a larger share of the GNP Isay by reducing government outlays ] but the size of both the GNP and their share of it may be smaller as a result; they will be free to choose what they want with what income they have, but the lower income which they have will itself limit their choice. A lack of coordination of the parts resulting in a poor over-all performance can create a tyranny of circumstance over individuals, an absence of effective choice, greater than is con tained within the exercise of such government author ity as may be needed for planning. A failure of the government to intervene can be destructive of private discretion no less than its intervention.35 Granting Professor Chamberlain's thesis there is still the very real practical problem that an extension of government activity into economic life, unless constantly 35Chamberlain, op. cit.. pp. 192-193. 133 undertaken in the questioning light of its raison d'etre, can lead to a bureaucratic way of life injurious to the welfare of the nation as well as to that of the individual. Professor Chamberlain is well aware of the point for he goes on to say, To be sure, the question of purpose and effect remain to be settled, in every instance, but governmental intervention can scarcely be con demned in principle .... It is not the prin ciple, but the specific measures which should be subject to critical scrutiny.36 36Ibid.. p. 193. CHAPTER V THE PROCESS OF ECONOMIC PLANNING The purpose o£ central economic planning is to steer the system, i.e., to have the economy take a certain direction, which, in the absence of central economic plan ning, would undoubtedly take a different course. Planning is purposive. Its purpose is to attain certain ends. Thus, the first French plan was an attempt to steer the French economy in a deliberate direction. Resources were earmarked for certain sectors of the economy while other sectors were purposefully starved of resources.^ Had not France embarked on economic planning there is little doubt that the course taken by the economy would have been significantly different. Considerably more resources ^The French experience with economic planning is examined in Chapter VI. Apropos of the present discussion, the French authorities decided to focus investment in six basic sector8--coal, electricity, iron and steel, cement, agricultural machinery, and transportation. 135 would have gone into housing, into the production of auto mobiles, and into consumption in general, as opposed to investment. Currently, not only in West European' countries, but even in the United States, there is a plea, as well as a self-evident necessity, to increase investment in public and social services relative to that into the private and individual sector. The plea is popularized in Galbraith's work, The Affluent Society, but a practical manifestation finds itself embodied in the later French plans, especially in the Fourth and Fifth Plans. Another example of the deliberate attempt to steer the economy in a given direc tion finds its expression in the aim to stimulate exports and to increase productivity. This is particularly the task of central economic planning in Great Britain, which finds herself lagging behind other West European countries in economic growth and whose economic survival rests largely on her ability to steer the economy in the direc tion of increased productivity and the related task of controlling prices to enable Britain to compete in world markets. 1. GOALS OR OBJECTIVES i , Implicit in the notion of steering the economy in a 136 certain direction is the first function of economic plan ning, that of establishing goals or objectives. Economic planning, per se, is not a goal, or an end in itself; it is a means to ends. The ends of economic planning are usually expressed in terms of national goals. Among the more common economic goals are (1) an efficient allocation of resources; (2) economic stability of employment, income, and prices at a high level of employment and income; (3) an equitable distribution of income; (4) a high rate of economic growth; (5) a high level in the quality as well as the quantity of output; and (6) a high degree of economic and political freedom. The Determination of Goals: For Whom and By Whom The first thing to be noted about goals is that they involve value judgments. Goals are not something given by the economic system, although it is true that they are not isolated from the means used to attain them. Goals are determined by someone for someone. Which goals and whose goals are an act of choice and not a chance happening. How conscious is the choice is a separate issue. The point is that goals are not given by some impersonal force, by a 137 computer or by a deity. In this sense they are not given to society as the Ten Commandments were "given" to Moses. While this is an advantage in that man has to some extent control over his economic destiny, it does entail the problem that all choice entails; what is to be chosen, which goals shall be selected (assuming that there is still an economic problem) and for whom, whose goals are to be taken into account (assuming more than one person). Of course, the goals of a society can be set by one person. Many of the goals of Nazi Germany, for example, were dictated virtually by one man. In the case of a pure dictatorship, one person determines what the goals for the society shall be and whose goals shall be considered. More often goals are determined not by a single person but by an 2 oligarchy, i.e., by a relatively small number of persons. Such is the case in the centrally planned Communist economies, where goals are determined not even by the Communist Party but by a small number of high ranking officials within the Party. At the other end of the scale By virtue of the very complexity of a modern i economic system pure dictatorships are rare. Even at the height of his success, it is doubtful if Hitler alone determined all the goals for Nazi Germany. is the seeming lack of determination of social goals ex hibited under conditions of classical laissez faire— seem ing, because no one consciously plans what and whose goals shall have priority. Actually, in this instance society's goals are determined just as surely as if they were set by a single person. Here, however, the process is one of mutual interaction, and the result is that the goals re flect the desires of millions of people. This, of course, is not to say that everyone's goals are given equal weight. In fact, one of the severest criticisms of such a system, the principle of consumers' sovereignty for example, is precisely that some people have a degree of influence out of all proportion to others, which logically is the same criticism that is leveled at dictatorship and oligarchy. The only difference is the basis from which they derive I their power, and the degree to which some people have an undue influence on the determination of society's goals. To the extent that the distribution of income and wealth is equal, the weight giVen to each individual's goals is equal. However, for many reasons, perfect equality of income and wealth is not practical and probably not desir able, so that almost inevitably some people's goals will 139 be weighted more heavily than those of others In the marketplace. Again, In reality, goals are no more determined by a pure price system than they are by a pure dictatorship. In Western-style planning goals are set by yet other social processes, by the Interplay of the Interests of government officials (essentially by the leaders of the ruling party), civil servants, businessmen, farmers, Independent persons (usually experts In a particular field), and trade union ists. This process of setting goals can take the form of cooperation or bargaining between the various Interests. It Is In the process of setting goals that one detects one of the major differences between French planning and British planning. In France, with Its etatlst tradition, the modus operandl Is one of cooperation (or collusion) essentially between government officials and employers. In Great Britain, with Its tradition of mutual accommo dation, the process Is more one of bargaining. The important contact with employers in France Is through the Commissions de Modernisations and the working parties, and these are groups of like-minded men, some within and some outside of government, working toward common ends. 140 In Britain, however . . . the "little Neddies" are constituted largely of Individuals who are self-consciously representatives of economic Interest groups. Government officials of Britain do not, as In France, collude with selected Industrialists In what the officials and the Industrialists agree Is the public Interest. Rather, the government negotiates with representatives of private associations, at arm's length, and those private associations include power-, ful labor unions as well as groups of industrialists. Thus, the process of setting goals involves all "four central sociopolitical processes,identified by Dahl and Lindblom— the price system, hierarchy (the process in which leaders control non-leaders), polyarchy, sometimes called democracy, (a process in which non-leaders control leaders), and bargaining (a process in which leaders control each other). The weight placed upon each one of these processes and hence the combination of them used in ^"Little Neddies" is the name given to the Economic Development Committees for individual industries. They are the British counterpart to the French Commissions de Modernisations. ^Everett E. Hagen and Stephanie F. T. White, Great Britain Quiet Revolution in Planning (New York: Syracuse University Press, 1966), p. 113. ^Robert A. Dahl and Charles E. Lindblom, Politics. Economics, and Welfare (New York: Harper Row, Inc., 1953), p. 22. 141 the over-all. process of solving society's economic problems will depend In large measure on the value judgments of the particular society. France, with Its particular tradition, tends to put more emphasis on the process of hierarchy than does Great Britain or West Germany. Out of Great Britain with her history of lalssez falre (and heavy reliance on polyarchy and the price system) has emerged a strong tradition of collective bargaining. It Is for this reason— heavy emphasis on the social processes of polyarchy and collective bargaining— that not only was central eco nomic planning late on the scene In Britain, but It Is much more difficult for the British authorities to Imple ment central economic planning than It Is for their French confreres. The Multiple and Conflicting Nature of Goals Precisely because different value judgments are In volved In the process of their determination, goals are multiple and conflicting. There Is no such thing as the harmonious goal of society. The closest approximation to such a goal Is sometimes (but not always) found In wartime when virtually the whole nation Is welded together by the necessity of winning the war. At these times everyone feels the overriding Importance of this one goal, whatever other goals he has, and is consequently willing to sub merge these other goals in order to realize the main goal. Abstracting from the special case of wartime, the apparent harmony and unity that is expressed in such concepts as the "public interest" and the "general welfare" is mis leading in the extreme. This is not to say that the "public interest" or the "general welfare" is devoid of content. Undoubtedly, the concepts are meaningful; but they are complex, not simple functions that are clearly and easily defined. The most important part of this aspect of goals is the conflict that exists between them and the corollary that follows--that maximum social welfare must be some sort of balance between the several goals that make up the total social welfare goal. The multiple and conflicting nature of goals is perhaps most graphically portrayed by the post World War II experience of Great Britain. Briefly summed up it is one of disappointment with the slow rate of economic growth and with the recurrence of financial crises in the form of a persistent balance of payments deficit which in turn has more or less persistently threatened the value of I sterling as an international currency. In order to rectify the balance of payments problem, short-term deflationary measures to stimulate exports and cut Imports and to attract capital funds from abroad have been advocated or applied. While such deflationary policies work to bring about the "International goals" and the goal of price stability, such measures work against the goal of high levels of employment Income and output and hence against a high rate of economic growth. A longer run view of the problem resolves Itself Into the necessity of Increasing productivity so that British goods and services are com petitive on world markets. Increasing productivity is, in large measure, a matter of changing attitudes, both of management and workersi While this may be very desirable for the economic welfare of Great Britain, the point here is that increasing productivity--essentially the goal of efficient use and allocation of resources--does conflict with other goals. In the first place it conflicts with the goal of freedom— the freedom of management and of workers to pursue their own ends in ways they see fit. Illus trative of the point is the lack of success that the National Incomes Commission (N.I.C.) has had in persuading either management or labor to adhere to an incomes policy. 144 The unions' reaction was that the N.I.C.'s report was an "impertinent Interference" in their nego tiations. Opposition came from both manual and white-collared unions. The report was seen as a "threat to negotiating machinery" and "foreign to any reasonable conception of democracy." Neither did the employers' organizations fully endorse the N.I.C. recommendations. They said that the com mission's advice was valuable, but that it remained the responsibility of the employers and the unions to settle the claim. Moreover, increasing productivity may also conflict with a more equitable distribution of income unless certain steps are taken to offset possible effects of increased productivity. A super-productive economic system, char acterized by extremely automated techniques could be a highly inequitable one, unless society found other prin ciples of income distribution than those currently accepted. Imprecise Character of Goals A further characteristic of goals is that they are somewhat imprecise, often capable of being qualitatively described but not quantitatively determined. Some goals are expressed in mathematical terms, such as a growth rate ^Hagen and White, o p. clt.. p. 57. of 4 per cent per annum or an unemployment rate of no more than 3 per cent, and are conceptually, as well as prag matically, capable of more precise definition than other goals. But even such goals as full employment and eco nomic growth have a spurious precision about them. The numerator of the rate of economic growth, for example, can be made up of various combinations of consumption, invest ment and government. A 10 per cent rate, e.g., composed of an unusually heavily weighted amount of investment, may be less desirable than a more modest rate made up of less investment and more consumption. The French Fourth and Fifth Plans, particularly, have stressed the desire for relatively more social investment and, correspondingly, relatively less private consumption. Economic growth as a goal is not simply a quantitative function; it has a qualitative aspect that cannot be described by anything as precise as a percentage. In recent years the goal of price stability has also been of great concern to most advanced industrial economies both as an end in itself and to permit a country's goods and services to compete favorably on inter national markets. Price stability is measured in terms of >an index, e.g., a consumer price index or a wholesale price index. Price stability does not mean that the index remain at a given figure over a period of time but rather that the increase in the index be reasonably small. The question then becomes: How small? There is no very reasonably precise answer. It depends on a number of things, e.g., on the relationship between the degree of inflation and the increase in real output. An increase in the price level of 2 per cent per annum accompanied by an increase of output in real terms of 6 per cent might well be regarded as more stable than a 1 per cent increase in prices accompanied by no increase in output at all. The fact is that there is strong historical evidence of a positive correlation between the long-run price level and the long-run progress in real income per capita. Exces sive inflation is inimical to growth, but some inflation is perhaps inevitable if there is to be economic growth. This seems clear enough. However, the point at which a degree of inflation ceases to be beneficial and becomes a deterrent to economic growth is not clear. In other words, the optimum rate of inflation is not capable of very precise calculation. Still less capable of very precise calculation is : the goal of an equitable distribution of income and wealth. 147 The whole concept of fairness is extremely illusive. It would seem that, in Western societies, most people find it easier to make value judgments as to what is unfair; but there is no unanimity as to what is a fair distribution of income and wealth. Moreover, considerable differences in income and wealth and opportunity still exists in Western society, in spite of two or three decades of a general philosophy and governmental policies towards greater equality. One of the reasons for the slow pace towards the goal of an equitable distribution of income is pre cisely the imprecise nature of this goal. Of course, the goal of equity has also become relatively less important in Western societies, especially as other goals have be come more important. It is interesting to note that very little mention is made of the goal of equity per se in the several national plans. The plans are far more concerned with production than they are with distribution. The goal of freedom is the least precise of all. If A has a freedom that B does not have but B has a free dom that A does not have, it is impossible to say who has the more freedom, A or B. So far no one has devised an index of freedom similar to a price or quantity index, or [a rate of freedom such as a rate of economic growth. To 148 the Trades Union Congress (TUC) of Britain and to the Swedish labor unions, the power of the Commissariat General du Plan and the Commissions de Modernisations must seem as much a travesty of the freedom of labor as it is of the freedom of business to the West German or Swedish indus trialist. 11. ECONOMIC ANALYSIS While a distinction can be made conceptually between goals and the particular sociopolitical framework, central economic planning has to consider goals in the context of a past and existing situation. In other words goals have to bear some relationship to a given set of conditions— political, economic and social. This leads to the second function of economic planning, namely economic analysis. Actually economic planning has to be based on more than economic analysis, i.e., it has to take into account polit ical, social, military, administrative and psychological considerations. While recognizing this, no attempt will be made to take account of them. Economic analysis, sup ported in more recent years by the development of statis tical techniques, is the domain in which the economist i makes his most important contribution to economic planning. 149 Macroeconomics; The Keynesian Contribution Economic analysis is the process of discovering what will be the impact of a change in one or more economic variables on the economic system. Traditionally, economic analysis has been divided into microeconomic analysis, which concerns itself with the actions of individual eco nomic unit8, for example, the quantity of commodity A that will be purchased if the price is raised or lowered from PI to p£ per unit of A, and macroeconomic analysis which concerns itself with the over-all level of economic activity and its broad components, e.g., consumption and investment. While microeconomic analysis may be appropriate to some economic problems, the very purpose of economic planning--the directing of the economy--means that it is at the macroeconomic level that economic planners operate. Central economic planning is concerned with the over-all levels of output, employment and production, the level of consumption and of investment, the price level, the rate of economic growth, the balance of payments, and so forth. It is in this respect that Keynes made his particular j contribution to economic planning. Central economic plan- | ning at the macro level rests very heavily on the 150 Keynesian analysis o£ how the over-all performance of the economy Is determined, for however simple or complex the economic model developed by economic planners Is, the fundamental economic analysis behind the model derives from Keynes. It Is not the purpose of the present dis sertation to demonstrate the economic analysis of Keynes. Suffice It to say that Keynesian economic analysis provides economic planners with an Intellectual approach to the task of steering the economy. The Keynesian economic analysis may be summed up by the equation: Where: Where: Y C Yd Y C I G NF Yd TP SIC T C + I + G + NF f(Yd) Y + TP - SIC - T ( 1) ( 2) (3) Total Income or Total Expenditures Consumption Investment Government Net Foreign Trade (Exports - Imports) Disposable Income Transfer Payments, Government and Business Social Insurance Contributions Business Profits Taxes and Retained Corpo rate Earnings, and Personal Income Taxes 151 Some economic relationships, such as (1) and (3) are simply identities, i.e., Y is identical with C + I + G + NF. Others, such as (2) are behavioral or functional equations, e.g., the level of consumption is determined by the level of disposable income. Some of the items are regarded as given or autonomous, e.g., (NF) net foreign trade; others are functionally derived from the known data for the economy. For example, the level of saving is a function of the level of income and of the rate of interest. All countries regard some items as autonomous, and some as functionally determined. Further, there is a sub stantial measure of agreement in practice as to which items are autonomous and which are derived. Basically, there are four main components of demand: consumers' expenditures, investment, government purchases, and exports. Of these, government purchases, investment, and exports are in practice regarded in most countries as, at least, largely autonomous, while consumers' expenditures are regarded as derived. Because the relationships between the variables of the economy are complex, it is not possible to explain the [entire economic process• Thus, it is both necessary and 152 helpful to construct a simplified picture of how the econ omy works, i.e., to build a model of the economy. The model can be relatively simple and non-mathematical, as was the case with the early French plans. On the other hand, the model can be complex and rely heavily on mathe matics. In the Nether lands, for example, explicit mathe matical models have been used since about 1950 and a system of multiple equations have been utilized. Input-Output Analysis In addition to what might be termed the Keynesian analysis of national income determination, some countries make use of input-output analysis, which shows the inter relationship of inputs and outputs among a number of industries, in the form of a matrix. The purchases of each industry from every other Industry are recorded. Each of these purchases is regarded as part of the output of the selling industry and part of the input of the purchasing industry. Ratios between the output of an Industry and each of its inputs can be calculated. From these ratios, a rough estimate of the effects on all industries of a given increase in final demand on any one can be made. The Industry initially affected by the increase in demand 153 will require additional Inputs from other Industries. These In turn will also require additional Inputs Including Inputs from the Industry Initially affected. After these Increases through various Industries and many stages have been traced, the total effect of the Initial Increase on all Industries can be ascertained. French planning uses lnput-output analysis and Is devoting considerable effort to Improving It. No other countries make use of this kind of analysis at an aggregate level, primarily because they consider their data are not good enough to construct a good table. However, Sweden, the Netherlands, and the United Kingdom make some use of the general technique for making forecasts for Individual strategic Industries. Forecasting Essentially, the point of economic analysis Is to enable the planners to predict what will happen to the economy If one or more of the variables of the system Is changed. For example, what will happen to the level of employment If consumption expenditures decline In response to an increase in taxes; or, what will happen to the price level if government expenditures increase rapidly as a result of an expanded military commitment? Knowing the relationship o£ the variables within the system, the economic planner is capable of going beyond mere pre diction, i.e., being able to say what National Income (Y) will result if consumption expenditures fall from to C2« He can now invert the logic to which the economist is accustomed, i.e., to consider the data (including the means of economic policy) as given or known and the economic phenomena and variables (including the aims of economic policy) as unknown. "The problem of economic policy considers the targets as given and the instrument values as unknown, or at least partly unknown."