Directive and indicative planning

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:55

There are two main approaches to planning in economics. It is about directive and indicative planning. You can understand the full scope of the last type of functionality only by realizing what the first one is. That is why we will start the article about the indicative method with the definition of directive planning.

Definition of directive planning

Directory planning is characterized by commitment, rigidity, the need to fulfill all the requirements, does not imply initiative, but is oriented towards the use of the levers of the command-administrative economy.

Definition of indicator based planning

Indicative planning is a method of socio-economic planning, consisting of a set of components and aimed at developing the economy. The basis of this type of planning is expectedly an indicator. This is an economic characteristic of the object of study that is accessible to observation and measurement, which allows drawing conclusions about its other properties that are inaccessible to research (about indices of economic changes, tax rates, profitability, and so on). ForInductive planning is characterized by two main features:

• special system of indicators-indicators;
• orienting and informing indicators.

Thus, directive and indicative planning systems are essentially opposite. The indicative system is exclusively advisory, not indicative, in order to inform the management systems of economic entities about the possibilities of economic potential.

Experience in indicator planning in developed countries

The variant of planning through indicators is the most common way to regulate the development of the socio-economic complex of a market economy. Indicative development planning in the areas of economy and society is a comprehensive mechanism for coordinating the activities and interests of such market entities as households, enterprises and the state.

Planning approaches in terms of indicators

In economics, there are various approaches to studying the planning process with indicators. There are four main forms of indicative planning that are actively used in practice in regulating existing and forecasting future market processes of a socio-economic nature.

The first approach is based on correlation with macroeconomic planning with the independence of business entities - enterprises. Under the conditions of this form, directive and inductive planning are closely intertwined. For example,The activities of Chinese state-owned enterprises are carried out on the basis of absolute economic independence and represent a macroeconomic planning option based on a combination of the private and public sectors, with the latter dominating. Chinese economists argue that, despite similarities in many ways, planning in China is not prescriptive but indicative, with the public sector predominating.

The second approach is based on the fact that planning by indicators is responsible for motivational and information-oriented functions. Indicative planning is applied by the state in the interests of the whole society. This happens when taking into account the needs of regional economies and active market entities. Plans are being drawn up for the development of the economy of the entire national economy of the country, which includes the private sector, and quite precisely defined guidelines for management are being established. Thus, the essence of indicative planning lies in the motivation of the interested participation of individual entrepreneurs and entire regions in the implementation of plans that have social value.

This planning approach is prevalent in developed countries. Japan is one of those countries. Indicative planning for socio-economic development is characteristic. From a formal point of view, state plans do not stand in the rank of laws, but are only programs for orienting and mobilizing economic sectors in order to implement programs that are effective in a national aspect.

The third approach has gained a high level of popularity. It is based on the inclusion of special tasks for the public sector in the content of the inductive plan. The orientation of private enterprises to the plans of the state as the most powerful subject of the market economy is characteristic, although this is not necessary. As indicators, the system includes directive indicators (government orders), target figures that are significant for entire industries and regions, individual enterprises, as well as such regulators as taxes, prices, interest rates on loans and other standards in the economic sphere.

The fourth approach presents the mechanism of mutual action of the state and smaller economic entities as inductive planning. In addition to informing business entities, it involves coordination work.

The main country that promotes this particular planning option is France. The government is called upon to inform and coordinate, and not to make decisions for the subjects and does not give them punishment. The French practice is responsible for the mutual exchange of plans between private enterprises and the public sector.

The role of planning through indicators

Indicative planning of this form can not only eliminate the defects of the market mechanism, but also establish government intervention in the economy through self-regulation. In the course of the analysis, a system of macro- and microeconomic indicators is revealed. The established indicators of scientific and technological progress, research are revealed by the systemmacroeconomic and microeconomic indicators that determine the degree of efficiency of capital, the scientific and technical process and science in general. As a result, we have an effective combination of all these characteristics in the economy of private enterprises and entire industries.

That is, indicative planning is a mechanism for coordinating the interests of the state and independent market entities, which effectively combines state regulation and self-regulation of the market. This mechanism, among other things, is responsible for the development of a set of indicators responsible for development in the areas of society and the economy and the determination of national preferences in terms of this mechanism, as well as the coordination of micro- and macroeconomic decisions.

The indicative method of planning determines special measures of state support for market economy entities that are directly involved in the implementation of the plan. These include many local government institutions, corporate governance bodies, financial and industrial groups, and so on.

In the implementation of the inductive planning system, the experience of economically developed countries should be taken into account. It clearly demonstrates that the system cannot be made to function effectively without the establishment of special planning bodies, as well as the empowerment of departments and ministries with a number of functions in this area. For example, the Japanese planning system has a number of broad branches.

Russian system

In Russia, compared to the leading companies in this fieldstates, things are not so rosy: the planning and forecasting system consists of the Ministry of Economy (entrusted with the authority to develop and maintain forecasts for the development of society and the economy) and finance (responsibility for the development, establishment and execution of budget obligations). The complex of structural units also includes the Central Bank (performs the formation of the main points of monetary, credit and foreign exchange policy) and the State Committee on Statistics (monitors the intermediate and final (over a certain period) results of socio-economic development).

