Case Against Economic Planning

The case against economic planning has been discussed as:

(i) Loss of Economic Freedom:

The utmost objection leveled against planned economy is that there is loss of economic freedom.

Planning cannot be successful until strict regulation is not imposed and duly controlled by the State.

In this way, there is loss of individual initiative and loss of consumers sovereignty. Freedom to choose occupation is also limited. Thus, planning limits individual freedom severely. Prof. Hayek goes to the extent of saying that planning is road to serfdom and leading to a regimented and cruel society.

(ii) Planning Leads to Chaos:

Centrally planned economy is a mudded economy as it is incapable of pursuing rational economic activity. In the opinion of many critics, rational allocation of resources will not be possible. Under planning automatic guidance on price mechanism is not easily available. As a result there will be confusion and chaos in production.

(iii) Not easy to Formulate:

Another point against planned economy is that it is not much easy to formulate a proper plan. This is because of non-availability of reliable statistical data and continuous fluctuation in prices. On the other side, in an unplanned economy, entrepreneur will gain or lose at his own cost while in the case of planned economy, entire country will suffer at the cost of single mistake. In fact, implementation requires alert, efficient and honest administration which is quite difficult to exist in underdeveloped and backward countries.

(iv) No Incentive for Hard Work:

In a planned economy, there is 110 incentive for hard work because workers are regular state employees who get fixed salaries. No incentive is given for bringing about any improvement in production. Here, it must be remembered that there is no logic and justification against planning as incentives are provided by giving special increments, prizes shorter hours of work and vocation to more efficient workers.

(v) Danger of Bureaucracy and Red Tapism:

According to some critics, centrally planned economy gives birth to the danger of bureaucracy and red tapism due to inefficient administration. In fact, only strong government can put down to such tendencies with iron hands but backward and underdeveloped countries always lack in it.

(vi) Not Automatic:

The centrally planned economies generally hinder the automatic process of an economy and make it extremely rigid for nothing. Some economists hold the view that planning leads too much standardization and lacks in variety which robs life of colours.

(vii) A Costly Affair:

It is claimed by those economists who criticize it saying that centrally planned society is a costly affair as it always needs an army of clerks to perform various functions. On the contrary, price mechanism can do this job without the help of army of clerks. For instance, in Russia, about ten lakh economists are engaged for this assignment.

(viii) More unstable:

Planned economy is considered more unstable. In underdeveloped countries, governments are unstable which result in instability. In other words, unprecedented change always hampers the smooth functioning of the planning.

(ix) Wasteful Use of Resources:

Another drawback of planning is that the economic resources are not optimally used. Under free market economy, the firms are ideal as these are producing up to minimum cost of production. This means the resources are optimally used. But under planning same is not possible.

(x) Personal Efficiency Ignored:

Under planning, all economic activities are governed by state and as a result personal efficiency is completely ignored. There is no measuring rod of individual productivity. Without knowing productivity it is difficult to determine the reward. Sometimes, the laborers get reward less than their productivity. It affects their productivity adversely. Similarly, under free market economy, the producer produce only for profit motive. But under planning, profits are completely ignored. It adversely affects the entrepreneurial ability.

(xi) Difficulties in Planning of Agriculture:

It is pretty difficult to formulate and execute plan relating to agriculture. It is so because agriculture very much depends on nature and is very much volatile. Moreover farmers are prone to do their work at will. If there is regimentation in his work he will lose all interest in it.

(xii) Lack of Adjustment between prices and wages:

Under planning usually there is lack of adjustment between prices and wages. Prices are often higher. The labour class fail to satisfy their wants.

(xiii) Non-availability of accurate statistics:

Because of faulty method of survey, complete and reliable statistical data may not be available under planning. It may lead to wrong decisions on the part of the planning authority. The whole economy may have to pay a heavy price on this part.

(xiv) Difficulties in the Implementation of Plan:

It is really easy to frame plan but very difficult to execute it. It is because if defects arise in one sector, it will affect other sectors too. For instance, if iron, electricity, water and coal are produced less than the target, it will affect steel, machinery, automobiles etc. which are based on coal and iron. Therefore, implementation of economic planning becomes difficult.