^ Thus, instead of predicting what will happen to Y in response to a change in C, I, G and/or NF, the economic planner's task is to forecast the change in C, I, G and/or NF needed to bring about a given level of Y. Because the purpose of central economic planning is to steer the economy in a certain direction it is con cerned with the future. Not surprisingly, therefore, economic forecasting has become the keystone to economic analysis. The economic planner has to manipulate those 7Jan Tinbergen, Economic Policy. Principles and Design (Amsterdam: North Holland Publishing Co., 1956), p. 9. ___________ 155 variables under his control In order to achieve the goals that have been adopted In the Plan. Economic forecasting of such aggregates as consumption, Investment, government expenditures etcetera, has only been made possible by the system of national accounting that has been developed since the Keynesian conceptual revolution. Most countries today attempt to measure quantitatively the economic activity of various sectors of the economy so that the performance of the economy can be analyzed In terms of the contributing forces to the total national Income. Economic Measurement All that has been said on the subject of economic analysis presupposes that economic phenomena can be measured. Without the possibility of economic measure ment, economic analysis would be severely limited; the capacity to forecast and hence the ability to plan would be virtually impossible. As has already been noted, there can be no planning without forecasting. Fortunately, most economic phenomena, in varying degree, are capable of being measured. Subject to certain reservations, the value of most goods and services can be translated Into monetary terms. Thus, the value of a loaf of bread, an 156 Ingot of Iron, an airplane fare and a share of a company's stock, are all capable of being equated through the insti tution of money. True, some values cannot be converted to monetary terms. Moreover the value of money itself fluctuates, which poses certain problems; but, by and large, the great majority of economic values can be trans lated into monetary terms. This enormously facilitates the process of economic planning. The difficulties of measuring macroeconomic variables. Nevertheless, measurement does pose a problem for economic planners in a number of ways. Central eco nomic planning relies very heavily on a system of national accounting. National accounting differs from the account ing of a private corporation. In the private corporation, all transactions are recorded so that the activity of the company during a certain period of time is simply a matter of summing the monetary values of the transactions that have taken place. At the national level, the activities of the nation have to be estimated from a sampling of the activities of households and firms. Thus, for example, the private domestic investment component of GNP is an estimate of the Investment of firms based on a sample of 157 £irms. In forecasting private domestic investment, the problem is £urther complicated by the fact that the esti mate has to be based on expectations. All countries carry out surveys of the intentions of a sample of firms several times a year. These must usually be processed and ad justed in many ingenious and sophisticated ways, but the final result is normally the most important piece of evi dence in coming to a forecast of business investment. Similarly, expectations of consumption expenditures have to be estimated. The estimates of exports are even more imprecisely measured. Exports, universally regarded as an autonomous variable, are estimated from export order positions and the views of industrialists, trade asso ciations, and commercial attaches abroad. For these rea sons, the problem of measurement occupies a considerable amount of the time of the various planning agencies. Mention has been made of the limitations that the value of money itself is not constant. The historical decline in the value of money poses a problem in the measurement of economic growth. Economic growth is nor mally measured in terms of the annual increase in income ' per capita between t^ and If the price level has ! increased (i.e., the value of money has fallen) between 158 t^ and t2» part of the increase in income per capita is merely the reflection of the increase in prices. Thus the real increase in income per capita is less than monetary increase. The problem facing the economic planner is to determine how much of the increase has been due to the rise in prices and how much of it is due to economic growth. In order to cope with this type of problem con siderable effort has gone into the development of price indices that attempt to measure different price concepts, for example, consumer price Indices, wholesale price indices, and GNP price deflators. The problem of social measurement. One of the most illusive areas of measurement, and one which will be dealt with in much greater detail in Chapter VII, "The Limita tions of Economic Planning," is that concerning social benefits and social costs. With the increasing complexity of modern life, such problems as transportation, urban ization, and air and water pollution have been particu larly aggravated. More and more, the solution to these problems must be sought through some sort of planning agency. The market mechanism is capable of measuring private costs and benefits fairly well but is incapable of 159 assessing Individuals with social costs or social benefits. Social costs and social benefits are not as amenable to the precise monetary measurement that private costs and private benefits are. III. EXECUTION OF ECONOMIC PLANS The third major function of economic planning is that of execution. Execution is the process of putting the plan into operation. Once a plan has been agreed upon, it then has to be put into action. Execution involves the instruments and techniques needed to realize the plan Which has resulted from the establishment, of the goals of soci ety, and of the economic, social, political and military analysis of the planners. This third process of economic planning is largely the problem of social control and its nature. What sort of controls shall be used— direct or indirect, command or inducement, specific or general, visible or invisible, discretionary or automatic? More precisely, What combination of these shall be used, for, as John Elliott puts it: . . .economic systems differ largely in terms of what particular combinations of methods and techniques are used to execute economic 160 plans and thus control economic actions and responses.8 Attitude Toward Central Economic Planning There are many facets to this phase of economic planning, since execution is as much a political and ad ministrative problem as it is one of economics. By and large, these aspects of the nature of execution will not be treated. However, apropos of this present discussion, one very important point needs to be mentioned, that of the necessity of having sympathetic personnel to carry out economic plans. This raises the question of the atti tude of the planners, both inside the government and with out, toward the execution of the plan. The nature tend ency for economists is to assume this as a given, but herein lies one of the possible differences between the French and the British approach to planning. It [the Commissariat General du Plan] has succeeded because there exists a network of officials who have come to believe deeply in the type of planning being done. The Commissariat brings them [other g John E. Elliott, "Comparative Economic Systems: Theories, Philosophies and Strategies" (Los Angeles 1966), Ch. Ill, p. 14. (Mimeographed.) 161 government agencies] together; they reach a con sensus on what should be done: then, rather spon taneously, (hey act In concert to move the appropri ate levers. This attitude contrasts sharply with that o£ the British civil service, with Its tradition o£ being the dutiful servant of the people responsible to the minister of his department. The Process of Social Control The essence of the problem of execution Is to get people to carry out the plan. What Instruments and what methods can be used to entice, force, or persuade people to respond In such a way that their actions are consistent with the plan? In short, execution of plans entails the process of social control. Social control Is the method by which one person or one group Influences the actions of another person or group of persons. For example, the rate of business In vestment may be controlled by the use of monetary policy through raising or lowering the rediscount rate (as It Is In England, West German, and In the United States). The 9 Hagen and White, op. clt.. p. 110. central bank controls the volume of loans that the commer cial banks can make by raising the prime rate of interest. Alternatively, the level of investment can be controlled by requiring prior approval of the loan by the central bank. For example, in France, the Credit National will only purchase loans from the commercial banks if it in turn has assurance from the Banque de France that it will buy the paper from the Credit National if desired. The Banque de France is independent of the Commissariat General du Plan, but so completely is the approval of the Commissariat a part of the process that the Credit National advises potential borrowers to get the approval of the loan from the Commissariat General du Plan first. Both methods of controlling investment are illustrative of the process of social control whereby the actions of one group (entrepreneurs seeking to increase investment) are con trolled by another group (the banks) who in turn are con trolled by a third group (the planners). Both methods of regulating the volume of Investment are simply specific techniques of social control. Differ ent techniques are appropriate to different times and to different systems, but the process of social control is generic to all economic systems. Even in the seemingly least controlled of economic systems, anarchy is not the modus operand!. Under a system of pure laissez faire, for example, implicit in the principle of consumers' sover- » eignty is the process of social control. Producers, who are motivated by the desire to make profits must produce those goods and services that consumers demand. Thus con sumers can be said to control producers through the profit motive. Further, producers, under a system of laissez faire, control producers through the Institution of com petition. Of course, producers under a system of laissez faire try to change it by seeking to control that control exercised over them by other producers--i.e., they try to substitute monopoly for competition. On the demand side, they also seek to loosen the control that consumers have over them (i.e., the sovereignty of consumers) by per suading consumers to demand their particular products rather than those of other producers. They seek to differ entiate their products in the minds of consumers, largely through advertising but also in a number of other ways. Thus, there is a tendency for a system of pure laissez faire to be transformed into one of monopolistic capital ism. However, even in a system of pure laissez faire the process of social control is extant if not evident. It 164 was this very feature of laissez faire that led Adam Smith to coin the phrase the "invisible hand" to describe the process of social control under laissez faire. Subse quently, later generations have tended to concentrate attention on the adjective, recognizing the invisibility of the process but to forget the implications of the noun, i.e., that there is a process of control. Degree of consciousness and automaticitv. The process can also be conscious or unconscious and automatic or non-automatic. Again, the theory of laissez faire assumes that the process of social control is unconscious and automatic. In the marketplace consumers do not con sciously try to control the production of producers as a planning agency might do. Consumers do not approach producers and request them to build two hundred thousand houses in the ensuing year. Rather, individual consumers offer to buy houses on the basis of their income (given their tastes etcetera) and the prices that have been estab lished over time for various types of houses through the interaction of buyers and sellers. Producers, on the other hand, look at the current market prices of houses and at current costs of production of houses and decide whether 165 there is a sufficient margin of profit for them to build those kinds of houses. Some producers will find It profitable to build at the market price, others will not. Each Individual producer feels that he Is "freely" and "automatically" forming and executing his own plans, just as each consumer feels that he is "freely" and "auto matically" forming and executing his own plans; but in competition with other like-minded producers (consumers), he is led as if by an invisible hand to respond to the economic conditions of a social process beyond his own individual manipulation and control. Western-style planning still relies very heavily on the unconscious and automatic mechanism of the market. Indeed the efficiency of the market mechanism has been conceded by most authorities on economic planning and, in so far as planning can work through the market, the task of planning is made that much easier. However, while recognizing the efficacy of the market mechanism, Western- style planning, cognizant of the limitations of the market, is more conscious and less automatic in its control. The planning agency intervenes, for example, to stimulate exports and to curtail domestic consumption, or to increase ithe investment in atomic energy and decrease the output of, say, coal. Thus, the control exercised by the planning commission is both more conscious and discretionary. It relies on a more direct approach. It will grant a subsidy, or offer tax concessions, to those firms which export more than a certain percentage of their production. It will physically limit the output of coal by reducing the tonnage mined. In these two examples producers are not induced to increase exports or to produce less coal by responding to the expectation of higher profits in foreign markets or by the expectation of lower profits in coal mining. There is nothing unconscious or automatic about the process. Pro ducers have been consciously induced or directed (commanded) to act in a certain way, at the discretion of the planning authority. Inducement versus command. This leads to another dimension of the social process. Control can be exercised through inducement or by command. Under the former technique, individuals respond to some form of incentive (a favorable rate of interest on a loan) or of deterrent (a tax). Under command, individuals are directed to act in a certain manner (the management of a firm is instructed to produce 50,000 units of product A) under penalty--the 167 severity of the penalty, usually a smaller bonus, being determined by the authorities. In contrast to Soviet-style planning, which relies heavily on command, Westem-style planning operates mainly through inducement. Of course, the line between inducement and command is often thinly disguised. Moreover, the dis tinction between command and Inducement is too sharply drawn in practice. The Soviet Union relies on incentives to induce plant and industry managers to fulfill the specific directives to the plant. This has been especially true since 1962, with the Liberman proposals to improve the efficiency of Soviet managers. On the other hand, it is no secret that planning in France is far more positive than the term "indicative" would suggest. French planning, M. Pierre Masse, the present director of the Commissariat du Plan has said, is "more than indicative and less than imperative." The phrases are correct, but how much more than indicative, even though much less than imperative, is the actual process! In M. Masse'8 delicate Gallic phraseology in another place, "the heart of the matter is that French planning is active: it . . . regulates the stimuli and aids at the / disposal of the public departments in such a manner that the objectives assigned to the private sector are achieved.10 10Hagen and White, op. cit., p. 105. Even in the United Kingdom where central economic planning is far less developed than in France the distinction be tween command and inducement is sometimes somewhat euphe mistic. The Governor's letter of credit control which request8 the banks and other financial institutions to limit their level of installment credit to some percentage of a previous level of outstandings, is in reality a rather firm order. Nothwithstanding these remarks, generally speaking, it is true to say that Westem-style planning appeals primarily to the technique of inducement rather than command. There are plenty of examples where the plan ning authorities have failed either to command or, for that matter, to induce the interest groups to comply with the plan. It is interesting to note that no country has suc cessfully been able to induce or impose on the nation an incomes policy. Neither management nor labor has been pre disposed to accept increases in wages or profits within the limits of increases in productivity. General and specific Instruments of control. The traditional method of inducement, i.e., of incentives and of deterrents, in Western countries operates at two levels, the general and the specific. At the general level, con trol is effected through monetary and fiscal policy. At 169 the specific level, control Is discriminating In that Individual units of decisions (Industries, firms, house holds) are Individually rewarded or penalized for acting In a certain manner. Generally speaking, Great Britain, Sweden, West Germany, and the Netherlands have been more prone to rely on general controls, I.e., monetary and fiscal policy, whereas France and Italy have been more ready to supplement fiscal policy with specific controls. Monetary and fiscal policy. Monetary policy, through a variety of techniques, namely, open market operations, raising or lowering the rediscount rate, and changing the legal reserve requirements of commercial banks, Induces certain responses on the part of firms and households, by changing the volume of money available to them. If, for example, the planners see that an Infla tionary problem threatens because of excess demand, they can reduce demand by having the central bank raise the discount rate. This will reduce the reserves of the commercial banks and hence curtail their loan creating ability. In turn the commercial banks will raise their rates of interest to their customers (both firms and households). Finding borrowing more expensive some I borrowers will consider it more profitable to reduce or forego borrowing. Hence the initial rise in the rediscount rate of interest can induce a decrease in the level of de mand and, other things being equal, reduce the inflationary pressure. Monetary policy is general in that the rise or fall in the rate of interest, for example, is universal. All borrowers, given the class of risk, have to pay a higher or lower rate of interest for funds. The increase or decrease in the rate of interest does not discriminate between, say, the aircraft industry and the automobile industry. Firms in both industries will have to pay the higher or lower rate. Of course, in its effects, the change in the rate of interest may be specific. It may very well reduce the amount of investment in the auto mobile industry more than the amount of investment in the aircraft industry. Fiscal policy, operates through government spending and taxation. Increased government spending, for example, increases the income-expenditure level of the economy, not only by the injection of the initial amount of government spending but by some multiple of that amount depending on the marginal propensity to spend. Thus, if the planners see a gap between potential and actual GNP they can I recommend an Increase in government spending to increase 171 the actual level of GNP. Some given increase in the level of government spending should be sufficient to close the gap between actual and potential GNP. Alternatively, taxes can be reduced and the income-expenditure level of the economy increased. Again, the amount of reduction in taxes can be much smaller than the amount eventually needed to close the gap between actual and potential GNP. The reduction in taxes required will depend on the marginal propensity to consume. Thus, planners can attempt to influence the rate of economic growth as well as the volume of unemployment through fiscal policy. Fiscal policy, too, is general in nature in that it is not aimed at specific firms or households. A reduction in the corporate income tax, for example is not different as between different firms anymore than a reduction in the personal income tax, given the level of income, is different as between differ ent households. The initial increase in the level of government spending will obviously be somewhat specific, depending on where the increase takes place; but after the first round of spending, the 2nd, 3rd, ...nth orders of spending will be diffused generally throughout the economy. Specific Controls. Both monetary and fiscal 172 policy have come to be used In most economically advanced countries as methods of controlling the country's economic destiny, especially with respect to economic stability and economic growth, where manipulation of aggregates Is appropriate. Indeed, the great virtue of monetary and fiscal policy Is that the over-all aggregates can be manip ulated without discriminating against Individual sectors of the economy. It Is precisely this aspect of monetary and fiscal policy--the generality of Its Impact--that commends Itself to traditional British economic philosophy. Nevertheless, in all countries the process of social con trol has also necessitated a variety of specific controls to supplement monetary and fiscal policy in the execution of economic policy. Specific controls are controls which are designed so that their impact is specific to a partic ular sector of the economy or to a particular company, or to particular individuals. Specific controls take a variety of forms, e.g., subsidies, special tax concessions, low rates of interest on loans, high depreciation allow ances, exchange controls, special licensing arrangements, price control, control of capital Investment etcetera. Thus, a subsidy may be given to the shipbuilding industry; favorable borrowing conditions, a low rate of 173 Interest and a long term repayment schedule may be given to a company if it agrees to establish a new plant in a certain region of the country; heavy taxes may be levied on persons who purchase or use certain goods and services. Specific controls are necessary because the execution phase of Westem-style planning requires, in addition to control of economic aggregates, the control of certain sectors of the economy, which monetary and fiscal policy is either incapable of affecting or is so blunt an instru ment as to be grossly inefficient in its performance. For example, if the plan calls for increased steel capacity or an Increase in exports, monetary and fiscal policy cannot specifically induce steel producers to invest in additional capacity without possibly inducing investment in virtually thousands of other areas of economic activity. Neither could it induce manufacturers to increase the share of their output to be exported. What is required is a con trol that will specifically Induce steel producers to build more steel capacity and will specifically induce companies to export a larger share of their output. For example, under the French Third Plan, firms exporting at least 20 per cent of their production, provided it repre sented at least 50,000 francs, received special financial 174 rewards In the form of very favorable depreciation pro visions, in addition to special consideration of their problems• Conclusion The kind of central economic planning that is emerging in Western Europe appears to call for greater use of more specific and more discretionary controls. Power ful as it is, monetary and fiscal policy is limited in its effectiveness in the execution of an economic plan. How ever, it is not merely a question of the instruments of social control that distinguishes, say, British planning from French planning. Undoubtedly, a larger arsenal of specific controls confers a greater degree of flexibility and permits more comprehensive planning but most of the specific controls used by the French are not unknown to other national planners. What is of paramount importance to the execution of the French type of economic planning, is the ability of the government to induce the private sector to execute the plan. The truly novel feature of French planning is that of so involving the main interest groups in the formulation of the plan that the plan is regarded as much the product of their thinking as it is of 175 the civil servants. The main Interest groups are the planners and, as such, are committed to the execution of the plan, both logically and psychologically. Thus, it would appear that the successful execution of Westem-style planning is to persuade those who are to be responsible for carrying out the plan that the plan is really worth executing. The theory is that the executors will need no persuasion as to the worthwhileness of the plan if they are the ones who formulate the plan in the first place. CHAPTER VI FRENCH ECONOMIC PLANNING Economic planning of the Western style finds its most complete development in France. At the same time, it could also be claimed that the French model was the proto type that other national planners have been anxious to copy. For this reason, the French experience is particu larly illuminating to the theory and practice of economic planning. The present chapter thus examines the French model and the French experience with economic planning. Prior to World War II, French economic thought hewed closely either to Classical or Marxian theory. On the one hand, the advocates of the capitalist system held firmly to the belief that economic ills such as unemploy ment would automatically right themselves if only the sys tem were allowed to work. Economic planning was just another form of interference which would merely thwart the equilibrating tendencies of economic forces and thereby make the system worse. Pierre Bauchet summarizes 177 succinctly the attitude of this school of thought. But they [the advocates of a free economic system] still believed that such situations [depres sion and Its attendant spectres of unemployment and poverty] righted themselves automatically, and they regarded planning with mistrust, as one of the many forms of blundering Interference which did more to perpetuate the evil than to remedy It. As for the Communists, their opposition to economic plan ning followed the standard Marxian line. Economic plan ning, as part and parcel of the Communist dialectical process, was acceptable, but, as an economic Instrument In the hands of a democratic system of government It was futile. Consequently, early attempts at economic planning, for example, the establishment In 1936 of a Ministry of National Economy, met with failure. Again It Is to the pressure of economic and polit ical events that one must turn to seek the reason for acceptance of economic planning. In the first Instance, It was depression that paved the way. Planning was seen as one answer to the problem of recurrent crises. Far more Important, however, was the.Impetus that came from the Pierre Bauchet, Economic Planning, the French Experience, trans. Daphne Woodward (London: Helnemann jEducational Books, Ltd., 1964), p. 1. 