Rationale for Economic Planning

Introduction Planning is beneficial for both the developed and underdeveloped countries. Developed countries require EP to maintain or accelerate growth already achieved Developing countries also require EP to overcome poverty and to raise the standard of living. Unless the underdeveloped countries embark on economic planning, they will be left far behind in the race of increasing the economic well-being of their people.

Arguments in favour of EP To reduce Market Failure The market efficiently allocates scarce resources among alternative ends. Through the market, consumers receive goods for which they are willing to pay, producers produce goods that are demanded by consumers etc.

However there are instances when market decisions do not produce the best results. When the market fails, important aspects of the economy and social life such as environmental degradation, HIV/AIDS prevention, measles vaccinations, defense, schools, sewage disposal etc. are ignored. With such goods and services social profitability exceeds private profitability when external economies are rendered free by one economic unit to consumers or producers. Economic Planning is therefore required to produce such essential goods and services to ensure the general well-being of the citizens.

Less Inequality in the distribution of Wealth Economic planning seeks to reduce inequalities in the distribution of wealth and income. It is the constant effort of the government to narrow the gulf between the rich and the poor classes. To achieve this objective for eg, rich class is burdened with progressive taxation and poor-class is provided with free social services. In other words, Government takes different measures to reduce the gap between rich and poor through economic planning.

To Ensure Balanced Growth: In many economies, we find some sectors or industries more developed and others remain at the same level of development eg. The services and the agric and manufacturing sector in Ghana. If allowed to continue, this may adversely affect the growing sectors as they will suffer from the inadequacies of raw materials, limited size of the market etc. For the economic development, we need all the sectors of the economy to develop in a balanced manner. The objective of a balanced growth can be achieved through planning. Balanced development accrues various advantages like optimum use of human and natural factors, industrialisation, increase in national income, increase in the productivity of labour etc.

Ensures Rapid Economic Development The path of economic development is well-defined and priorities are already fixed under economic planning. But under laissez faire economic development cannot be rapid as resources are not allocated according to plan. Under economic planning, new resources are discovered, which help in raising the level of investment and national income.

Planning Ensures the Distribution of Resources between the Present and Future Generations The resources of a country have to be distributed between present and future. It may happen that all the natural resources of the country may be used in the current period and there may be hardly anything left for the future use. In a planned economy, the resources of the country are used in a planned manner. This means future needs of the country are kept in mind through planning, it is also ensured that the natural resources are not wasted and these resources are not used for any particular group of the society.

Economic Planning is useful during Conflicts/ Emergencies. During conflicts/ emergencies a lot of resources are diverted to solve the difficulties at hand. Eg. Ebola, boko haram, ethnic conflicts etc. Under planned economy, when all the resources are centrally controlled, any emergency can easily be brought under control by diverting the resources from less useful purposes to more useful purposes.

Attainment of Full Employment The capitalistic unplanned economies have failed to provide employment to all those who are willing to work at the existing wage rate. Under planned economies, various projects are launched with a specific population/ regional target in mind to provide maximum employment opportunities. In this way, economic planning is very fruitful to solve the problem of unemployment.

Ensure the Flow of Foreign Aid Most of the aids that developing countries receive are tied to specific objectives of the countries. To receive such aid in the form of loans and grants, developing countries are required to have a development plan ( short term, medium or long term) in place showing clearly how they intend to put such funds to use. Undertaking Economic Planning therefore ensures the continuous flow of aid which can be used to complement other sources of resources for economic development.

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