DMPQ: Evaluate the pro and cons of decentralized economic planning.

Pros

  • Economic planning is assumed to modify the restraining influence of limited resources by recogniz­ing the existence of particular constraints and by choosing and coordinating investment projects so as to channel these scarce factors into their most productive outlets.
  • Planning is necessary to take care of the poor and the downtrodden who have little asset endow­ments to benefit from the natural growth of economic activities. Poverty alleviation programmes have definitively helped in reducing poverty and generating employment.
  • Planning process manages the flow of resources across regions for accelerated removal of regional disparities and thus brings about integration of such regions into the mainstream of economic activity in the country.
  • Public sector investment has a major role to play in strengthening of the physical infrastructure, i.e., energy, transport, communication and irrigation etc. in order to support the growth process on a sustainable basis.
  • It is the Government and its planning process which is adequate for protecting environment, forest and ecology.

Cons

  • This economic system sees planners not being able to accurately predict shortages, surpluses and consumer preferences, which entails that they cannot also allocate resources efficiently. This would result in some areas having abundance of goods that cannot be sold and other areas experiencing shortages. On the other hand, a free market allocates resources based on the price system, making sure they will go where demand and supply are dictated.
  • Opponents say that this system will lead to dissent among citizens, as their basic right of free will is going to be challenged. This means that it will eventually lead to the citizens revolting against the government.
  • It has been observed that a centrally planned economy can stifle economic freedom, as citizens would have no incentive to take entrepreneurial risks or innovate. As you can see, central planners suppress the profit motive by considering decisions from entrepreneurs and transferring them to the state. As economists believe, society functions best when the economy is guided by invisible hand, which rewards personal economic freedom, but central planning restricts this strategy.
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