178 destruction o£ the French economy as a result of World , - ^V. War II. Actually, industrialization, both In the case'of France and Italy, had never reached the stage that it had in the Anglo-Saxon world, but World War II set back France economically and technologically to such an extent that the French were willing to accept extraordinary measures, economic beliefs notwithstanding. The contribution of France in the field of plan ning was not that the French saw earlier than the others what was coming. They were simply determined for their own reasons, having a worse record of stag nation since the late 1920's than any other advanced industrial country, to grow considerably faster than before. Their intellectual contribution was that they did not rely exclusively on increasing the over-all level of investment to achieve their ends, but developed a strategy on a national scale for de ploying this investment at those points in the system where it produced an especially high return.2 I. BASIC FEATURES OF FRENCH ECONOMIC PLANNING Let us grant that the French economic system is correctly classified as a capitalist system, i.e., that it is predominantly a system of private ownership and control of business enterprises, that there is a relatively large role for individuals to make decisions, that economic ^Andrew Shonfleld, Modern Capitalism (New York and London: Oxford University Press, 1965), p. 225. 179 gain is the chie£ motivation, that there are wide areas of freedom of Individual choice, that the primary reliance is upon a competitive price system, and that Income is largely distributed according to economic contribution. Granting this, what are the characteristics of the French brand of economic planning, and how does it differ from economic planning as envisioned by, for example, that of socialists either of the centralized or decentralized persuasion? French economic planning is often described as "indicative" planning as opposed to "imperative" planning. Indicative planning connotes a forecast rather than a directive. The plan indicates in an over-all way the direction the economy should take rather than the setting of specific goals and targets that each individual indus try and firm must achieve so that the plan, as in the case of "imperative" planning, can be achieved. There is a plan, but the plan is not the result of the dictates of a Central Planning Board which is composed solely of government planners. A planning staff, in conjunction with representatives of business, agriculture, and trade unions, jointly draw up the plan. This contrasts sharply with the usual concept of a Central Planning Board. The conventional CPB alone, composed entirely of government planners, is charged with the responsibility of drawing up the goals and targets. The planners alone decidie, for example, what the level of Investment shall be, or what kind of Investment shall be given priority. There is no talk of collaboration with representatives of business, agriculture, and trade unions. Managers are told what the plan is and what is required of their operations. Of course, the degree of comprehensiveness of the plan will vary as between different economic systems, but the fact remains that the French approach to economic planning purports to make an honest attempt at a mutually deter- mined plan. Another important difference between the French system of economic planning and the traditional Socialist or Communist concept of economic planning is the degree to which public ownership of the means of production is ^How honest the attempt is, is not possible to as certain. To this writer, it seems almost inevitable that there must be some attempt on the part of at least some government planners to exercise vigorously a certain de gree of authority should "private1 1 interest not coincide with the planners' views. However, in all the literature there appears to be no mention of this and one can only conclude that this has not been a serious problem. 181 necessary to the system. Socialist and Communist economic systems are characterized by a total, or at least, a very comprehensive degree of public ownership. In France it is true that there is much more public ownership of the means of production than in, for example, the United States. In France, such things as the railroads, the tobacco industry, the coal mines, electricity, gas, tele vision, and radio are all publicly owned. None of these activities is publicly owned in the United States. More over, government ownership in France is important, even though not exclusive, in the automobile industry, the life insurance industry and in banking, to mention only a few of the sectors in which government ownership plays an important role. In the life insurance industry, for example, government-owned companies account for approximately 34 per cent of all companies. Renault, the leading French automobile company, is now government owned. The four leading banks in France, the Credit Lyonnais, the Societe Generale, the Comptoir National d'Escompte, and the Banque Nationale pour le Commerce et 1*Industrie are government owned and operated. Again, compared with the United States, where virtually all insurance companies, all automobile companies and all banks are privately owned, government ownership looms large. But there are large areas where private ownership Is the dominant form of enterprise. For example, Individual ownership In French agriculture Is universal. Indeed the effect of Individual ownership In French agriculture has resulted In an un believably low and Inefficient scale of operation and out put. Most Industries, for example, food processing, engineering, textiles, rubber, and that famous product of France, wine, to mention a mere handful, are all privately owned. Thus, French economic planning, unlike, for example, Soviet or even Polish economic planning, has to be conducted largely within the framework of privately owned means of production. II. THE OBJECTIVES OF FRENCH PLANNING Planning In France now has some twenty years of experience behind It. The First Plan (the Monnet plan) was Instituted by a Decree of January 3, 1946 and estab lished the Commissariat General du Plan, headed by a Commls8alre General. Since that time there have been | five plans. The First Plan covered the period 1946 to j 1953, the Second Plan, the period from 1954 to 1957, the 183 Third, the period 1958 to 1961, the Fourth Plan, which covered the years 1962 to 1965, and finally the current Plan, the Fifth, from 1966 to the present time. A perusal of the aims of each of the five plans not only reveals their specific objectives, but, more impor tantly, a sense of the generality and dynamics of economic planning, for, as might be expected, the objectives have changed over time. The objectives of the First Plan were dictated by post-war reconstruction problems. It was a plan for economic recovery and, as such, concentrated on the basic sectors of the economy. With limited resources, mainly in the form of Marshall Aid, the decision was made to in vest in a limited number (six) of basic sectors. The six sectors given consideration were coal, electricity, iron and steel, cement, agricultural machinery, and trans portation. It was felt that reconstruction of these six sectors would result in greater progress than would a modest development in all sectors of the economy, on the premise that unless these sectors of the economy made progress the others would not. How successful the First Plan was is not really I possible to say. Would the increases in production have 184 taken place in the absence of the Plan? Perhaps they would have been greater. There is no way of answering such questions In a definitive statistical sense— the controlled experimental method open to the psychologist Is not avail able to the economist. However, It seems plausible that, had there been no plan, It Is unlikely that Increases In output would have been as large as they were. In any event, two leading French authorities, Pierre Masse, who became Cotnmlssalre General In 1950, and Pierre Bauchet, an economist who worked for the Commissariat General du Plan, seem to be satisfied that the First Plan was successful. With the notable exception of Iron and steel the objectives of the First Plan were more or less attained. By the end of 1953 It was felt that the deficien cies In the six basic sectors had more or less been rectified and that henceforth a balanced growth in all sectors of the economy should be sought. Moreover, not only was quantity important but it was realized that quality and costs were increasingly important, especially in view of the need to be competitive in world markets. There was more emphasis on cost reduction and on research and development. An interesting development in French economic planning at this time was the improvement in French national accounting. Again France lagged behind the Anglo- Saxon world in the development of statistics and in the field of national economic accounts. As recently as the First Plan, objectives were stated in terms of physical quantities rather than economic aggregates because of the inadequacy of data and of statistical technique. Now for the first time, French planning could utilize such appar ently elementary concepts as an aggregate index. The Second Plan seems to have been eminently suc cessful, at least in terms of the growth in national in come and in industrial production. Apparently, however, the Plan was not designed to cope with the attendant problems that so often characterize a rapid rate of eco nomic growth. Import requirements rose rapidly, as did labor shortages and labor costs. These, in turn, resulted in a marked degree of inflation and a severe balance of payments problem, which eventually (in 1958) required the old fashioned remedy of devaluation. The' Third Plan demonstrated the change in the ob jectives of French economic planning. The objective of | increased output was still sought. Economic well being, 186 however, is not simply a question of more output. Monetary instability and a serious balance of payments problem now plagued the French economy and one of the imperative tasks of the Third Plan was to stabilize the franc and to restore the balance of payments. The latter objective was to be achieved by limiting imports and expanding the manufacture of goods suitable for export. Such means are rarely effective and the French situation in 1956-1958 was no exception. The solution finally adopted was devaluation of the franc. This is not to say that economic planning is ineffective; it merely indicates that limiting imports and encouraging exports is no easy task in the absence of some direct motivation. Devalua tion of the currency supplies this motivation, and is as much a part of economic planning as other methods of achieving desired goals. Another problem of the times was that consumption was too high and was threatening investment. The Third Plan called for an increase in investment relative to consumption; investment was to be increased by 28 per cent (over 1956) and consumption by only 24 per cent. More over, the objective of increased capital investment was to be complemented by increased social investment, i.e., 187 Investment In housing, education, and public utilities. As early as the Third Flan (although the real emphasis was to come out more directly in the Fourth Flan) the French were cognizant of another problem, one which was to find its greatest critic in the United States itself,^ namely that of the imbalance between private and public consump tion. Also complementing the objective of more social in vestment was the continued emphasis on more research and development and the promotion of vocational training, already recognized in the Second Plan. This objective was made even more imperative by virtue of the need to provide employment for the number of post-war children who were to come of working age by 1963 or 1964. Two other objectives came into prominence during the Third Flan. First was the necessity of providing technical assistance to underdeveloped countries in the French sphere of influence. In addition, there was the problem of integrating France into the competitive milieu of the then new economic concept of the Common Market, no mean task for a high cost, technically backward, and somewhat protected economy. j 4John Kenneth Galbraith, The Affluent Society | (Bo8ton: Houghton Mifflin Co., 1958). 188 Finally, there was the problem of Paris et les Autres. Probably in no other western country has the eco nomic, social and political dichotomy between the capital and the provinces been so sharply drawn as it is in France.^ The Third Plan, and, more especially, the Fourth Plan had as a distinct objective the encouragement of industry in the provinces and the limitation of the further growth of Paris. The further growth of Paris was to be discouraged by building controls, and by an unfavorable tax on building in the Paris area, while the encourage ment of industry in the provinces took the form of sub sidies, loans and favorable tax treatment. By the end of 1961 the French economy was largely rehabilitated. The balance of payments problem, the last serious economic difficulty, had been rectified and the rapid rate of economic growth (4.5 per cent per annum over the past decade) resumed. Not surprisingly, the objec tives of the Fourth Plan were essentially a continuation of those of the Third Plan, but with still more emphasis on certain qualitative and social aspects of economic **For an excellent discussion of the problem see John and Anne-Marie Hackett, Economic Planning in France. (London: George Allen & Unwin, Ltd., 1963), Chapter IV. 189 well-being. The prominence of these social aspects Is also Indicated by the title of the Fourth Plan--MLe Plan de Developpement Economlque et Social," and by the amount of discussion afforded the subject. This Is not to say that production and consumption were no longer Important. In deed the growth of Gross Domestic Product was planned to be 24 per cent between 1961 and 1965, I.e., 5.5 per cent annually, a rate only achieved In the past during brief periods when a serious Imbalance of payments also existed. The Plan called for a greater Increase In Investment than consumption. Stress was laid on the need for large scale Investment to compensate for the shortage of labor, to maintain the balance of payments and to modernize the armed forces. The Plan specifically eschewed any reduc tion In working hours.^ / As already stated, economic planning Is not merely ^The policy of an ever-lncreaslng GNP per capita Is today all but sacrosanct In every economy. Even the late President Kennedy, presumably on the advice of his eco nomic adviser Walter Heller, rejected the idea that an increase in economic well-being might be taken as an in crease In leisure rather than an increase in goods and services. The reason given for this point of view is ; usually that the nation cannot afford it, although what | exactly is meant by "cannot afford" is never specified. 190 the automatic and unimaginative setting of ever higher targets of production. The Fourth Plan Is a practical manifestation of this, In that It actually called for de creases In output as well as Increases, for example, a reduction of traditional sources of energy--especially coal, the national supply of which was to be reduced from 58 to 55 million tons between 1960 and 1965, and an In crease In fuel oil and gas output. The Plan also called for the S.N.C.F. (the nationalized railroads) to be con verted to diesel fuel and modernized. Private consumption also was to be Increased,^ but again stress was laid on the nature of the Increase In consumption. To quote Pierre Masse on the objectives of the Fourth Plan: The second great target Is the Improvement of the living conditions of the French people. This expres sion does not only refer to Increasing real purchas ing power. The Improvement of living conditions Implies qualitative requirements. The limitations of Industrial civilization are the counterparts of The target for private consumption In 1965 was 23 per cent above the 1961 level, I.e., only one percent age point less than the Increase In total output. 191 its benefits: long journeys between homes and offices, traffic jams, noises, smog, lack of social facilities and of green spaces.** The Plan's qualitative dimension Is seen, for example, In Its somewhat modest projection of 350,000 housing units In 1965— an Increase of only 10 per cent above the 1961 level, In order that housing be more spacious and of better quality. A number of other measures are spelled out In the Plan: modernization of old quarters of towns, changes In real estate legislation, town planning and programs for large urban centers, cultural and health equipment, and scientific and technical research. Particularly Inter esting Is the recognition of this research lag In France. According to the Scientific and Technical Research Com mission, expenditure per head on research In France Is about half that In the United Kingdom and less than half 9 that In the United States and the Soviet Union. Economic planning, as It manifests Itself In the Fourth Plan, calls for change, both qualitative and ®Pierre Masse, "French Methods of Planning," Com parative Economic Systems Models and Cases, ed. Morris Bomsteln (The Irwin Series In Economics. Homewood: Richard D. Irwin, Inc., 1965), p. 222. ^Hackett, o p. clt.. p. 223. 192 quantitative, not just quantitative increases in production and consumption. Another major objective of the Fourth Plan, alluded to already, is that of regional growth. The Plan recog nized that there are and will be disparities between the economic growth of the various regions of France. The solution sought is to arrest the decline of such stagnant regions as Brittany while at the same time being careful not to weaken the dynamic ones such as the Paris region in an effort to redress the imbalance of economic growth. The Plan also calls for assistance to poorer regions and to the underprivileged sections of the community, the aged, wage-eamers, agricultural laborers and students. Pushed to its logical conclusion this goal of the Plan would seem to entail some sort of "national incomes policy" if not one of actual redistribution of income and wealth. However, French economic planning very definitely avoids any such policy. From all accounts it appears that there is very little sympathy for a government policy to regu- / late incomes, especially wages. Neither employers nor the trade unions are in favor of regulation of wages. In the words of the Fourth Plan itself: 193 But because of the social and psychological habits prevailing In the country, and which find a particu larly vehement expression in the legislation on collec tive bargaining, no new measures in this field have been written into the Fourth Plan. Free wage bargain ing which will remain the general rule, will be informed by studies, done in the framework of the national accounts, and put forward for open debate.10 The Fifth Plan (1966-1970) incorporated a new devel opment: for the first time, a draft of the Plan was sub mitted for discussion and approved by parliament before the objectives were defined in detail. The over-all growth rate of 5 per cent adopted for the period of the Plan was slightly lower than the 5.5 per cent established for the Fourth Plan. It was argued that a higher rate for the Fifth Plan would generate inflationary pressures right at a time when the French economy needed to keep prices down to meet increasing international competition, especially from other Common Market countries. The general policy that has emerged out of earlier plans is carried over into the Fifth Plan. French economic planning has aimed to stimulate investment and government spending relative to private consumption. For the Fifth ^Hackett, o p . cit.. p. 221. 194 Flan private business Investment Is to Increase by 5.7 per cent a year, and priority is given to company profits (to increase by 10 per cent a year) so as to enable com panies to finance their own investments. Government expenditures, both military and civilian, are to rise faster than the national product. Military expenditures are to rise by 35 per cent in the five year period. The planned rate of growth for housing is 6 per cent per year. The emphasis on social investment is also to be sustained. Consequently, over-all ex ante personal consumption can only increase by 3.5 per cent a year, and by even less (2.9 per cent) for wage earners. The Plan eschews any decrease in working hours. Whether French planning, as has been suggested, appears to be becoming less compulsory and more indicative, there has been more vocal dissent regarding the role of the Plan in higher government circles. Especially skeptical of French planning, of course, is the French economist Jacques Rueff who believes essentially that France should return to laissez faire. Even if the extreme position of M. Rueff is rejected, It is no secret, either, that the public authorities are divided on the future function of the plan. 195 M. Glscard d'Estaing, [Minister o£ Finance] sees it as hardly more than a backdrop, not preventing anyone from acting in his own way and not even binding the government. M. MAssd, commissioner general o£ the plan, is more ambitious, though he too wants to adapt the plan to the increased freedom of trade implied by the European common market. French planners are hesitating between these two views, while business now seems to take the plan less and less seriously.11 Undoubtedly the Fifth Plan has lost some of the "mystique" surrounding the earlier plans. Moreover, it is to be expected that the nature of French planning will change over time, and with changing economic conditions. It is too early yet, however, to conclude that French planning is demodee. III. ORGANIZATIONAL FEATURES OF FRENCH PLANNING Having looked at the concept of French economic planning and at the historical experience of the first four plans, the question naturally arises, how and by whom is the plan drawn up? A second question is, how is the plan executed and who is responsible for its execution? Let us take up the "who" question first. Which organiza tions are primarily concerned with the plan? First and llnThe Planners' Hand Relaxes," The Economist. December 5, 1964, p. 1119. 196 foremost is the Commissariat General du Plan— a kind of government agency whose function is national economic planning. No such counterpart exists in the United States; the closest body in the United States, and in some ways very much akin to the Commissariat General du Plan, is the Council of Economic Advisers to the President. The Commissariat General du Plan The Commissariat General du Plan is a government agency that was set up in January 1946 by Decree. It is headed by a Commissioner-General who is directly respon sible to the Prime Minister. In addition to the Commissioner-General, his deputy, and the Secretary, there are about forty to fifty senior staff officials. The total staff, including office personnel and drivers is about one hundred and fifty! This in itself is unique, and it is significant that a number of authorities attribute much of the success of the plan to the small size of the staff of the Commissariat General. With such a small staff, it is argued, it is impossible for the Commissariat General to do all the work of planning itself. It is forced to work through other government departments, for example, through the Ministry of Finance. While this probably leads to 197 some duplication of efforts, nobody feels threatened by the Commissariat General du Plan. The result is a spirit of cooperation and a sense of involvement which helps con siderably both in the formulation and execution of the plan. Be this as it may, there can be no denying the objective facts that the staff of the Commissariat General du Plan is extremely small by governmental department standards and that it has to utilize the services of many other people outside its own staff. The work of the Commissariat General du Plan is divided into areas of economic activity, e.g., agricul ture, chemicals, building, energy, iron and steel, etcetera, each of which is headed by one of the senior officials. In addition, there are activities, such as finance, manpower, regional development and productivity which cut across the areas of economic activities mentioned above. The Modernization Commissions If the Commissariat General du Plan is the warp of the plan, the Modernization Commissions are the woof of the plan. In fact, it is these modernization commissions that are the really novel feature of the French system. 198 At the time of the Fourth Plan there were about thirty such commissions. There are two types of commissions, the vertical, of which there are today about thirty-five, and the horizontal commissions, of which there are five. Each vertical com mission concerns itself with a given industry. The five horizontal commissions are responsible for problems that are common to all of the vertical commissions, i.e., man power , finance, research, productivity, and regional planning. There are approximately thirty to forty people on a commission who are appointed by the government. The members are drawn from all areas of the business community and Include heads of businesses, representatives of employers' associations, trade unions representatives, civil servants, and a number of experts. The work of the commissions is supplemented by several working committees, so that in addition to the approximately one thousand people on the various commissions, another two thousand or so people are involved in helping to formulate the plan, bringing the total number of participants to about thirty- five hundred persons. 