China Economic Planning

Transcription

1 China Economic Planning

2 Planning in the Old USSR According to Marxist/Leninist Thought: No market prices No financial markets No trade with capitalist countries No private property How is it decided what will be produced without the guidance of prices? What production methods will be used? How is it decided which consumers get the output?

3 The Plan ~ Input Output Tables TECHNICAL COEFFICIENTS: For every sector of the economy it is determined how much of each input is needed to produce one unit of output. In the example below, it takes.7 units of labor to produce one unit of Agric., and it takes.1 units of Services to produce one unit of Heavy Ind. Agric Heavy Ind. Light Ind. Services Agric Heavy Ind Light Ind Services Labor

4 Output Targets Planners set target output levels for each sector. Unlike the example below, it was common for planners to emphasize high output targets for the Heavy Industry sector. According to the goals of the planners, the development of heavy industry in the urban sector was viewed as a first step toward rapid economic growth. Very large steel factories were often observed in planned economies. Agri Heavy Ind. Light Ind. Service Target Output

5 Material Balance With these data, the planner can then allocate inputs to each sector of the economy. The target for the Agri sector is 250 units of output, it takes.1 units of Heavy Ind inputs to produce one unit of Agri, and so.1x250=25 units of Heavy Ind. Is sent to the Agri sector. Agri Heavy Light Ind. Service Cons. Total Use Ind. Agri Heavy Ind Light Ind Services Labor Total Output

6 Material Balance How much labor will be sent to the Agri. sector? Agri Heavy Light Ind. Service Cons. Total Use Ind. Agri Heavy Ind Light Ind Services Labor Total Output How much labor will be sent to the Light Industry sector? Note that while this is a simple calculation, the result was often the mass, forced relocation of people.

7 Material Balance To get the amount available for consumers from each sector, we take the output target and subtract the amount that has been used up as inputs in the other sectors. 250 units of Agri were produced, but 145 ( ) were used as inputs in other sectors, so 105 units of Agri were left over for consumers. Agri Heavy Light Ind. Service Cons. Total Use Ind. Agri Heavy Ind Light Ind Services Labor Total Output

8 Material Balance Surpluses and Shortages could be exported or imported in a trade sector of the model Agri Heavy Light Ind. Service Cons. Total Use Ind. Agri Heavy Ind Light Ind Services Labor Total Output

9 GDP Accounting The size of the economy was measured differently in the planned economies than in the West. Using this example, GDP according to the Western concept would be 525, the amount of final goods available for consumers. Under the Soviet system, GDP was recorded as 1000 which includes output used up in the process of production. And what is the exchange rate? Agri Heavy Ind. Light Ind. Service Cons. Total Use Agri Heavy Ind Light Ind Services Labor Total Output

10 Planning and the Labor Theory of Value First note the total quantity of labor we have in this economy; 525 units of labor. Second, notice the total amount of goods available for consumption: 525. Finally, smile since the planning document is consistent with Marxist thought! Agri Heavy Ind. Light Ind. Service Cons. Total Use Agri Heavy Ind Light Ind Services Labor Total Output

11 Planning Successes Compared to market processes, planning has the potential to move resources more quickly to attain social goals. (The planners chose the goals.) Provision of public goods like clean water and mosquito abatement. Building a steel industry and other large scale projects. Giganticism was a noted feature of planned economies. Provision of certain kinds of scientific research which private market firms could not profitably supply. Military action

12 Planning Failures The Great Leap Forward ( )

13 Planning Failures The Great Leap Forward ( )

14 The Great Leap Forward ( )

15 The Great Leap Forward ( )

16 Planning, Trade, and the Great Leap Forward Grain surpluses in parts of China Chinese Grain Exports during the GLF Allocations of labor and outputs not based on comparative advantages Suppression of information (Armatya Sen s famous quote, no famines have occurred in democracies.

17 Next: Trade Begins to Open in 1978