Formulating a nation's Five-Year economic plan isn't easy; it is based on many assumptions, variables, and unknowns, and it may or may not bring about the planned results.
On a smaller scale, for example, grocery shoppers who buy grains and spices once a year, in bulk, must anticipate their families' needs for an entire year. They must know how much to buy, when to buy, which brand to buy, from where to buy, what prices to pay for each kind of grain and spice, and how many containers would be needed to store the supply, among other things. Our government, like the shoppers, prepares a plan, however inaccurate it may be, for the things our nation needs.
The idea for government planning came a long time ago, when our first Prime Minister, Jawaharlal Nehru, visited Moscow with his wife, daughter, sister, and father in November 1927. There, he was impressed by the USSR's economic progress through planning. Nehru writes in his autobiography that upon his return to India in December 1927 he found that, 'A vague, confused socialism was already part of the atmosphere of India. This tendency was strengthened in India by the developments in the Soviet Union, and particularly the Five-Year Plan.' Soon after India gained its independence from the British, Nehru created the Planning Commission of India, became its first Chairman, and launched the first Five-Year Plan on December 8, 1951; we are now in the 11th Five-Year Plan, which ends in 2012.
Nehru and others saw the Five-Year Plan as the key to resolving the nation's economic problems. Indeed, there is no doubt that India has made tremendous economic progress. The Bhakra and Hirakud dams, the IITs, steel, cement, fertilizer plants, factories, the Atomic Energy Commission, the University Grant Commission, the Family Planning Commission, the Oil and Natural Gas Corporation, scientific research institutes, hydroelectric and coal power plants, the national highway system, space missions, and many, many other economic achievements are direct results of economic planning and government spending.
As with any planning and spending activity, however, whether governmental or personal, it is hard to achieve a fully satisfactory outcome. At the end of third Five-Year Plan in 1966, for example, government-operated steel mills produced 70 lakh tons of steel, but most of it had to be sold to foreign nations because the industries that could use the steel had yet to develop.
In the Planning Commission's nearly sixty-year lifespan, there are numerous examples of missing targets, inflated results, over- or under-production, and over- or under-spending. These are potholes that pop up on our socialist road, a road that Nehru paved. He writes, 'I see no way of ending the poverty, the vast unemployment, the degradation and the subjection of the Indian people except through socialism.'
The Soviet Union is a planned economy and has years of experience in planning, yet it experiences shortages. At one time, Russia was a wheat exporter and had nearly 310 lakh people working in farming, but there were times when their agricultural production declined, and Soviet planners could not figure out why.
In 1965, Harold Wilson, then the Prime Minister of the UK, thought that central planning was an excellent tool for the government and asked Britain's Department of Economic Affairs to develop a national plan 'aimed at maintaining a steady expansion in industrial production year by year,' especially of industries involved in making goods for export. The plan died in short time, however, because a crisis developed in the value of the Pound Sterling.
Faults of Planning
There are several reasons why economic planning is not useful. First, it is not an absolute science. Even with the help of mathematical techniques and computers, it is a complex task to precisely interrelate the demand for goods and the factors affecting production for every item for a five-year period.
Second, private entrepreneurs are afraid to make the products government makes, even if permitted to do so, because the government has monopoly power over the products it makes, so it can drive private companies out of business at any time.
Third, economic planning and government factories suppress competition for the three most common economic resources: capital, capital goods, and labor. The government could pay large sums of money for these resources and make them expensive for private companies. In fact, sometimes workers prefer to work for the government, for it offers them a chance to earn more, work less, and enjoy job security.
Fourth, it is easy in a free market economy for businesses to supply what the public demands at prices consumers are willing to pay. If private companies produce more of a product than is demanded, either the price of the product will come down, or companies will go out of business. This way, a Planning Commission does not need to be in the business of determining which items consumers will want; the market will determine what should be produced.
Fifth, a Five-Year Plan becomes useless in the event of a natural disaster, war, violence, devaluation of currency, or political crisis. Any such event would make a Plan and its variables and assumptions obsolete.
Lastly, government planning suppresses human liberty and ingenuity.
Push for Planning
In 1955, Nehru and Prasanta Chandra Mahalanobis (Nehru's handpicked architect of the second Five-Year Plan) stated clearly, 'The public sector must be expanded relatively faster than the private sector.' Nehru's advisors also agreed that the second Plan must push India towards socialism. We now know why our nation has been treating the private sector as an orphan child and not as an only child.
Dissent Against Planning
Sadly, at that time, no one paid attention to the lone voice of B. R. Shenoy, who was a member of the Planning Commission in 1955 and who states in the Note of Dissent:
'Efficient management of business and industrial concerns in a competitive market economy is a highly specialized function and demands qualities which a civil servant is not required to, and in the ordinary course of his training may not, acquire. This function is best left to private entrepreneurs, in the prevailing socioeconomic order which is dominated by the market economy and the pricing system I am unable to agree with my colleagues that a case exists for continuing what controls now remain. Steps should be taken to remove controls as early as may be possible. Controls and allocations are an essential characteristic of communist planning. They do not very well fit in under planning in a free enterprise market economy.'
What to do about the Planning Commission of India? Abolish it.