199 The work of the modernization commissions is, at least In theory, to develop a picture of future economic and social activity for their particular Industry, which represents a consensus of the different Interests. The objective of the work of the commission Is to air and Iron out any differences that may exist* Again, the theory at least, Is to arrive at the widest possible agreement about development prospects rather than to secure a majority of votes. Thus, the French system of economic planning, unlike most other planning systems, attempts to Involve In the plan the major segments of the economy— business, labor, and government-**In a spirit of cooperation. The plan Is not something that Is given to the country by the govern ment as the product of the minds of "1'Administration." Other Bodies The Commissariat General du Plan and the Moderni zation Commissions are by far the most Important organi zations to the French system of planning, but with the growing concern for unequal regional development, "regional action" programs have been successively adopted. However, lack of regional economic administrations have 200 largely prohibited regional organizations from partici pating, to any great extent, in the formulation of the first four plans. The theory is that these bodies shall take part in the preparatory stages of the plan, but there is some skepticism about Whether indeed these regional bodies will ever play the role that conceptually they are supposed to play. In addition to the above organizations, there are a number of technical bodies that are responsible for much of the statistical and analytical work necessary to the plan. There is the Service des Etudes Economiques et Finaneieres (SEEF) which, apart from acting as a general source of information for the Ministry of Finance, is responsible for economic analyses on current problems as they arise. Another technical body is the Centre de Recherches et de Documentation sur la Consonmation (CREDOC) which is responsible for establishing data on consumption, for carrying out research into consumer be havior and for forecasting consumer demand. The collection of economic statistics, for example on prices, on employ ment, etcetera, is the work of the Institut National de la Statistique et des Etudes Economiques (INSEE). Moreover, | INSEE was the training ground until recently for 201 statisticians and econometricians. Apparently the uni versities did not fulfill this function. Finally, there Is the Instltut National d'Etudes Demographlques (INED) which, as Its name Implies, Is primarily concerned with demographic projections of various kinds. So much for the main bodies directly connected with the plan. IV. FORMULATION OF THE PLAN How then, In practice, Is the French system of economic planning put Into operation? What do the Commissariat General du Plan and the Modernization Commissions do? As Implied earlier, planning In France over the past twenty years or so has proceeded In terms of a series of four to five year plans. Every four or five years a new plan Is drawn up and work on the new plan starts a year or so before the old plan Is due to termi nate. The first step In the new plan begins with a pre liminary forecast for the economy. This entails a sepa rate forecast for approximately thirty sectors of the economy, both for the period of the plan (four to five years) and a longer range forecast (ten to fifteen years). 202 The work is carried out by the Commissariat General du Plan in conjunction with SEEF. The forecasts are based on a number of hypotheses and rates of economic growth. The objective is to maximize the rate of economic growth, and to secure full employment, but at the same time maintain stability in the value of money and in the balance of payments. The alternative forecasts, based on different rates of economic growth, allow the authorities consulted to evaluate the forecasts in the light of the above objectives. For the Fourth Plan, the forecasts were based on a rate of economic growth of 3 per cent, 4-1/2 per cent, and 6 per cent. The forecasts are then submitted to the Investment and Planning Section of the Economic and Social Council, a body of persons representing the main economic interests in the nation and established to act in an advisory capa city to the government. This body considers the alter native forecasts and gives its opinion as to the best rate of growth and on any other feature of the plan that it considers necessary. The plan is then submitted to the government, which draws up its instructions to the Commissioner-General on the preparation of the plan, indicating the rate of growth 203 to be used as a working hypothesis , and laying down the principal objectives of the plan. The object of the government's directives is to enable the modernization commissions to carry out their work in a common perspec tive of the economic development of the country. The next step concerns the modernization commissions. They consider and evaluate the general preliminary fore casts in the light of the government's directives. The vertical commissions analyze the conditions of growth in their particular industry, considering factors such as possible new markets, new technology, and the supply and demand for factors of production. The horizontal com missions examine the rests of the vertical commissions for compatibility, i.e., to make sure that fundamental equilibrium (of manpower, balance of payments, savings, and investment) will be preserved. Finally, the reports of the commissions are syn thesized by the SEEF and the Commissariat General du Flan into an over-all report, which is submitted to the govern ment. The government settles any controversial points of policy. After being submitted to a plenary meeting of I the Economic and Social Council, it is finally given to the ^National Assembly and to the Senate for ratification. Conspicuous by its absence is the £act that no mention has been made of the regional bodies referred to above. How does the work of the regional bodies enter the process of formulating the plan? The fact of the matter is that, so far, there has been no real integration of the regional programs into the formulation of the plan. More over, it is not clear, at least to this writer, just exactly how the work of the regional programs is to be integrated into the preparatory stages of the national plan. Some aspects of their work enter into the prepara tory stages of the plan at the point when the horizontal commissions are examining the compatibility of the reports of the vertical commissions. For example, in the case of manpower, regional as well as sectoral requirements are taken into account. However, the general impression that one gets from reading the literature is that the regional programs are a separate development and are ancilliary to the plan. V. THE EXECUTION OF FRENCH PLANNING French planning has been described by its advocates as "indicative" as opposed to "imperative." The impli cation is that execution of French plans proceeds by way 205 of inducement rather than through command. As was noted in Chapter V "The Process of Economic Planning," however, French planning is far more positive than the term "indicative" would suggest. What this means in practice is that, while the French authorities utilize the tradi tional techniques of monetary and fiscal policy that are employed by all economically advanced countries, the French have developed and have made much greater use of specific controls. As such, execution of plans in France is both more conscious and more discretionary than in other major West European countries. To a large extent, the more active execution of planning in France is the result of (1) certain special circumstances, and (2) the French attitude toward the role of government in the economic life of the nation. It has already been noted that, by virtue of the extent of the nationalized sector of the economy, investment in the public sector accounts for as much as one half of the total volume of investment. With such strategic control, as the control of investment, the planners, both through fiscal policy and specific control of important industries I (coal, electricity, gas, atomic energy, air transpor- | tation, the railroads, communications, Renault, the largest 206 automobile manufacturer, etcetera) are able to exert con siderable influence in the implementation of plans. In addition, French planning is unique in that the authorities have particularly close control over the flow of capital funds to industry. In the bond market, the major source of capital is the Caisse des Depots et des Consignations, whose president is a senior official of the Ministry of Finance. While the Ministry of Finance is a separate government agency and is independent of the Commissariat General du Plan, the Minister of Finance also serves as a member of the latter organization. Conse quently, there is a unanimity of purpose between the <two bodies. Capital funds are naturally directed to those firms whose investment projects are consistent with the plan. The Credit National also supplies capital to indus try by purchasing commercial bank loans (medium-term loans up to five years exceeding one million francs, and long term bonds exceeding two and one half million francs). It will buy the paper from the commercial banks only if the Banque de France, in turn, will buy the paper from the Crddit National, if desired. The Banque de France (France'8 central bank) is also independent of the Com- ; missariat General du Plan but again, since there is a close 207 liaison between the Banque de France and the Commissariat General du Plan with regard to the plan, the Credit National advises would be borrowers to get the prior approval of the Commissariat for the prospective loan. In the securities market any new issue exceeding one million francs (the minimum practical issue) requires the approval of the Treasury, a department of the Ministry of Finance. This again is tantamount to getting approval from the Commissariat General du Plan. In short, in order to raise any substantial amount of capital for new investment, the Investment plans of French companies have to be in line with the aims of the plan. Execution is also effected through a variety of specific controls, one prominent form of which is govern ment subsidy. Air transportation (Air France) is sub sidized by public money, as is aircraft construction. La Concorde, the first commercial supersonic aircraft being built as a joint Anglo-French venture is largely financed by government subsidy— British and French. Low interest loans are granted to companies which agree to establish plans in those less developed regions designated i by the planners. A whole host of tax concessions can be | granted by the Authorities. For example, to stimulate 208 exports, firms are given especially favorable depreciation allowances if they export more than 20 per cent of their production. Building permits and heavy tax assessments are used to discourage companies from building new plants in the Paris region. Unlike the British, French planners are not reluctant to discriminate among firms in the interest of carrying out the plan. VI. APPRAISAL OF FRENCH ECONOMIC PLANNING Before attempting any conclusion or evaluation of the French system of economic planning, it should be made clear what it is that is under consideration. The subject of this chapter is not planning per se. Although in Chapter III considerable attention was devoted to the meaning of planning, this was incidental to the subject proper, namely, the West European system of economic planning. What is under discussion then is not the ques tion of whether planning is or is not beneficial to the French economy. That question is not relevant here. The fact is that France has opted for a form of economic planning. Thus the issue is rather, the pros and cons i of the particular form of planning that the French have | developed. 209 Another somewhat related but separate Issue also needs to be dispensed with. Those who are sympathetic to economic planning tend to attribute France's economic re covery since World War II and her present healthy economic condition to the plan. Those who are less enamored with planning take refuge in the hypothesis that recovery might have been even faster and that economic well-being might be even greater were it not for the plan. Such conjecture might be intellectually interesting and stimulating, but it is operationally fruitless to consider them. The case cannot be proven one way or the other. No attempt is made here to prove that the French system of economic planning has made the French better off than they would have been had the plan not been adopted. Having rejected any attempt to prove that the plan is responsible for a superior economic condition, one can examine critically some of what might be termed the plausible hypotheses of those who are sympathetic to the French system of economic planning. For whatever reasons, there is general agreement that France (and incidentally Italy) lagged behind the Anglo-Saxon countries in its industrialization and • economic development. Whether the reasons for this 210 relative backwardness are attributed to certain objective facts such as the lack of some critical raw materials,** or to the character and mentality of the French entre preneur,*2 one very significant result was the relative lack of Investment In the French economy as compared with that In Great Britain, Germany and the United States. The key role that investment plays in economic development is now well understood, at least by those who are more sophisticated in economics. Traditionally, while among the most thrifty of people, the French have failed to accord investment, as opposed to savings, the role that it has been given in the Anglo-Saxon countries. Mot sur prisingly, the relative lack of investment on the part of French private enterprise, has been accompanied in a later day and age by a similar and parallel attitude toward innovation (or to use more modern technical terminology, **Rondo E. Cameron, "Economic Growth and Stagna tion in France, 1815-1914," The Experience of Economic Growth Case Studies in Economic History, ed. Barry E. Supple (New York: Random House, Inc., 1963), pp. 328-339. 12 David S. Landes, "French Entrepreneurship and Industrial Growth in the Nineteenth Century," The Experi ence of Economic Growth Case Studies in Economic History, ed. Barry E. Supple (New York: Random House, Inc., 1963), pp. 340-353. 211 research and development), the dynamic force behind eco nomic growth. If this Is accepted as a reasonably accurate explanation of why France fell behind other western coun tries In the level of economic development, then the theory that the plan has accelerated the rate of economic growth Is very plausible. The mere fact that the plan focuses attention on the problem, It can be argued, would tend to Increase economic growth. As has been noted, the French themselves have come to realize that their Investment per capita In research and development has been considerably behind that of the United Kingdom and the United States. In a similar vein John and Anne-Marie Hackett conclude: It is not unreasonable to suppose that this high rate is Itself a general stimulant and that it is accepted with less reserve than would be the case if each branch, or firm, set up its own projections for the growth of the economy. . . .*3 More important is the fact that the plan can consciously influence the level of investment, particu larly, as in France, where the public sector normally accounts for as much as half the total volume of invest ment. Where private enterprise has traditionally not been ^Hackett, op* clt.. pp. 367-368. investment oriented, there is no reason to suppose that, left to its own devices, it will change its attitude. A planning body such as the Commissariat General du Plan is far more likely to realize the necessity for a high level of investment than are the individual economic interests concerned. It can indicate the levels of investment re quired from each sector and, provided these levels are not unreasonably high, can at least have the modernization commissions consider and respond to the suggested targets. Thus, it is not unreasonable to hypothesize that the plan does have a positive effect on the performance of the economy. What then is peculiar to the French system of eco nomic planning? What for example distinguishes it from the Soviet or Polish brand of planning? Probably the most important thing and the truly novel feature of French economic planning is the system whereby all the economic interests of the country are brought into the planning process. The plan is not the product of a Central Plan ning Board composed exclusively of government officials and whose directives are virtually commands to be followed by industry and plant managers. Senior staff members of the Commissariat General du Plan are of course government 213 officials even though they are from a wide variety of backgrounds. They are responsible for drawing up the initial forecasts in conjunction with the staff of the SEEF. The modernization commissions and their working committees on the other hand are very heavily weighted by non-governmental members. For example, for the Fourth Plan the total membership of the commissions and their working parties were as follows: Farmers 107 Heads of Businesses (including craftsmen) 715 Civil Servants 781 Trade Union representatives (industry & agriculture) 281 Representatives of employers' associations 562 Miscellaneous (experts) 691 The philosophy of the French system is to attempt to leaven the work of "government planners" with that of the main private economic interests in the country. This contrasts very sharply with most other systems which draw almost exclusively on the talents of governmental staffs. Of course this is the philosophy and not necessarily the practice of French economic planning. Regardless of the actual practice, presumably the intent is a bona fide desire to make the plan the product of private interests as well as of the plans of government officials. Another aspect of this philosophy is the principle 214 of Involvement. Uppermost in the thinking of those who conceived the French system, especially of its chief architect, Jean Monnet, was the psychology that those on whom the fulfillment of the plan would depend should help to formulate it and thus convince themselves that it was worthwhile. Experience seems to have shown that the plans owe much of their success to the active cooperation of the commissions, which afford an example of direct democratic action, supplementing the parliamentary system. On the other hand this increasing reliance on organized groups is not without its dangers. Bauchet's perceptiveness in this connection, undoubtedly gained from first-hand experience, is particularly apropos. National and regional contracts between the various interests and the Administration lead to something resembling a corporative system, which may create a kind of mutual agreement to the sole benefit of the leaders of the different camps. Organized interests obtain privileges, at the expense of those which are not organized, and sometimes against the general interest. Problems are settled without reference to Parliament; they are removed from political control. The public left in ignorance, loses Interest and gradually accepts changes of policy by which the Civil Servants and the economic leaders, unsupervised, exceed the limits of their political responsibilities. Recent history has shown the threat of totalitarianism in the corporative syst e m . ^ ^Bauchet, o p. cit.. p. 120. 215 A further distinguishing feature of French economic planning, in contradistinction to socialist planning is that it is indicative rather than imperative and is essen tially an over-all guide for the economy. No attempt is made to draw up plans for individual plants or firms. Managers of plants are not given specific output targets as under Soviet-style planning. Nor does the Commissariat General du Flan have the responsibility of setting prices so as to equate the supply and demand for each good or to see that managers of enterprises and industries accept the "parametric" function of prices as in the Decentral ized Socialist planning model of Oskar Lange.The French system is to persuade the industry to achieve a level of output which it, itself, had helped to determine. Moreover, the method of persuasion is also very different from that found in socialist economic planning. There are no penalties if goals are not achieved. Plant and industry managers are not dismissed and replaced if targets are not ^Oskar Lange, "On the Economic Theory of Social ism," Comparative Economic Systems Models and Cases, ed. Morris Bomstein (The Irwin Series in Economics. ■Homewood: Richard D. Irwin, Inc., 1965), pp. 86-94. 216 fulfilled. Enforcement is attained through the use of subsidies, taxation, low interest loans, building permits, and other fiscal and monetary policies. A belief that, if the interested parties have themselves helped to determine the goal, the goal will most likely be achieved, is the major factor of enforcement. The French system is also characterized by a very Galbraithian attitude toward consumption. Repeatedly reference is made to the necessity of improving the quality as well as the quantity of consumption. The desire to avoid the "gadget economy" is almost obsessive. In raising the standard of living, the yardstick of an ever increasing amount of disposable real income per capita is rejected. Stress is laid on the need for an increasing amount of collective consumption. There is a certain re gretful apology about the "excessive" increase in auto mobile production and consumption. At the same time, however, the failure of the plan to forecast correctly and to limit automobile production attests to the indicative, rather than imperative, nature of French economic planning. The planners have wisely conceded the almost ubiquitous ; desire to possess "une auto." One of the virtues of the French system, as 217 perceived by most authorities, stems from the lack of direct authority of the Commissariat General du Plan. However, Pierre Bauchet, certainly one of the most knowl edgeable authors on the French experience, takes Issue with this view. He contends that the plan has failed to bring about a consolidation of the economic departments of various ministries which pursue parallel alms. Moreover, It isr liis contention that the failure of the plan to act as an overriding authority for the arbitration of disputes led to the formation of Interminlsterlal commissions, all of which struggled to occupy the vacant position of co ordinating authority, creating an unsatisfactory situation. The Commissariat General du Plan, while something more than an advisory board, Is something less than a real center for the coordination of economic policy. Conse quently, every ministry retains Its prerogatives and tries ‘ to push ahead with Its own projects and set up new bodies for the purpose, regardless of duplication. Thus the responsibility for foreign trade, technical assistance, territorial development and the supervision of public corporations and decentralized community schemes Is di vided between a host of authorities, making It Impossible ! to devise an over-all policy for major problems such as 218 coordination of transport, loans, etcetera. Bauchet's solution is coordination at the highest ministerial level, perhaps under the leadership of a super-Minister for Economic Affairs, through a small panel of ministers headed, not by the Finance Minister, but by a Minister of Planning and Productivity. Bauchet's point is undoubtedly sound, that is sound logically, but given the modus operand! of civil services in all western political democracies, there is no guarantee that his proposal would be any more successful than the present system. Minis terial prerogatives are deeply rooted and are not changed merely by logic. The work of the modernization commissions in prac tice also leaves something to be desired. The theory is that the commissions study the preliminary forecasts of the Commissariat General du Plan and submit a report, presumably modifying or qualifying the preliminary fore cast, in the light of the experience of the representa tives of the respective industry interests. Apparently some reports degenerate into claims, demands for financial facilities, tax relief or the amendment of regulations, to the neglect of creative analysis and proposals. One other point of critical note concerns the work 219 of the regional bodies. The work of these bodies has yet to be fully Integrated Into the plan. More often than not, the regional development associations are simply a screen for the big organizations In Paris. Local authorities have less and less control over the decisions of private finan ciers, especially with the ever greater centralization of the banking system. In spite of the recognition of the concentration of so many economic activities into the Paris area all attempts to arrest this movement appear to be futile. Evidently consultation of local groups is slowly becoming an empty formality. The somewhat critical tone of this evaluation of French economic planning should not be construed as a negative sentiment. The intent has been to look at the French experience realistically. All too often writers appear to present a very one-sided view of the subject, which tends to detract from the positive features of the plan. In the final analysis, the judgment must be that the French system of economic planning is a new and genuine attempt to apply reason and foresight to the ordering of human affairs and the attainment of human goals, within a framework of individual choice and freedom. CHAPTER VII THE LIMITATIONS OF ECONOMIC PLANNING The real issue, it has been argued, is not "to plan or not to plan," but how large the range of the state's activities should be, i.e. , what decisions are best entrusted to the planners and which are best left to individuals. Having once decided the appropriate sphere of activities to be entrusted to the central authorities, a number of problems are still left unresolved for Western** style economic planning. For example, We8tern**8tyle planning has to be carried out within a framework of democratic institutions, both political and economic, which often provide a restraint on the planners and the planning process. In this sense, Western-style planning is more difficult to conduct than Soviet-style economic planning. To mention but two constraints in illustration of this point, Soviet planners are not hampered in their planning endeavors by a strong and independent trade union movement. Even more Important, their plans are not subject 221 to the prerogatives and the required approval of a legislative body which has the power of veto. The fact of the matter is that Western-style economic planning is sub ject to a number of restraints which limit the process of planning and often its effectiveness. In order to analyze the limitations of economic planning, the discussion is organized around the following topics: (1) the framework of democracy; (2) the economic environment; (3) theoretical and applied economic difficulties; (4) problems of execu tion; and (5) the political framework. I. THE FRAMEWORK OF DEMOCRACY Whatever other advantages democracy may have, it imposes a severe limitation on the process of Western-style economic planning. Unlike Soviet planners, economic plan ners in West European countries have to plan through the cooperation of hundreds of interest groups in both the private and public sectors. Soviet planners are able to direct the activities of virtually every economic unit in a much expanded public sector. Whereas Soviet-style plan ning proceeds essentially on the basis of directives, supplemented by incentives, the modus operandl of Western- style planning is persuasion, albeit persuasion backed at 222 times with government incentives and deterrents. In the first place, of course, there is virtually no private sector which the Soviet planner has to take into account. The instruments of production are publicly owned and the management of the factory or plant is responsible to the state, not to a board of directors which in turn is responsible to the stockholders of the company. The inter- ests of these two groups are very unlikely to be the same as those of the state. Indeed, they are often in direct conflict. The government may wish to hold down prices in order, for example, to alleviate pressure on the balance of payments, while at the same time management is pressing for a price increase, occasioned perhaps by an increase in wages won by a labor union. In Professor Chamberlain's terminology, "There is considerably more room for a dis parity between the objectives of the system and those of sub-systems within the system."