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Indicative Planning

INDICATIVE PLANNING

As distinct from directive planning, as practiced in the Soviet Union from 1928 onward, indicative planning is a set of consistent numerical projections of the economic future without specific incentives for their fulfillment. Rather, the indicative plan is conceived as coordinated information that guides the choices of separate entities in the market economy.

The first indicative plans were those made up by Gosplan in the USSR during the mid-1920s. These were soon integrated into mandatory instructions issued by the Supreme Council of the National Economy (VSNKh), later by Gosplan itself. The output plans were supplemented by material balances, inspired by German experience during World War I and generalized as input-output analysis in the work of Wassily Leontief and others.

During and immediately after World War II economists in Continental Europe developed the idea of indicative planning as a guide to recovery and to ongoing short-term economic policy making. Notable were the Central Planning Bureau in the Netherlands, led by Jan Tinbergen, the French Commissariat Général du Plan, inspired by Jean Monnet, and the Japanese Economic Planning Agency. In all of these, government agencies play a role in collecting and developing the information necessary to build a multi-sectoral econometric model. Such a model allows alternative policy instruments to be tested for their effects on such targets as inflation, the growth rate, and the balance of payments. While indicative planning assumes a primarily private market economy with competition from outside the country, the concertation (unofficial collusion) of private investment plansas practiced in France and Japanis supposed to avoid duplication of effort, increase investment volumes, and perhaps reduce cyclical instability. Japanese and French bureaucrats have also guided investment funds from state-controlled sources into favored projects. In practice, however, it is doubtful that indicative planning has had much positive influence on the economic performance of these economies, particularly as they opened themselves up to international trade and capital flows.

Communist Yugoslavia adopted a kind of indicative planning in the 1950s. The main purpose was to guide the distribution of capital to self-managed enterprises throughout the republics of that country. After the fall of Communism, indicative planning was also adopted in Poland. The theoretical basis for indicative planning in a socialist context was developed by Janos Kornai and his coauthors, but practice never conformed to such rational schemes.

Indicative planning should be distinguished from so-called "indirect planning," embodied in the New Economic Mechanism in Hungary in 1968 and contemplated by Soviet reformers of the late 1980s. Instead of establishing a mixed or regulated market economy, as in Western Europe, the Communist authorities continued to dominate the economy through investment and supply planning, as well as subsidies. In both Hungary and Gorbachev's Russia, a weak budget constraint on wages and other costs led to inflationary pressure and shortages, along with rising external debts. These problems contributed to the collapse of indirect planning.

See also: gosplan; input-output analysis

bibliography

Ellman, Michael. (1990). "Socialist Planning." In Problems of the Planned Economy, edited by John Eatwell, Murray Milgate, and Peter Newman. New York: Norton.

Kornai, Janos. (1980). Economics of Shortage. Amsterdam: North-Holland.

Martin C. Spechler

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