An additional disadvantage of the Russian system is the combination of the functions of forecasting, control and regulation in the hands of the same state bodies. Eliminate this flaw is possible only by increasing the number of structural branches in the system. Today there are already proposals to expand the system with new organs:

• Treasury (responsible for the execution of the federal, regional and local budgets);
• forecasting committee (should summarize information from both ministries and all departments, as well as local and regional authorities, organizations and their trade unions, it plans to form long-term development forecasts);
• of the tax service, state property management funds (participation, along with the federal customs authorities, in the development of budget sections corresponding to the revenue component).

Evolution of forms of indicative planning inmanagement

A little about the development of the phenomenon. The first form of state indicative planning in history is opportunistic planning, which connects the proportions and speed of economic growth with the increased influence of the state budget on them. The restructuring of the economic structure in several developed countries at once at the end of the first half of the twentieth century necessitated the urgent need to harmonize the budget and forecast indicators in the sphere of the national economy. These projections, in turn, underpinned estimates of total tax revenues. This scheme led to the formation of medium- and long-term forecasts.

Examples of them:

• Japanese "Ten Year Plan to Doubling National Income:
• Canadian Growth Choices.

In the sixties of the last century, many countries of the market economy immediately began to create special planning bodies:

• Commission General for Planning (France).
• Economic Council (Canada).
• Economic Advisory Council (Japan).

Private enterprises and territorial authorities were not immediately involved in the indicator planning structure. Their addition to the participants in the system of indicative plans, with the establishment of tax benefits, government programs, and other measures, gave rise to a structural form of indicative planning.

Japan

This form of planning has been used quite successfully in Japan. This is evidenced by the fact that, on its basis, the country developed the first planintegrated territorial and sectoral development.

The main directions in Japan's state policy for twenty-five years have been targeted changes in the structure (including the development of knowledge-intensive industries) and the correct location of industries within the boundaries of the territory. But even after the extensive liberalization that has been pursued since the early 1980s, Japan's financial system has not given up on an active policy of long-term forecasting. Thus, the Fourth Comprehensive National Development Plan, which is currently functioning in real conditions, outlines the main development goals in all areas.

The main goal of planning in Japan is the multipolar use of the country's specific limited capabilities, taking into account the existing problems and the urgent need to ensure the country's security. The main aspects of achieving this goal are the elimination of the concentration of population and economy in certain parts of the island, as well as territorial development in order to deepen relations between certain areas and their interaction on an international scale.

France

The evolution in structural indicative planning and forecasting is also evident in France. Since the seventies of the last century, the indicative plan has been presented as a state plan focused on the production of public goods, and a method for correlating state actions depending on the policy of expenditure and income points of the budgets of regional and sectoral economic subsystems. On thisexample, you can see how the forecast and mandatory aspects of the plan are separated.

Under the influence of the crisis development recorded in the seventies and eighties and associated with a change in the dominant technological layouts and the deepening of development trends in the post-industrial format, indicative planning was transformed into a strategic one in developed countries. Strategic planning is characterized by tremendous flexibility, which is understandably necessary in the course of rapid evolutionary changes in the economic structure. In strategic planning, in comparison with the previous type, the boundaries of the area of possible actions of subjects have been seriously reduced, and there has also been a decrease in quantitative indicators and planning time.

In France, strategic planning was first applied in the tenth indicative plan of the last decade of the twentieth century, the essence of this idea was to select the main priorities of national economic development. Six main directions for the development of the French economy were identified:

• education,
• strengthening the national currency and providing employment,
• social protection,
• scientific research,
• course on the renewal of civil services,
• beautification of local areas.

United States

The American authorities have defined indicative strategic planning as a search for previously unused solutions aimed at achievingfree and successful competition, the development of international cooperation on many points, the maximum possible promotion of the productivity of the economy. All these measures must necessarily be based on the absolute trust and full financial support of local and state authorities.

In the penultimate decade of the twentieth century, the scale of indicative structural planning among developed countries began to wane. This outcome was due to the lack of plasticity and flexibility of the established form of planning. At the same time, structural planning to a certain extent provoked lobbying for the interests of declining obsolete industries.

Short summary

The financial crises of the 1990s in developed countries clearly demonstrated that the increasing role of free market mechanisms as the state's economy internationalizes increases problems in the field of national credit and financial systems. As a result, the need for constant effective coordination of the functioning of business entities at the national and international levels becomes even more obvious. That is why many major economists of our time are betting on the strengthening of the role of state planning in the economies of developed countries in the very near future.

Evolutionary processes in the field of forms of indicative planning from conjuncture to structure, and then the processes of formation of a strategic form, have been going on in developed countries for several decades.

Conclusions on Russia

Indicative planning is the weak side of our country's economy at the moment. In Russia, only individual elements are used today, but all the necessary components have not yet been introduced into the planning system. The term "indicative planning" is also not used in Russian laws. And planning and forecasting processes in various areas of state regulation today are not united in our country into a single system.

Variants of state influence on the socio-economic development of the country can be implemented both included in the indicative planning system and excluded from it, but the first option will be incomparably more effective.

According to many experts in the economic sphere, the design of a planning system based on indicators in a structural form is urgently needed in terms of developing the mechanism of the national economy. However, they also allow the possibility of reorientation to a liberal (strategic) model of indicative planning, but only after overcoming the economic crisis and after the completion of institutional and technological types of modernization.

Management methods based on a long-term strategy proved to be the most effective in crisis conditions. The main feature of this type is flexibility, and the main principles are: a frankly low level of regulation and the fastest possible decision-making to reduce the degree of emerging dangers. The opportunities currently available dictate the urgent need to use in Russia precisely the strategic form of indicative planning,however, with the use of some elements of structural planning within its framework.