^ Moreover, in so far as an "incomes policy" is a significant element in economic planning, there is a fundamental conflict between the private sector and economic planning. Basically, Hieil W. Chamberlain, Private and Public Planning (New York: McGraw-Hill Book Company, Inc., 1965), pp. 9-10. 223 shareholders look to the management of those companies In which they invest to seek the highest dividends possible compatible with other corporate objectives. Labor unions are specifically organized for the purpose of influencing income distribution, in an adversary role. Not surpris ingly, labor unions are not favorably disposed to an "incomes policy." The government is faced with the task of persuading all groups that such a policy is, in the long run, to the mutual benefit of everyone, including the group appealed to. Virtually, this is an impossible task. The United States guidelines policy, which attempted to restrict wage increases to over-all increases in produc tivity, attests to the lack of acceptance of such an unrealistic assumption. The policy was ineffective and never had any hope of being successful. Very shortly after its promulgation it fell into desuetude. The fact that economic planners in West European countries do not stand in an hierarchical relationship to the private sector, except in certain cases, is a major limitation on the effectiveness of economic planning. The cooperation of the private sector cannot always be guar anteed. There are going to be times when such cooperation fails. Business confidence may be shaken, either because of the government'a economic policy or because of some political event, so that investments are delayed or produc tion is curtailed regardless of tax concessions or low interest rates. There may be a farmers' revolt, as there was in France in 1965, because of dissatisfaction with the government's agricultural prices policy, or a labor union general strike in spite of the recommendations of impartial arbitration. These possibilities are foreign to Soviet economic planning. Part of the price of democracy is the greater uncertainty in efficiency that Western-style economic planning (as opposed to Soviet-style planning) affords. This is not to say that the price is too high. Democracy may be regarded (as it is in most West European countries) as a very valuable objective of society, in which event the limitation it imposes on economic planning may well be justified. 11. THE ECONOMIC ENVIRONMENT There would appear to be a strong negative correla tion between the economic situation and the receptiveness to economic planning. When economic conditions are weak, there is a greater probability that the authorities will be more inclined to consider the merits of economic 225 planning* In the case of France, the post-war economic malaise, coupled with the recognition of having a worse record of stagnation since the late 1920's than any other advanced Industrial country, led the French to the view that faster recovery and growth could be achieved through economic planning. In Great Britain It was the poor show ing of the country'8 rate of economic growth and the desire to escape from the cycle of "stop-go" policies that finally led the government (a Tory government at that, with a tradition of anti-planning) to adopt economic planning. The prospect of a serious problem of unemployment, in a relatively poorly developed industrial country compelled the Dutch to adopt a policy of wage control and subse quently of economic planning. It was the slow rate of economic growth during the years 1955-1961 that occasioned the Interesting statement by the late President Kennedy, as noted by Shonfleld. Speaking at his press conference on 24 May 1962 about the problem of accelerating U. S. economic expansion, he said that he had asked the Council of Economic Advisers 'to consider particularly the case of France which has had rather extra ordinary economic vitality' in order to see 226 whether this might suggest the reasons and the possible remedies for the slow growth of the American economy.2 Given the over-all economic environment and the fact that a country has committed itself to some form of eco nomic planning, there are still a number of limitations imposed by the particular economic environment of that country. One of the most important of these is the extent to which international trade plays a part in the life of the nation. International Trade and Economic Planning To some extent every country engages in foreign trade, but for some countries foreign trade is a more sig nificant component of the national product. Table III presents exports and Imports as a percentage of Gross National Product for a number of West European countries and for the United States. Countries can be arranged on a continuum with respect to the part international trade plays in the economic life of the country. At one end of the continuum is Luxembourg, where exports and imports as a percentage of its Gross National Product are both of the ^Andrew Shonfield, Modern Capitalism: The Changing Balance of Public and Private Power (New York and London: Oxford University Press, 1965), p. 74. TABLE III EXPORTS AND IMPORTS AS PERCENTAGE OF GROSS NATIONAL PRODUCT~ 1950, 1955, 1960, 1964 Country Exports Imports 1950 1955 1960 1964 1950 1955 1960 1964 Luxembourg 97.8a 84.5 90.6 N.A. 79.5a 80.9 78.8 N.A. Netherlands 43.0 49.6 52.9 49.6 49.5 47.1 49.9 50.7 Norway 39.1 41.5. 42.3 42.6 45.1 45.1. 45.1 43.9 Ireland 35.7 36.0 36.5 37.3 46.1 39. lb 38.5 42.0 Belgium 29.4C 33.8 34.9 38.6 29.0C 31.8 34.7 38.6 Denmark 27.3 33.2 33.1 31.1 31.2 32.5 34.0 33.2 Switzerland N.A. 30.6 32.4 31.1 N.A. 27.8 30.5 32.6 Sweden 25.7 27.0 27.2 26.3 25.1 27.8 28.1 26.3 Austria 15.2 21.1 24.0 25.6 19.5 22.5 25.4 25.8 United Kingdom 27.1 24.7 23.1 21.6 24.9 25.4 23.6 22.1 Germany 12.2 20.3 21.2 20.2 13.4 18.0 18.8 18.9 Italy 11.1 12.5 17.1 18.0 11.8 13.4 16.8 17.2 France 16.4 15.8 15.9 14.5 15.6 14.3 14.2 14.6 United States 4.8 4.9 5.3 5.8 4.2 4.6 4.5 4.5 a1952; b1954; c1953; N.A. - Not Available Source: Organisation for Economic Co-operation and Development, National Accounts Statistics 1955-1964 (Paris: The Organisation), 1966; and Statistics of National Accounts 1950-1961 (Paris: The Organisation), 1964. to order of 80 to 90 per cent. At the other end of the continuum is the United States, where the comparable per centages are approximately 5 per cent. It is evidently clear from Table III that foreign trade is relatively more significant in the Netherlands and Norway than it is in Italy and France or than it would be in the United States. In addition, since import and export prices are largely exogenous variables, they are apt to be more volatile and less predictable, and in any event less susceptible to control than the domestic variables. Domestic consumption, domestic Investment, government spending, and government taxes can be manipulated by the authorities; there is some control over these variables. Some control can be exer cised over exports and imports through a variety of devices— export subsidies, purchase taxes , import restric tions, foreign exchange restrictions, etcetera. But, by and large, export and import prices have to be taken as given and outside the control of the planners. If export prices decline.because of a drying up of overseas demand, or if the price of necessary imports rises because of world market conditions, there is little that a government can do, at least in the short run. For this reason it is much more difficult to plan in an open economy than it is 229 in a relatively closed economy. Professor Wilson argues that economic planning in France was helped by the exist ence of a sellers' market and by heavy protection against foreign competition. . . • some time will be required in order to deter mine whether planning of this kind can be made to work without a sellers' market and without strong protection against foreign imports.3 It may be that other planned goals, such as economic growth and full employment, have to be sacrificed tempo rarily in order to correct a deficit in the balance of payments. Such was the case in France during 1958-1960 and more recently in Great Britain during 1965-1967. For this reason, among others, economic planning at the inter national level, by such organizations as EEC, EFTA and even the OECD, may well be the next step. Technological Change and Economic Planning The other major limitation to be noted is that of technological change. Technological change can outdate plans very rapidly. Thus, planning in a relatively static economy is far easier than it is in a dynamic, rapidly ^Thomas Wilson, Planning and Growth (London: Mac millan and Company, Ltd., 1964), pp. 3-4. changing one. It Is partly for this reason that planning In a relatively less developed country or In a country recovering from a war can be more certain In Its effects than In a highly developed economy, which has experienced a long period of uninterrupted Industrial development and Is characterized by rapid technological development and Innovative Investment. The point has already been made that countries starting from a lower level of economic development have much to gain merely by copying those more advanced In their development. There Is no need for them to embark on risky, earth-breaking investments because so much "conventional" investment needs to be built up or replaced first. Thus, in Europe after World War II, the task of economic planning was easier by virtue of the fact that much of the capital investment required was of the "conventional" kind. When such investment has been substantially ful filled, however, investment takes on more of an innovative character. The quality of investment changes. Mich more effort is devoted to research and development, the results of which are far less predictable than those of the more "conventional" kinds of investment. In an atmosphere of rapid technological change, the planners' forecasts, and 231 their ability to guide the economy in accordance with the plan, is much more limited by virtue of the increased level of uncertainty attendant on rapid changes in technology. The implication in both cases, where foreign trade is a significant component of the national income, and where technological change is extensive, is that forecasts and plans are more likely to be invalidated. Consequently, revisions will have to be made. A revision of plans, how ever , is nothing which signifies a failure of the planning process. Indeed, revisions should be expected as a normal part of planning. Of course, if revisions are too rapid, then the plans become ineffectual, signifying the inability of the planners to bring about the desired objectives. III. THEORETICAL AND APPLIED ECONOMIC DIFFICULTIES Planning, even of the indicative type, is not a simple matter. One of the claims of French economic plan ning, for example, is that it is carried out by a rela tively small staff with somewhat limited resources. A cursory reading of French economic planning gives the impression that the whole planning process is quite simple. The truth of the matter is that, even though far less comprehensive than Soviet-style planning, Western-style planning is still very complex. Consider, for example, the French Fourth Plan. More than two years of detailed preparation went into drafting the plan before it was pre sented to the Assembly and the Senate. First, an econo metric model was developed in which several alternative statistical projections had been sifted through the matrix of an input-output table of twenty-eight cells. The alternatives were then examined by the professional staff of the Commissariat General du Plan and subsequently by subcommittees of the Conseil £conomique et Sociale. After selecting a rate of economic growth, projections were further refined into a sixty-four cell input-output table, which formed the basis for the discussions of the twenty- seven "commissions de modernisations." The results were then reviewed by the Commissariat General du Plan, consolidated and again made internally consistent. They were then approved by the Conseil Superieur du Plan and by the Conseil £conomique et Sociale. The end results were volumes of statistical and policy analysis which were functionally interrelated, so that the whole formed an integrated system— a massive amount of work representing the labor of some 3,000 people. 233 All this expertise and sophistication of economic theory and statistical technique still leave much to be desired. Jan Tinbergen has suggested that, "As with any economic activity, planning should be carried on to the point where marginal revenue equals marginal cost Yet even so elementary a concept as equating marginal revenue and marginal cost is operationally impos sible in the real world. Probably no business, even where conceptually the problem is a clear-cut case of equating marginal revenue and marginal cost, is ever able to do this in practice. It still involves a process of trial and error and a very subjective judgment as to whether the equating has been achieved. Elegant and helpful as they are, econometric models, input-output tables, multiple regression analysis and linear programming, are operation ally an arsenal of very imprecise tools in the planning process. The thousands of unknown variables, and some of the known ones, which cannot be quantified, never enter the system of equations. The result is a partial solution ^Jan Tinbergen, Central Planning (New Haven and London: Yale University Press, 1964), p. 50. 234 based on partial knowledge. Economic planning is still very much an art. IV. THE PROBLEMS OF EXECUTION Under Soviet-style planning, the execution of eco nomic planning is effected in part by specifying what each plant or factory is to produce and how the product of each plant is to be distributed. This involves a gigantic practical problem in logistics, and undoubtedly mistakes are made. There will be shortages in some areas of eco nomic activity and surpluses in others. Planners operating in any kind of economic system will make mistakes. How ever, in theory, Soviet planners can control the production and distribution of the national product because they can specify the inputs and outputs at the factory or plant level. Under indicative planning, the plan does not lay down quotas or targets for the individual firm. Plans are drawn up at the national and/or industry levels only. Moreover, not all industries are covered by the plan. The question arises then, how do the plans really get carried out? Plans at the industry level are necessary, but the fact remains that the plan has to be translated into action 235 by individual managements. Where the industry is highly oligopolistic, no great problem exists, since the industry is dominated by a few very large companies with which the planners can keep in close touch. Such is the case in the Netherlands. Where, however, the industry is not dominated by a few companies, a real problem exists. How are the plans enforced? The truth of the matter is that nobody really knows. A number of authors have raised this issue. For example, Professor Wilson, commenting on French plan ning, writes: Suppose output targets to have been set for a number of basic chemicals and corresponding programmes for investment to have been prepared. How is this investment subsequently shared between the relevant firms? A similar issue arises in deciding whether a firm is conforming to the plan faithfully enough to deserve assistance in obtaining finance. Once again it is necessary to determine what the industrial target ought to imply for the firm in question. It is far from clear how this transition from commodity to firm is made in France, but there is clearly some danger that market sharing will be encouraged and competition will suffer.5 Another limitation to the execution of economic planning concerns the extent to which governments are com mitted by their philosophies to the use of general as opposed to selective measures to enforce the plan. ^Wilson, op. cit.. p. 41. Generally speaking, the United Kingdom, the Netherlands, Sweden and Germany (and Incidentally, the United States) support general measures, relying heavily on fiscal and monetary policy, on the ground that selective measures are discriminatory. On the other hand, France, Norway and Italy tend to favor and accept more readily the use of selective measures, In the belief that the market does not work In such a way that all sectors respond equally to general measures. Under the first French plan, Indeed, the philosophy held was that certain sectors had to be devel oped more rapidly than other sectors (for example, agricul tural machinery, energy, transportation) because they were more Important to rapid economic expansion and may not have reacted to general Inducements as rapidly as other Indus tries (for example, the automobile Industry, housing) which were regarded as far less significant to the policy of stimulating economic growth. On the whole it would appear that to achieve execution of economic plans, governments have to employ selective measures in addition to general measures simply because fiscal and monetary policies are too gross in their impact and may well fail to achieve the desired end while at the same time they may disturb the other areas of 237 equilibrium. For example, if there is a problem of regional unemployment, increasing the level of government expenditure might not significantly increase employment in the depressed region but might serve instead only to create a shortage of labor and possibly exert inflationary pres sures in those regions which formerly were in equilibrium. If the problem is one of regional unemployment, a more efficient and certain course of action would be for the authorities to offer firms special inducements to locate their plants in the designated region. Such inducements can take the form of a subsidy, low interest loans, pref erential tax treatment, etcetera. The inadequacy of relying on the general measures of fiscal and monetary policy is well understood even in those countries which tend to favor their use. For example, in the United Kingdom, consumer installment credit is controlled, not only by such broad instruments as inter est rate policy and fiscal measures, but by the selective measures of terms control and what has come to be called control by Governor's letter. Terms control, which is a statutory control adminis tered by the Board of Trade , regulates the minimum down payment and the maximum repayment period for a range of 238 goods sold under hire purchase or sales contracts, or under rental or leasing agreements. The advantage of terms con trol Is that it is a quick-acting and highly effective instrument. In 1966, when the minimum down payment for automobiles was raised from 25 per cent to 40 per cent, and the maximum repayment period reduced from 27 months to 24 months, this measure had a marked and rapid impact. Within six months, total installment debt fell by 12-1/2 per cent. Control by Governor's letter has no formal statutory basis. Banks and major finance houses in the United King dom are asked (directed) to see that their total business outstanding as of a certain date is no higher than a certain percentage of the total at a specified prior date. This kind of control is particularly amenable to the spirit of indicative planning. It allows banks and finance houses to rearrange their business within the total set. They are asked to give priority to their industrial lending and to lending which promotes exports. The main disadvantage of the Governor's letter type of control is that it inhibits competition; it penalizes everybody regardless of effi ciency. It therefore becomes increasingly unsatisfactory if applied for more than a limited period.. Moreover, it 239 draws heavily on the good will of the finance houses toward the authorities, which can be strained by the existence of a relatively few non-conformists. If it is evident that monetary and fiscal policies are inadequate in the execution of economic planning, it is also evidently clear that selective measures are no panacea either. The fact of the matter is that the execution of economic planning runs into a number of problems and calls for careful economic analysis and a considerable degree of judgment. V. THE POLITICAL FRAMEWORK Thus far most of the limitations to economic plan ning discussed have been of an economic nature concerned with institutional, environmental, and technical con straints imposed on the planning process. Yet some of the most severe restraints on Western-style economic planning are rooted in the political framework in which it has to be conducted. Again, it is worth noting that the difficulties arising as a result of having to work within the usual political arrangements found in West European countries are not germane to Soviet-style planning. Essentially, the restraint imposed on Western-style planning lies in the 240 dichotomy between the legislature and the executive and on the relatively short duration o£ legislatures. Since this dichotomy does not exist in the Soviet Union, where the two bodies coalesce into one and the legislature is virtually continuous, the attendant problems do not arise. How then does the separation between the legislative function and the executive function, together with the short life of the typical legislature, impose limitations on the process of economic planning? The Restraint Imposed bv the Legislative- Executive Dichotomy Traditionally, it is the prerogative of the legis lature to authorize executive action. If, for example, the executive deems it necessary to increase taxes or increase government spending, it cannot do so on its own initiative. It has to seek the approval of the legisla ture because the legislature insists on its customary right of approval. Often, prompt action needs to be taken to correct or to avert an economic situation which, if neglected, may later require more drastic action. Yet the typical legislative procedure for approving such action is very slow; often it takes months, by which time the 241 necessary action might be largely or totally Ineffective. What has been proposed and adopted In some countries Is a measure of executive discretion. The executive Is allowed to Initiate action, within certain limits, without first having to seek the approval of the legislature. For example, in Sweden and in the Netherlands, the government can draw upon emergency budgets. In England, the govern ment is permitted to alter tax rates without the prior approval of parliament. Of course, this grant of executive discretion involves the transfer of authority from the legislature to the executive, a process which weakens still further the legislature's role as the representative of the will of the people. It would appear, however, that the demands made upon the modern legislature within the time available to it dictate that additional compromises will have to be made. The "Important goals" which Western societies are demanding of their governments, particularly with respect to growth and employment, require adminis trative flexibility and expert knowledge. If those goals are to be achieved, the legislature can no more afford to limit the discretion of the government as chief economic executive than a corporate board of directors can afford to limit the discretion of its management in the achievement of a desired rate of return on Investment .6 ' ^Chamberlain, op. cit.. pp. 227-228. 