The UPA government’s move to include foreign experts in various Planning Commission consultative groups drew severe criticism from the Left parties. Amidst this high profile political drama, a basic but central point has been overlooked. The question which seems to have evaded everybody’s attention is: do we need the Planning Commission at all?The Planning Commission was set up following the Soviet Union’s five-year plans. The Nehru-Mahalanobis vision was to make India a planned economy with a public-private participation in which the state would control the commanding heights of the economy. This vision was termed as mixed economy. The result, as we all know, is a “mixed up” economy proving that there is no third path between socialism and capitalism.Why did “planning” fail? Or to put it less provocatively, why did “planning” not deliver the expected results? Was it because our Indian economists and policymakers were incompetent? Or is there a more fundamental reason why planning as a strategy is bound to fail?The simple reason why planning is bound to fail lies in the simple truth that what cannot be known, cannot be planned. Suppose, by way of example, there was a Central Corporate Planning Commission which was responsible for deciding on behalf of all the corporates in India how much and when each would produce, and at what price they would sell their products. Would such a strategy work? Would it really be possible for this Corporate Planning Commission with a few intellectuals at the helm to gather all the information pertaining to all the industries, no matter how many people they employ? The answer must be a resounding no.There are two reasons why such a strategy is bound to fail in the case of our hypothetical commission. The first is the problem related to the division of knowledge. Based on the concept of division of labour, years and years of expertise in a specified line of work leads to the attainment of “specialised knowledge”, which is of two types: codifiable and non-codifiable.The reason why planning is bound to fail is because this knowledge (both codifiable and non-codifiable) which is transferred between the different economic agents in a society through the “spontaneous order” of the markets is simply impossible to duplicate in a controlled environment. Whatever one tries to achieve by “planning” in a controlled environment results in an acute shortage of the product. Take, for instance, basic public goods such as roads. Did half a century of the planning regime manage to give us adequate and safe roads? Did half a century of the planning regime manage to make India rich? Did half a century of the planning regime manage to obliterate the malaise of illiteracy, which plagues half of our population?The second and more devastating argument why central planning is bound to fail is drawn exclusively from an economic perspective. In a market economy, equilibrium or fair prices are determined through the free interplay of the forces of demand and supply in the market.Now, by definition, a socialist country is one where the factors of production are under state control. What does this mean? It means that the state will decide what to produce, how much to produce and when to produce. So how can a fair or equilibrium price be achieved if the supply side is constrained by government control? This anomaly in the economic system creates severe distortions in the economy, which ultimately lead to the debacle of socialist planning.Hence, central planning must be questioned not just because it is inefficient or less innovative or conducted without benefit of decentralised knowledge, but because central planning is really and truly and literally impossible as it is not possible to arrive at an economic calculation in a socialistic economy.The collapse of socialism in the Soviet Union and other countries provide telling case studies in this context.Except, policymakers in our country still believe that socialism is the answer to prosperity — and that such utopian dreams can only be achieved through the guidance of a central planning commission. They fail to appreciate the power of the market and economic freedom as the main elements for attaining prosperity.Rather than getting into baseless debates regarding whether to include foreign experts in the panel or not, the urgent need of the day is to examine the wisdom of persisting with our current planning paradigm.
