Types of Economic Planning
Planning by Inducements
Planning by inducement is often referred to as
. In such type of planning, the market is manipulated through incentives andinducements. Accordingly, in this system there is persuasion rather than compulsion or deliberate enforcement of orders. Here the consumers are free to consume whatsoever they like, producers are free to produce whatsoever they wish. But such freedom of consumption and production are subject to certain controls and regulations. Theconsumers, producers and other factors of production are induced with the help of variousfiscal and monetary devices. For example, if the planning authority wishes to boost the production of corn oil in Pakistan it will provide subsidies, tax holidays and loans to thefirms involved in production of corn oil. To encourage savings and investment anddiscourage consumption a suitable package of fiscal and monetary policies can beintroduced in the market. Therefore, the desirable results can be attained with the help of incentives and without the imposition of orders and instructions. Moreover, in such planning there is less sacrifice and less loss of liberty – economic as well as non-economic. Merits of Planning by Inducements:
remain intact. Planning by inducements is moredemocratic as compare to planning by directions. (b)
There is a
freedom of choice of profession
In planning by inducements, there is
freedom of enterprise
. Produces are free to produce whatever they like but within in the capacity of given rights. (d)
Planning by inducements is
smooth and flexible
. It is more popular because itenables to incorporate the changes in resources, technology and taste etc. evenafter the finalisation and implementation of plan. (e)
Under this sort of planning, the inertia attached with standardisation can be put toan end and producers are free to produce in accordance with the desire of consumers. Therefore, there is a variety of goods and services
in the market.
less administrative costs
involved in planning by inducements.
The problem of shortages and surpluses is solved as there is an existence of automated market system
. The demand and supply is automatically adjusted andremain in balance under market economy. Demerits of Planning by Inducements:
fails to achieve 100% targets
of economic planning.
Under planning by inducements, there are
profit motives more than welfare
of public. Private entrepreneurs care for those products which yield high profits.Products or services with less profit or no profit do not attract privateentrepreneurs. Such products or services include education, health, defence,security, etc. (c)
The producers may find the
government policies regarding economic affairs not attractive enough to follow . There may be disputes among entrepreneurs and thegovernment regarding tax rates, investment policies, interest rates, etc.
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The mechanism of market economy
may cause the prices to inflate
esp. withreference to under-developed countries or in case of oligopoly where there is ashortage of certain products like petroleum and gas. (e)
There may be
disharmony between labour and producer
, and there may beserious industrial disputes.
Planning by Directions
This type of planning is practised in socialist countries like China, Former USSR, Cuba, North Korea, etc. Under planning by direction, there is one central authority which plans,directs and orders the execution of the plan in accordance with the pre-determined targetsand priorities. It determines the production figures, delivery schedules, quotas regardingthe production of the goods, price controls, use of foreign exchange and allocation of resources like labour, etc. amongst different competing uses. Thus, such...
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