242 The Restraint Imposed bv the Short Life Span of the Legislature In West European countries, the typical legislature is elected for a period of up to four or five years. Thus, there is no guarantee that the new legislature, especially if the new government is headed by the former opposition party, will continue the economic plans of the previous legislature. A case in point is the steel industry in the United Kingdom. It was nationalized under the Labour Government after World War II. When the Conservative Party was returned to power it was returned to private ownership in 1953. It was again nationalized in 1967 with the return of the Labour Party. How can long-range economic planning be meaningful if subsequent legislatures cannot be expected to continue the economic plan of their predecessors? One device formulated by the French is the program law. Program laws guarantee the bodies responsible for their execution a fixed amount of money for the duration of the plan. Thus, program laws transcend the ordinary fiscal budget so that the legislature cannot cut the appropriation for the plan as it can for other government activities. While program laws solve the problem for projects of the duration of the plan, i.e., for four or five years, longer term programs which go beyond any one plan are not thus protected. Such long-term programs as the expansion of education, which may have a time horizon of ten or twenty years, may be reduced or redirected by a subsequent legis lature. Long-term planning in the public sector is thus likely to involve some further relinquishment of control by the legislature to the executive; but until such time as this happens the short term of legislatures in West European countries limits the effectiveness of economic planning. The Status of the Planning Agency Typically, and until quite recently, the planning agency has been a subdivision of some other government agency such as the Ministry of Finance or the Treasury. The Planning Commissioner or Director rarely, again until quite recently, had cabinet status. Moreover, the plan did not control or integrate the actions of the other ministries. As was noted in the discussion of French planning in Chapter VI, for example, the Commissariat General du Plan, while something more than an advisory board, is something less than a real center for the co-ordination of economic policy. Consequently, every ministry retains its prerogatives and tries to push ahead with its own projects and set up new bodies for the pur pose , regardless of duplication. Thus, the work of the planning agency, i.e., the plan, is often regarded only as another piece of advice which contributes to but does not determine government economic policy. The plan and govern ment policy are not one and the same thing. This somewhat incongruous state of affairs probably is the result of a reluctance to elevate the Planning Commissioner above the Minister of Finance or the Chancellor of the Exchequer, which are old established positions of great prestige. Whatever the reason, it reflects a misunderstanding of the planning function. which is to be distinguished from the planning agency. Whatever it is called, and whoever is made responsible for the planning function, if economic planning is to be effective it has to have the full support of the chief executive and it should be the instrument through which government economic policy is formulated. A government must accept its own plan. Professor Chamberlain puts the matter thus: The only plan which can be effective is one which motivates the government itself and which instructs all its branches and agencies. Such a plan can 245 emanate only from the highest authority— the president or prime minister, not from a planning commissioner who has no responsibility to a constituency.7 The full appreciation of this need has only very recently come to be recognized and until it is fully accepted, the effectiveness of economic planning will continue to be limited by the failure to understand the logic of the planning function and accord the planning agency the proper status. ^Chamberlain, o p. cit.. pp. 225-226. CHAPTER VIII THE CONTROL OF ECONOMIC PLANNERS I£ Western-style economic planning is circumscribed by the necessity of having to be fitted into an existing structure of democratic institutions, these same condi tions give rise to another problem, that of controlling the planners. In West European countries ultimate author ity to interpret the will of the people rests with the elected representatives of the people, with parliament (the legislative branch of government). Theoretically, then, it is parliament that controls the planners. Yet it would be naive as well as incorrect to accept this view of how economic planners are controlled. The answer is a good deal more complex than this. For as Andrew Shonfield says, Perhaps this obfuscation of what is really going on, whether conscious or unconscious, derives from a deeper reluctance to recognize that some of it does not fit at all well within the existing structure of Western democratic institutions • * ■•■Andrew Shonfield, Modem Capitalism (New York and London: Oxford University Press, 1965), p. 230. 247 The basic trouble is that the political institutions of Western democracy were forged in the nineteenth century and were appropriate to nineteenth century political and economic conditions, whereas economic planning emerged as an approach to the solution of twentieth century economic problems. The problem of the control of economic planners derives directly from trying to resolve those economic problems that either arose or were intensified (espe cially since World War II) within a political framework that evolved in the nineteenth century and is now inade quate to the task. The present chapter examines the nature of the problem of who controls the planners and the proposals put forward for more effective control. I. THE TRADITIONAL POLITICAL PROCESS OF FINANCIAL CONTROL Typically, in West European countries, the will of the people is expressed through elected representatives to a parliament (the legislature). Members are elected to parliament by popular vote, and they in concert are responsible for determining the will of the people. Included in the will of the people is the setting of economic goals for the nation. It is parliament's 248 prerogative to pass or reject legislation submitted to it and this includes any economic plan put before it. The function of carrying out the will of parliament is en trusted to the executive branch of the government. The executive branch can be, and normally is, the institution by which legislation is submitted to parliament for approval. It cannot adopt any legislation, for example, on economic plan, without the approval of parliament. Thus parliament reserves the right, among other things, to determine the economic objectives of the nation. The function of economic planning, however, is carried out under the' jurisdiction of the executive. The Planning Commission is responsible to the executive, sometimes directly to a cabinet member (possibly the prime minister himself), but more usually to a government department, such as the Ministry of Finance, the Treasury, or the Ministry of Economic Affairs. Whichever it is, the point is that economic planning is conducted under the auspices of the executive, sanctioned of course by parliament. It has been stated that parliament is responsible for setting the economic objectives of the nation. In theory, this is true, but in actual practice who does set the goals? Does parliament in fact determine the national objectives? The answer is that it does not. The typical member o£ parliament, in the £irst place, does not have the technical knowledge to do so; and in the second place, he does not have the time to attempt anything like the complex task of setting the nation's economic goals. He may have some idea that there should be more social in vestment or that unemployment should be made the direct responsibility of the government, or that exports should be encouraged to reduce a balance of payments deficit. But such general ideas are a long way from constituting national economic objectives. Even the average member of the government will be little better equipped to set national goals. He may be a little better informed on the economic situation, but his ability to say what the economic objectives of the nation are is also likely to be very incomplete. To whom then, are the officials face with the task of economic planning, to turn? Who is to tell them whether the rate of growth is to be 4 per cent, 5 per cent, or 3-1/2 per cent? There may be a general understanding that the plan is to stress social investment, but how much and what kinds of social invest ment? If the government has promised more housing, does this mean 100,000 more units or 500,000 more units? The 250 fact is that nobody in parliament (which is supposed to determine goals) or in the government (which takes the responsibility for achieving the goals) can tell the planners what the goals are, except in a very vague way. In practice, the task of determining economic goals is thrown back on the planners themselves. They will have to determine actual goals in the light of what is feasible, in terms of the vaguely stated objectives (which will often be in conflict), and in terms of the projected per formance of the economy. The result is that the planners have to draw up plans in an atmosphere of uncertainty, not knowing whether they reflect the sentiment of the executive (and still less that of parliament). Given this lack of positive guidance on the part of those who are supposed to be responsible for determin ing goals, it is hardly surprising that they have no effective control over the planners. Of course, they can reject the plan submitted to them, but this is, as will be argued, also hardly likely to happen. The traditional modus operand! for controlling the economy and affairs of the nation centers around the government's annual budget. Each year the various depart- I ments of the government submit estimates of their 251 financial requirements for the coming year. These, after consideration by the executive, are then presented by the chief executive to parliament in the form of an annual budget. Parliament examines the proposed budgets of each department and decides to appropriate the requested funds, or to cut the requests of the departments. This, very briefly, has been and still is essentially the typical way in which parliament exercises control over the finan cial affairs of the nation. It is not the purpose of this dissertation to examine the defects of the budgetary process as a means of conducting the nation's economic affairs. Suffice it to say that there is general agree ment that the process leaves much to be desired. If the traditional method by which the legislature controls the annual financial budget presented to it leaves much to be desired, how much more inadequate is such a procedure when applied to an economic plan that covers a period of four or five years? As was argued in Chapter VII, the typical economic plan is a very technical and complex piece of work, into which an enormous amount of ingenuity and work have gone. What can any responsible member of parliament do? He cannot cut the plan by, say, | 5 per cent as he can the budget of, say, the Ministry of 252 Labor. The plan is functionally Interrelated, so that the whole forms an Integrated system. He would have to go back through the entire work (representing possibly several thousand man-years) and challenge the assumptions and design of the plan put together so painstakingly by hundreds of experts. Small wonder the members of parlia ment have no control over the planners. It Is not because the planners are guilty of any Machiavellian scheme that they have left the legislature frustrated and helpless, but because as Professor Chamberlain so aptly puts It, When economic policy Is subjected to the judgment of a great many experts, whose efforts are devoted to the articulation of a master design, Inter locked In all Its parts, what effective role Is left to the Inexpert critic?2 This then Is the problem that faces every country which undertakes economic planning and tries to fit it into an existing structure of political democracy. How can such societies make economic plans reflect the will of the people? How can the planners be controlled if the process of economic planning means that virtually speaking the entire function has to be handed over to the planners themselves? ^Neil W. Chamberlain, Private and Public Planning [ (New York: McGraw-Hill Book Company, 1965), p. 215. 253 II. THE CONCEPT OF AN ECONOMIC PARLIAMENT In recognition of the inability of parliament to control the planning function, What has emerged in prac tically every country in Western Europe that has engaged in central economic planning has been a new institution which might be termed an "economic parliament." This institution, usually called The Economic Council or some variation of this, is composed of representatives of the government, industry, the professions, and labor, who are appointed by the government to represent the major inter ests of the nation. Thus the basis for representation is not the traditional geographical one but rather functional representation. Members are not elected by popular vote to represent some geographical region, but are appointed to represent the functional interest they stand for. Invariably, the Planning Commissioner is a member of The Economic Council, so that there is a close working re lationship between the planning agency and the economic parliament. The economic parliament is a purely advisory body and its position is clearly subordinate to that of parliament. Still, in view of the role played by it, the Economic Council has in fact been invested with a degree of authority far beyond that which it formally possesses. The power of the Economic Council derives not from any authority invested in it either by parliament or by the government. Indeed, constitutionally it has no authority; it is strictly an advisory body. Its power comes from the recognition that if the economy is to be influenced in the desired way, then not only must the main interests acquiesce in, they must actually commit themselves to the plan. Without their commitment, the plan would be merely a blueprint on paper. Thus, control of the planners is not exercised through the traditional means, through parliament; but because of the close connection between the planning authority and The Economic Council (representing the people through their functional status,) and by reason of the fact that the major interests in the nation have com mitted themselves to the plan, the planners are capable of being controlled. It is too early yet to pass judgment on the effectiveness of this form of control; and as with all new institutions, this too brings new problems. The question arises as to whether a system of dual representa tion is viable in the long-run. For example, in Norway, the system collapsed, essentially, because the opposition 255 in parliament, the Conservative Party, was faced with the situation that the government, the Labor Party, was using the argument that because the business representatives in the Council had approved the plan, this was tantamount to acceptance by the opposition in parliament. As a result, business interests withdrew from the Council. Undoubtedly, the emergence of this institution has usurped some of the power of the traditional parliament, albeit in "economic" matters only. Unfortunately, what is "economic" and what is not "economic" is not always so nicely defined. III. CONTROL BY PARLIAMENT What control, if any, can parliament itself exer cise over the planners? If members of parliament them selves do not have the knowledge or the time to criticize the plan presented to them by the planners, in a positive manner, is there any other way that they can control the planners? If parliament is to exercise effective control over the national economic plan, but does not have the time and knowledge itself, then it must acquire the means to do so. One promising possibility, which has not been developed in Europe, is the system of specialist commit - | tees that is a common feature of the American political scene. The American Congressional Committee is unique to the United States. Essentially, it is a small specialist committee, which has developed, over a long period of time, an expertise and a high calibre of professional staff of its own, which enables it to discuss and dispute with the government's technical personnel on an equal footing. Such a system of parliamentary committees could be developed which would have the time and the knowledge to analyze and evaluate the economic plan put together by the planning commission for the purpose of keeping parliament fully briefed and informed on the substance and implications of the plan. A possible danger in such a system could be, at worst, the emergency of a power struggle between the parliamentary committee personnel and the government planners and, at best, a degree of obstruc tionism emanating from possible professional jealousy. However, this possibility could be minimized if there was a certain amount of interchange of staff, as there is under the American system, between the parliamentary committees and the government's planning staff. IV. CONTROL THROUGH PUBLICITY Yet a third possibility for making the planners j more responsive to the will of the people exists— control by publicity or the principle of the goldfish bowl. This form of control, developed effectively by the Swedes, calls for all documents to be made available for inspection by anyone. The person requisitioning the documents does not have to give a reason for interest in seeing the docu ments. Moreover, the authorities are required to assist the person and are not allowed to withhold information on the grounds of administrative inconvenience. Thus, this method of control is not exercised formally through par liament or through an economic council but through any person, or more likely through a group of interested persons. The potential control that can be exercised through this means would appear to be very promising. In Sweden, the most active persons in seeking out information and interpreting it are the newspapers, surely one of the best media for keeping the public in formed and thereby the authorities aware. As it relates to the control of the economic planners and the economic plan, the principle of control through publicity could operate very effectively. Not only could the press keep the public informed in a general way, but the economics departments of the press could render a valuable service by analyzing and discussing publicly the implications of various aspects of the plans as they are being formulated. In the United Kingdom, for example, the Economist, with its staff of professional economists and vast research capability, would appear to be admirably suited to under take this function. Besides the Economist, there are a number of other institutions that could perform a similar task; to mention but a few, the banks, through their economic journals, for example, Lloyds Bank Review, the Financial Times, and the many journals of the universities. The Economics Departments of the universities would also appear to be logical candidates for the review and inter pretation of the economic plan, as would certain private organizations. Among the latter, two which come to mind immediately are Political and Economic Planning (PEP) and the Royal Institute of International Affairs. Thus, between the press, the universities, and the private economic institutions on the one hand, and the economic planners on the other hand, there could develop a very meaningful dialogue. Such a dialogue would be especially valuable, in the context of control, if it took place at all stages of the development of the plan. Not only would the end result more likely reflect the will of all con cerned, but the publicity given to it would do much to 259 inhibit the growth of cartels, possibly the biggest single objection to Westem-style economic planning. The theory of the control of economic planning is still very much in an embryonic stage. The fact of the matter is that the problem is a very delicate one of balance. On the one hand, it is necessary to give economic planners sufficient discretion and authority to make economic planning efficient. On the other hand, they must not be allowed to be the final arbiters of the nation's economic destiny, for any plan involves a good deal of value judgment. It is not simply a question of efficiency. Even if value judgments have to be made by the planners, they should be subject to the scrutiny of the non planners. Economic planning is, after all, a means, not an end. CHAPTER IX SUMMARY AND CONCLUSIONS The final chapter of this dissertation presents a summary of the dissertation and the conclusions that emerge from the analysis. I. SUMMARY There has emerged in the major West European countries a distinctive style of economic planning, which is distinguishable from Soviet-style planning. The essen tial feature of Westem-style planning is that, in con trast to the Soviet style, it is indicative rather than imperative. It indicates, in an over-all way, the direc tion the economy should take. It does not involve the setting of specific goals and targets which each individ ual industry and firm must achieve so that the plan can be achieved. While there is a considerable body of literature on the subject of economic planning in Western Europe, 261 the treatment of the subject has not had as its specific objective the theory of Westem-style economic planning. The purpose of the present dissertation has been to pro vide an organized and systematic treatment of the theory of economic planning as it has developed in various West European countries. The fundamental reason for the emergency of Westem-style economic planning has been a decline in the belief in the doctrine of laissez faire, and as a corol lary, the increasing conviction, especially since World War II, that some form of central economic planning is required to resolve some of the major economic problems of society. While government intervention in the eco nomic affairs of the nation did exist prior to World War II, there was virtually no sort of central economic planning in Western Europe. After World War II, different countries, with different economic philosophies and tra ditions, adopted at different times some form of central economic planning for essentially this reason. The major specific factors contributing to the change in attitude toward laissez faire and central economic planning were the failure of laissez-faire capitalism to achieve full employment and the belief that central economic planning 262 could speed up economic recovery from World War II and would achieve a higher rate of economic growth than If the economy reverted to laissez-faire capitalism. The experience of the major West European countries Illustrates that while the problems they faced and the route taken to economic planning has resulted In different national styles, there Is a common unifying thread In their experi ence, which permits the use of the term Westem-style. Traditionally, central economic planning found no place in classical economic theory. Indeed classical theory rejected such a notion as positively harmful to the working of the economic system. Nor did economic planning find a place in Marxian economics, although it came to be popularly associated with socialism or communism, because the term was equated with a particular system. Not until quite recently has it been emphasized that economic plan ning is a generic process, applicable to all economic systems. Westem-style planning is a particular form of central economic planning. It can be defined as a system for the ex ante resolution of economic problems through the organized but voluntary cooperation of government and I the private sector, utilizing both government policy and 263 institutions and private enterprise. In contrast to Soviet-style planning, plans are not the product solely of government officials, but the joint product of govern ment officials, and representatives from business, labor, agriculture, the professions, and individual experts who are brought together in formal arrangements— economic councils, commissions, working committees, etcetera. While it is correct and meaningful to speak of Westem-style planning, the essential features of which are found in all West European countries that have adopted central economic planning, differences in the detailed form adopted by each country reflect the different problems philosophies, and traditions of the individual country. Differences occur in the time horizon of plans, in the relationship of the planning agency to the government, in the role played by the participants, and in the means of execution of plans. The case for Westem-style planning rests on a presumed superior capability over laissez faire to achieve the desired goals of society, specifically those of economic stability (at high levels of output and employ ment) and economic growth. It is argued that only the | government has the resources and the power (economic and 264 legal) to effect In practice the Keynesian theoretical solution to the problem of unemployment. Only government is in the position of being able to control the strategic macroeconomic variables--investment, consumption and government spending--necessary to insure that aggregate demand equals aggregate supply at full employment levels. A comparison of pre-World War II and post-World War II output and employment statistics lends support to the hypothesis that, during the latter period, when Westem- style planning was emerging, there has been throughout every major West European country greater prosperity, i.e., higher levels of output and employment, than during the former period, when there was an absence of central eco nomic planning. Has Western-style economic planning also led to a more rapid rate of growth? The statistical evidence is not conclusive. Although countries like France and the Netherlands, where economic growth was very early adopted, have had a higher rate of growth than Great Britain, which did not opt for any sort of central economic planning until 1962, the rate of economic growth in Germany, where again the adoption of central economic planning was also very I late in coming, was higher than in those two countries. However, the higher German rate may very well be explained in part by the particularly low base from which the German economy had to recover after World War 11. Comparing economic growth rates for the leading West European countries during periods prior to 1950 with those after 1950 suggests that the hypothesis that higher growth rates are associated with central economic planning is reasonably plausible. A number of reasons suggest why such a hypo thesis might be true. In the first place, management and labor may be stirred to greater efforts by being made to realize both the desirability and the capability of achieving a higher rate of growth. Further, a limited amount of resources can be put to better use as a conse quence of cooperation in forecasting the demand for and the supply of resources. Moreover, a macro view of a particular situation might lead to a better decision than a decision based on the more typical micro incremental approach of the individual entrepreneur. Increasingly, economic planners in the West have stressed the desire to direct the quality and composition of the national output, arguing that there is a need to increase social product relative to private product, and to rectify the inability of the market mechanism to take 266 into account social costs and social benefits. Central economic planning, even if indicative, may lead to a loss of economic freedom. However, freedom is a complex concept, and a limitation of freedom in one direction may increase it in other directions. The logic of this argument calls for the critical scrutiny of the specific measures employed, not the condemnation of the principle of central economic planning. The purpose of economic planning is to steer the system in certain directions in order to achieve certain goals. The process of economic planning involves three basic functions--establishing goals, economic analysis, and the execution of plans. Under Westem-style economic planning, the estab lishment of goals is approached by involving (and thereby obtaining commitments from) the major economic interests of the nation in their formulation. National goals are determined by the joint efforts of government officials, representatives from business, labor, agriculture, and independent experts. The nature of the process varies from country to country. In France it has been described as collusive cooperation, While in Great Britain it takes I the form of bargaining between the groups. Economic analysis is essentially the process of determining the strategic macroeconomic variables that can be manipulated to bring about the desired goals. It calls for measurement of economic phenomena and the forecasting of the impact on the economy if certain variables are changed. The third function of economic planning, its execu tion, is how to get people to carry out the plan. In contrast to Soviet-style planning, Westem-style planning relies basically on inducement and persuasion rather than on command, directives supplemented by incentive systems, although the line between the two methods is not as clear cut as the terms suggest. Execution is largely a problem of social control, which in Western Europe operates at two levels— general and specific. General control is effected through traditional monetary and fiscal policy. Most countries, however, have found it necessary to supplement general control with specific controls, i.e., with subsidies, discriminatory taxation, low interest loans, credit restrictions, etcetera. Because Westem-style planning finds its most / complete development in France, the French experience is particularly illuminating to the theory and practice of economic planning. After World War II, the French early opted for central economic planning as the surest way to promote the most rapid economic recovery. The First Plan (1946-1953) focused attention on building up the basic sectors of the economy. Subsequently, later plans aimed at a more balanced growth, but still with a heavy emphasis on investment at the expense of consumption and shorter working hours. As early as the Third Plan (1958-1961), the planners were expressing the idea that not only was it desirable to promote an increase in the product per capita, but to guide the quality of output, i.e., the composition of the total product. The aim was to increase social investment relative to private investment and con sumption.. Both the Fourth and Fifth Plans continued to emphasize the qualitative and social aspects of economic well-being. In addition, the need for research and de velopment, and vocational training, have been recognized. The planning function in France is directed through a government agency called the Commissariat General du Plan, the unique features of which are its small size and its modus operandi. The theory is that the small size of the staff of the Commissariat General du Plan forces it to work through cooperation with other government agencies. The general plan Is drawn up by the Commissariat General du Plan, but the details of the plan are forged in a number of commissions, the Commissions de Modernisation. It is these modernization commissions that are the novel feature of French planning. The membership of the com missions is made up of government officials, representa tives from business, labor, agriculture, and a number of independent experts. Thus, the main interest groups in the economy are involved and hence committed to the plan. The execution of planning in France is also facilitated by a number of other circumstances peculiar to France--the traditional attitude toward the role of government in eco nomic life, the readiness to discriminate between compa nies, and the tight control the planners have over the flow of capital to industry as a result of the banking structure in France. Westem-style planning is subject to a number of limitations. In the first place, it has to be carried out within the framework of democracy and hence has to rely on / the cooperation of a large and powerful private sector whose interests are often not in accord with those of the planners. It is this that is at the root of the failure to date of governments to impose an incomes policy. 270 Generally speaking, central economic planning gets adopted because unfavorable economic conditions exist. In times of prosperity it is much more difficult to convince people of the case for central economic planning. Economic planning is also more difficult to operate in an open economy such as that of Great Britain or Denmark where the impact of an exogenous (and hence beyond the control of the planners) variable, like foreign trade, is considerable. Innovation and technological change are also inimical to planning in that they often outdate plans very rapidly. Thus economic planning is much easier in a static situ ation or in one of recovery from war than it is in a dynamic economy characterized by innovation and rapid technological change. Moreover, in spite of the recent development of sophisticated econometric and statistical techniques, economic planning is still very much an art, especially in its execution. The effectiveness of planning is also limited by the philosophy and traditions of a country. Fiscal and monetary policies are used by all countries, but in many instances this general control is too gross an instrument, and more selective measures of control are called for. | Yet, especially in Great Britain and Sweden, there is a 271 certain reluctance to discriminate between firms, whereas in France, the planners are not afraid to discriminate. Granted that fiscal and monetary policy are often too gross, specific controls are no panacea either. The fact is that economic planning runs into a number of problems and calls for careful economic analysis and a considerable degree of judgment. The execution of economic planning is also limited by the political framework in West European countries. Economic plans are subject to parliamentary assent. Yet the process of legislative action is often too slow and necessary programs may be delayed so long as to be in effective. Further, governments are short lived, so that a government may decide to discontinue the economic plans of its predecessor. In France, this problem has been solved to some extent by the device of the program law, which guarantees the body responsible for its execution the funds for the duration of the plan. However, it does not solve the problem of long-term programs, which go beyond the duration of a plan. Finally, the effectiveness of economic planning is a function of the status of the planning agency. Until | quite recently under Westem-style planning, the planning 272 agency stood outside the government machinery and lacked the necessary authority. Often the plan did not commit the government, so that its policies were not consistent with the plan. The other side of the coin is the control of the planners. In West European countries, a parliament is responsible for interpreting the will of the people. Yet the typical parliament has neither the time nor the expertise to conceive or evaluate anything as complex as a national economic plan. In practice, the task of deter mining economic goals is thrown back on the planners them selves. The complexity of an economic plan does not lend itself to the typical budget procedure. An economic plan is a highly technical and complex piece of work, the parts of which are interrelated and internally consistent. One cannot cut the plan by, say, five per cent as one might cut the budget of the Ministry of Defense. One solution has been the creation of a new insti tution, a sort of economic parliament, usually called The Economic Council. The Council is composed of the major economic interests of the nation. Thus the basis of representation is functional (management, labor, the professions, etcetera) rather than the traditional 273 geographic basis. Control of the planners is not exercised through the traditional means, i.e., through parliament; but because of the close connection between the planning authority and The Economic Council (representing the people through their functional status) and by reason of the fact that the major interests in the nation have committed them selves to the plan, the planners are capable of being controlled. Another possible method of controlling the planners is through a system of specialist committees, patterned after the American Congressional Committee. Such commit tees have developed, over a long period of time, an expertise and a high calibre of professional staff of their own, which enable them to discuss and dispute with the government's technical personnel on an equal footing. Yet a third possibility, that has been developed in Sweden, is control by publicity, whereby all documents are made available for inspection to anyone so that economic planning is conducted in the public arena. In Sweden, it has been the press that has served the role of active informant; but other organizations, the financial and economic press, the universities, and independent bodies, |such as Political and Economic Planning and the Royal 274 Institute of International Affairs in the United Kingdom, could fulfill this role. II. CONCLUSIONS The twentieth century has witnessed the progressive transformation of capitalism from a system which can be fairly accurately described as laissez faire to a system which has been variously called managed capitalism, socially reformed capitalism, democratic socialism, etcetera. This transformation has been the result of a recognition that (1) there were certain economic problems with which laissez-faire capitalism was unable to cope-- particularly the problem of depression and unemployment and (2) as a society becomes more affluent, there is an increase in the importance of social demand relative to private demand. For both reasons, government has been called upon to play an ever-increasing role in the eco nomic life of the nation. By virtue of the fact that the increasing role of government has been a fairly gradual process, government action has been largely piecemeal and uncoordinated. The problem of post-war recovery and the concern of economic growth added to the pressure to adopt some form of central economic planning. At the same time, 275 there was no feeling, as was the case in Russia, that the old system should be swept away and be replaced by central economic planning. The approach in Western Europe was to graft central economic planning on to the existing struc ture, modifying it where necessary, but not abolishing it and replacing it with central economic planning. Thus Westem-style planning is seen to be a further logical development in the transformation of capitalism from laissez faire to managed capitalism. The belief is that Western-style planning will bring about the goals of society more surely and more rapidly than if the economy does not adopt economic planning. There is still considerable controversy as to whether this is so, even in France, where Westem-style planning has reached its highest development. Has economic planning in West European countries brought about greater economic prosperity and less unemployment, and more rapid economic growth--the more important economic goals of Western society? Unfortunately, there can be no rigorous proof of the hypothesis either way. The answer must be largely judgmental, based on the plausibility of the a priori reasons in support of central economic planning and on the empirical evidence available. On both counts, the argument 276 that Westem-style economic planning has resulted in greater prosperity and less unemployment, and more rapid economic growth, is judged to be quite plausible, although evidence to the contrary is not entirely lacking. Granted this favorable appraisal of Western-style economic planning, there are still a number of problems that are unresolved or not resolved very satisfactorily. The claim is that Western-style planning is indicative and plans are only made at the industry level; yet plans have to filter down to the level of the firm and the plant. It is still not very clear how the plans are carried out. Either the planning is less indicative than is claimed or it is less effective than it is generally believed to be. The greatest objection to Westem-style planning appears to be the fear of promoting oligopoly and market sharing. The cooperation between government officials and the leading industrialists may be in fact collusion to the detriment of the public. It may serve to restrict compe tition, to hold back the more dynamic leaders, and thereby to inhibit innovation. The danger is not unreal, and it is no secret that French officials encourage mergers in the belief that, where 20 per cent of the firms in a manu- I facturing industry produce less than 80 per cent of the 277 output of the industry (the 80-20 rule of thumb) the industry is inefficient! No satisfactory safeguard against this possibility has been suggested. Also still not satisfactorily resolved is the question of the control of the planners. It is quite obvious that the process of parliamentary control is entirely inadequate to the task. The device of an economic parliament based on functional representation is promising but it is too early yet to pass judgment on the effective ness of this form of control and as with all new institu tions it brings new problems. The question arises as to whether a system of dual representation is viable in the long-run. The control of economic planning is still very much in an embryonic stage. The problem is a very delicate one of balance. On the one hand, it is necessary to give economic planners sufficient discretion and authority to make economic planning effective. On the other hand they must not be allowed to be the final arbiters of the nation's economic destiny, for any plan involves a good deal of value judgment. It is not simply a question of efficiency. Even if value judgments have to be made by the planners, they should be subject to the scrutiny of \ the non-planners. 278 What is the outlook for Western-style economic planning? Recently one suspects that the mystique of the Plan has waned. Even in France there are those (notably M. Jacques Rueff) who look upon the whole notion of "French planning" with skepticism, and who believe essen tially in a return to laissez faire. On the other hand, there are those who, having judged the Third and Fourth Plans to have been failures, believe that "indicative" planning should give way to a more imperative type of planning. It is inconceivable that Western society will re turn to laissez faire. The economic problems that laissez- faire capitalism was unable to cope with would not be tolerated and the role of government in the economic life of the nation is unlikely to diminish. Some form of central economic planning is not only desirable but necessary. Westem-style economic planning is an attempt to apply reason and foresight to the collective ordering of human affairs and the attainment of human goals within a framework of individual choice and freedom. It is not a perfect solution to the problem. Moreover, it can be expected that it will run into further difficulties as | countries become more prosperous. Westem-style planning 279 is still emerging and developing new techniques. It is part o£ a continuing search to achieve the best way of resolving society's economic problems. BIBLIOGRAPHY BIBLIOGRAPHY A. BOOKS Bauchet, Pierre. Economic Planning: The French Experience. Trans. Daphne Woodward. London: Heine- mann Educational Books, Ltd., 1964. Beckerman, W. and Associates. The British Economy in 1975 Cambridge: Cambridge University Press, 1965. Cairncross, A. K. The Short Term and the Lone in Economic Planning. Washington: Economic Development Institute 1966. Chamberlain, Neil W. Private and Public Planning. New York: McGraw-Hill Book Company, Inc., 1965. Commissariat General du Plan d'Equipement et de la Produc tivity. Quatrieme Plan 1962-1965. Documentation franqaise illustree No. Speciale (180-181). Paris: Commissariat General du Plan d'Equipement et de la Productivite, 1962. Cox, 0. C. Capitalism As a System. New York: Monthly Review Press, 1964. Dahl, Robert A. and Charles E. Lindblom. Politics. Economics and Welfare. New York: Harper and Row, Publishers, Inc•, 1963. Economic Growth 1960-1970. Paris: Organisation for Economic Co-operation and Development, 1966. Galbraith, John Kenneth. The Affluent Society. Boston: Houghton Mifflin Company, 1958. 282 Hackett, John and Anne-Marie. Economic Planning in France. London: George Allen & Unwin, Ltd., 1963. Hagen, Everett E. and Stephanie F. T. White. Great Britain Quiet Revolution in Planning. New York: Syracuse University Press, 1966. Hayward, J. E. S. Private Interests and Public Policy. New York: Barnes and Noble, 1966. Hicks, Ursula K. Development Finance: Planning and Control. New York: Oxford University Press, 1965. Howells, William. Back of History the Story of Our Own Origins. Revised edition. New York: Doubleday & Company, Inc•, 1963. Jewkes, John. Public and Private Enterprise. Chicago: The University of Chicago Press, 1966. Keynes, John Maynard. The General Theory of Employment. Interest and Money. London: Macmillan and Company, Ltd., 1936. Lewis, W. Arthur. Development Planning: The Essentials of Economic Policy. New York: Harper and Row, 1966. Lutz, Vera. French Planning. Washington: American Enterprise Institute for Public Policy Research, 1965. • s f Maddison, Angus. Economic Growth in the West. New York: The Twentieth Century Fund, 1964. Mitchell, Joan. Groundwork to Economic Planning. London: Seeker, Martin, Seeker and Warburg, Ltd. , 1966. National Economic Planning. New York: Columbia University Press, 1967. Robinson, E. A. G. Economic Planning in the United Kingdom: Some Lessons. Cambridge: Cambridge University Press, 1967. 283 Schumpeter, Joseph A. Capitalism. Socialism, and Democracy. New York: Harper and Brothers, Publishers, 1950. Shonfield, Andrew. Modern Capitalism: The Changing Balance of Public and Private Power. New York: Oxford University Press, 1965. Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. New York: The Modern Library, 1937. Techniques of Economic Forecasting. Paris: Organisation for Economic Co-operation and Development, 1965. Theil, Henri. Economic Forecasts and Policy. Amsterdam: North-Holland Publishing Company, 1961. Tinbergen, Jan. Central Planning. New Haven and London: Yale University Press, 1964. . Economic Policy: Principles and Design. Amsterdam: North-Holland Publishing Company, 1956. Wilson, J. S. G. French Banking Structure and Credit Policy. London: G. Bell and Sons, Ltd., 1957. Wilson, Thomas. Planning and Growth. London: Macmillan and Company, Ltd. , 1964. Zimmerman, Louis J. Economic Planning. The Hague: Mouton, 1963. B. ESSAYS AND ARTICLES IN COLLECTIONS Bell, Daniel. "The Rackett-Ridden Longshoremen: A Func tional Analysis of Crime," Labor and Trade Unionism. Walter Galenson and Seymour Martin Lipset, editors. New York: John Wiley and Sons, Inc., 1960. Pp. 245- 264. 284 Cameron, Rondo E. "Economic Growth and Stagnation in France, 1815-1914," The Experience of Economic Growth Case Studies in Economic History. Barry E. Supple, editor. New York: Random House, Inc., 1963. Pp. 328- 339. Cases, Bernard. "French Planning," Quantitative Planning of Economic Policy. Bert G. Hickman, editor. Washing ton: The Brookings Institution, 1965. Pp. 179-211. Goldman, Marshall I. "Economic Controversy in the Soviet Union," Comparative Economic Systems: A Reader. Marshall I. Goldman, editor. New York: Random House, Inc., 1964. Pp. 346-362. Landes, David S. "French Entrepreneurship and Industrial Growth in the Nineteenth Century," The Experience of Economic Growth Case Studies in Economic History. Barry E. Supple, editor. New York: Random House, Inc., 1963. Pp. 340-353. Lange, Oskar. "On the Economic Theory of Socialism," Comparative Economic Systems Models and Cases. Morris Bomstein, editor. The Irwin Series in Economics. Homewood: Richard D. Irwin, Inc., 1965. Pp. 86-94. Lewin, Kurt. "Group Decision and Social Change," Readings in Social Psychology. G. E. Swanson, T. M. Newcomb, and E. L. Hartley, editors. New York: Holt and Company, 1952. Pp. 459-473. Masse, Pierre. "French Methods of Planning," Comparative Economic Systems Models and Cases. Morris Bomstein, editor. The Irwin Series in Economics. Homewood: Richard D. Irwin, Inc., 1965. Pp. 213-228. C. MAGAZINES "France Casts a Vote on Gaullist Affluence," Business Week. December 4, 1965. "How Sweden Keeps Them Working," Business Week. July 15, 1967. 285 D. PERIODICALS Balassa, B. "Planning in an Open Economy," Kvklos. XIX, No. 3, 1966, 385-410. . "Whither French Planning," The Quarterly Journal of Economics. November 1965, pp. 537-554. Bassie, V. L. "Economic Planning in Western Europe," The Quarterly Review of Economics and Business. Summer 1963, pp. 7-17. Bauchet, P. "Une Nouvelle Planification," Revue Economique. March 1966, pp. 161-178. Blass, W. P. "Economic Planning, European-Style," Harvard Business Review. September-October, 1963, pp. 109-120. Breev, M. P. "Planning and Prediction." Problems of Economics. December 1965 , pp. 3-11. Clark, Colin. "N.E.D.C.— Limitations of Economic Planning: Britain and Elsewhere." British Industry. April 1965, pp. 18-19. Coch, L. and J. R. P. French. "Overcoming Resistance to Change," The Journal of Human Relations. I (1948), 512-532. Devons, E. "Planning and Growth," Scottish Journal of Political Economy. February 1965, pp. 105-109. Fradault, Pierre. "France's Plan and the Part of the Bank ing System in Its Drafting and Execution," Banca Nazionale del Lavoro Quarterly Review (December 1965), pp. 355-375. Fraser, T. C. "New Ways of Planning for Growth in Britain," L'Industrie (April-June 1964), pp. 175-193. French, J. R. P. and others. "Employee Participation in a Program of industrial Change," Personnel. XXXV (1958), 16-29. 286 "French Planning Demodee," The Economist. May 1964, pp. 851-852. "French Planning, Grip Loosens," The Economist. September 26, 1964, p. 1214. Hansen, N. M. "Indicative Planning in France: Model for the Future?" Quarterly Review of Economics and Business. Winter 1964, pp. 7-18. Jewkes, J. "The Perils of Planning," South African Journal of Economics. December 1965, pp. 341-347. Katz, D. "Employee Groups: What Motivates Them and How They Perform," Advanced Management. XIV (1949), 119-124. Liberman, E. G. "The Plan, Direct Ties and Profitability," Problems of Economics. January 1966, pp. 27-31. Masse, P. "The French Plan and Economic Theory," Econo metrics, April 1965, pp. 265-276. Pels, P. S. "Organised Industry and Planning In the Netherlands," International Labour Review. September 1966, pp. 274-285. "The Planners' Hand Relaxes," The Economist. December 5, 1964, p. 1119. Pratten, C. "The Best-Laid Plans," Lloyds Bank Review. July 1964, pp. 15-27. Shone, R. "Problems of Planning for Economic Growth in a Mixed Economy," Economic Journal. March 1965, pp. 1-19. Svennilson, I. "Planning in a Market Economy," Weltwirt- achaftlichee Archiv. December 1965, pp. 184-201. Watkin, E. E. "British Planning Policy," De Economist. February 1964, pp. 81-104. Wellisz, S. H. "Economic Planning in the Netherlands, France and Italy," The Journal of Political Economy. June 1960, pp. 252-283. 287 E. PUBLICATIONS OF THE GOVERNMENT, LEARNED SOCIETIES, AND OTHER ORGANIZATIONS Organisation for Economic Co-operation and Development. Policies for Economic Growth. Paris: The Organisa tion, 1962. . Statistics of National Accounts 1950-1961. Paris: The Organisation, 1964. . ' National Accounts Statistics 1955-1964. Paris: The Organisation, 1966. Political and Economic Planning. Economic Planning in France. XXIX, No. 454. London: PEP, 1963. . French Planning: Some Lessons for Britain. XXIX, No. 475. London: PEP, 1963. ________. Planning for Growth. XXXI, No. 487. London: PEP, 1965. ________. The National Plan: Its Contribution to Growth. XXXI, No. 493. London: PEP, 1965. United States Department of Commerce. Survey of Current Business. XLVII. No. 11. Washington: Government Printing Office, November 1967. F. UNPUBLISHED MATERIALS Elliott, John E. "Comparative Economic Systems: Theories, Philosophies, and Strategies." Los Angeles, 1966. (Mimeographed.)

Linked assets

University of Southern California Dissertations and Theses

Conceptually similar

PDF

Oskar Lange'S Contributions To The Theory Of Socialism, With Applicationsto Yugoslavia And Czechoslovakia

PDF

Income Distribution And The Social Welfare Function: A Study Of Theories Of Distributive Justice

PDF

The Evolution Of The Role Of Government In The Economic Development Of Mexico

PDF

The Optimization Of Economic Resources For Economic Growth In Iran

PDF

External Trade And Economic Growth In Developing Countries With Special Reference To Iraq

PDF

Developmental Planning In The United Arab Republic: An Economic Analysis And Evaluation Of The Egyptian Experience

PDF

Contributions To The Theory Of Industrial Location: Urban Decentralization

PDF

The economics of the variable annuity

PDF

An International Comparison Of The Role Of Government In The Economic Development Of Developed And Emerging Economies, With Particular Reference To Government Corporations

PDF

On The Theory Of Value And Market Syndicalism

PDF

A Portfolio Approach To Domestic And Foreign Investment

PDF

The Political Economy Of The Islamic State; A Comparative Study

PDF

A Comparative Appraisal Of Developmental Planning In India And Communist China Under The Second Five Year Plans

PDF

American Political Economics: An Emerging Consensus

PDF

The Size Distribution Of Income And Its Relationship To Economic And Social Well-Being In The State Of California

PDF

An Economic Analysis Of The Factor Market For Pharmacists

PDF

Methodology Of Development Planning For Underdeveloped Countries With Special Reference To Pakistan

PDF

The Theory Of Investment Programming: A Suggested Econometric Model

PDF

Towards A Socioeconomic Theory Of Socialism

PDF

A Theory Of Regional Economic Growth: Growth Poles And Development Axes

Asset Metadata

Creator Garney, Bernard Andaya (author)

Core Title The Development Of Western-Style Economic Planning: Theory And Practice

Degree Doctor of Philosophy

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, theory,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Elliott, John E. (committee chair), Brown, Alan A. (committee member), Sanford, Edward (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c18-615317

Unique identifier UC11359658

Identifier 6810230.pdf (filename),usctheses-c18-615317 (legacy record id)

Legacy Identifier 6810230.pdf

Dmrecord 615317

Document Type Dissertation

Rights Garney, Bernard Andaya

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA