Concepts and Methods of Development Planning

 

Introduction

¬  despite many changes there is a general agreement that planning with or without a formal plan document can be very useful in conducting economic affairs of a country, provided certain conditions are met

¬  many advanced free-enterprise economies prove that for planning, heavy government and bureaucratic intervention isn’t always necessary

¬  governments play a minimal role in economic management and do regularly formulate plans to guide the conduct of their economic policies

¬  the alternative to planned development is total reliance on the market to allocate resources

¬  most policy analysts would recommend an approach that avoids both extremes of tight state control and too much reliance on the market

¬  this module aims to introduce the reader to the basic concepts and methods of development planning, which is a specialised subject

Development Planning- International Experience

¬  over the past four decades developing countries in many parts of the world have prepared several development plans, spending vast amounts of resources to do so

¬  however initially they did not have the technical capacity to undertake such work, and so depended heavily on expatriate expertise

¬  in Eastern Europe, Asia and Northern Africa most socialist economies were inspired by the apparent success of the planned development in the former USSR, and so attempted to copy the plans

¬  Sub-Saharan Africa and the Caribbean were often influenced by their colonial rulers and were managed largely by expatriates; along with this external aid agencies also influenced the plans

¬  many of these type of plans however remained mere “show pieces” as they lacked domestic political support; this was also common in Latin America

¬  however the process of plan preparation has brought considerable “side benefits”, despite the lack of implementation, including understanding development problems, improved statistical data collection systems and a core of trained public officials

¬  some countries are motivated to create development plans to attract aid, and often meet these objectives even if the plans themselves are not fully implemented

¬  many countries in East Asia (Japan, the Republic of Korea, Taiwan and Singapore) developed a different, more pragmatic approach  to planned development; managing national resources so the focus is on comprehensiveness as well as having developed a unique partnership between the public and private sector

¬  other East Asian economies-Malaysia, Thailand and Indonesia followed a broadly similar approach

¬  since 1960 the eight “high performing Asian economies” (HPAE) listed, have achieved growth rates twice as high as the rest of East Asia and three times that of South Asia and Latin America

¬  they were also successful in spreading the fruits of growth among their population and so while the average income levels increased rapidly, the number of people living in poverty dramatically declined, as such the human development indicators increased

¬  thus it would appear that development planning appeared to work well in the East Asian area

Development Planning in Sri Lanka: A Chronology of Important Events

¬  Sri Lanka’s experience in development planning generally conforms to the pattern of the majority of developing countries, with no periodic plan actually being implemented as originally intended

¬  this however hasn’t been a wasteful exercise because during the process of plan preparation several side benefits have been brought

¬  over the last fifty years there have been planning experiments at the national level as well as plans being prepared and implemented at other levels such as sectoral plans and strategies/programmes and various regional plans

¬  the earliest sectoral/regional plans were perhaps those related to the various irrigation and colonisation schemes such as Minneriya and Gal Oya (1930s and 1940s)

¬  while a considerable amount of planning has occurred over the last five decades, their continuity had been adversely affected by frequent changes in institutional arrangements

Arguments For and Against Planning

¬  “resource allocation” concerns all decisions taken by numerous economic agents that affect not only the size but also the internal composition of the variables (investment, private consumption, government consumption, imports, and exports)

¬  there is a relationship between investment and growth of the economy that is fundamental to planning at the macro level- the level of investment undertaken during the current period determines the future growth of the economy

¬  the arguments for and against planning may be summarised as follows;

• market based allocation decisions may not address such broader and long- term social objectives and may lead to unfair distribution of incomes across income groups and geographical regions
• however, in practice governments have neither the necessary information and foresight nor the institutional capacity to formulate plans and implement them successfully
• therefore, planned development managed by the Government may lead to excessive controls and price distortions that retard economic growth. The end result may be worse than what would have occurred had there been no intervention
• given this reality, a developing country is best advised to work out an optimal balance between an ‘incomplete market’ and an ‘incomplete government’ to build a system appropriate to its own circumstances
• planning can, in principle lead to better allocation of resources that meet the long-term and broader social and economic objectives of a society

Development Plan- Components and Main Features

¬  a development plan is a way of setting out:

·         the development goals and objectives of the nation as identified by the Government in office and

·         a strategy for achieving these development goals and objectives

¬  in addition, a development plan can include several non-critical or peripheral features such as a situation analysis, priorities, plan targets and a monitoring and implementation scheme

¬  below are the objectives of an actual plan:

¬  despite many changes in our thinking on development issues since its publication, the methodology of the TYP and many of its findings remain generally valid even at present

Classification and Terminology of Development Plans

¬  a plan document is the outcome of a plan-preparation exercise

¬  there is an important difference between planning and plan-preparation; planning is a process of intervention in the economy in pursuance of perceived goals and objectives, while the planning process  involves centralised control of production, distribution and prices

¬  in planning the Government exercises a high degree of control over economic and social affairs and is often referred to as a “Command Economy”

¬  while the associated planning process is often referred to as “Dirigistic Planning”

¬  it should also be understood that planning, as described, can exist without any formal planning document

¬  several criteria maybe used to classify development plans, following are some types:

·         comprehensive plan:- covers all key sectors of the economy, placing considerable emphasis on maintaining balanced growth among the sectors

§  technical innovations were developed during the 1950s and 1960s to support such plans

·         partial or strategic plan-  is the alternative to a comprehensive plan , it addresses selected sectors, the emphasis being on developing certain lead sectors which will create conditions for other sectors to develop without too much intervention

§  Public Investment Programme is an example of a strategic plan

·         indicative plan- these provide only a forecast of the future state of  the economy as an attempt to guide the public and private sector agencies in their economic decisions

§  thus they are fundamentally different from comprehensive plans, and seem to be more like dirigistic plans

¬  plans can also be classified according to time periods, and it is possible for them to exist side by side

·         short-term plans- in general are concerned with economic management/stabilization including the conduct of fiscal and monetary policies (1-2 years)

·         medium-term plans- usually emphasize economic growth, income, and employment objectives which are to be achieved through appropriate policy reforms and investment programmes (5-6 years)

·         long-term plan (perspective plan)- incorporate a long-term vision for society and seek to achieve selected goals in accordance with it (10-20 years)

¬  classification can also be based on objectives, where again there are three classifications, which can also exit side by side, and are in fact  complementary

·         macroeconomic plan- provides an overall picture of the existing economic situation as well and indicators of the movement of the economy as a whole

§  it may also describe the strategy for achieving the plan objectives

§  these are generally short-term or medium-term plans

·         sectoral plan- sets forth objectives for a particular sector, and the necessary to achieve such objectives

§  usually medium or long term targets are set for production, employment, incomes, exports, savings and investment

§  preparation of sectoral plans are normally preceded by a detailed sectoral analysis

·         project plan- projects are very important for any development programme because they are the instruments that finally deliver development

§  careful planning prior to the actual launching of the project is essential to ensure maximum benefit is derived from eth resources

§  this applies to all projects equally

¬  the modern approach to project planning is often referred to as  a “project cycle”, which refers to a series of activities/stages involved in designing and implementing a project successfully

                                                         i.            identification

                                                        ii.            preparation

                                                      iii.            appraisal

                                                      iv.            implementation

                                                       v.            evaluation

¬  decisions on selection and design of projects are based on an analysis of costs to be incurred and benefits expected from the project

¬  planning and strategy: strategy is a part of the development plan, but not the plan itself

¬  a strategy normally involve selecting certain critical actions, making decisions on sequencing and timing to implement them, therefore a good development plan invariably includes all these elements

¬  therefore  a development strategy in a typical developing country may involve:      

o   selecting certain priority programmes and projects

o   making policy changes

o   determining time schedules for implementations

o   making suitable arrangements for coordination, monitoring and progress control

¬  planning and policy: the term policy is meaningful only when it is related to a subject

¬  it appears that the actual term “policy” refers to a way of “doing things” representing a choice of one of several possible ways

¬  they maybe classified in two broad groups:

o   economy-wide policies (e.g. monetary policy, fiscal policy, employment policy and wage policy)

o   sectoral policies (e.g. agricultural subsidy policy, health policy and university admissions policy)

¬  policy regime: when all polices are taken together they forma policy regime, or a policy environment

¬  policies have a quality dimension to them, however they can only be judged as good or bad in relation  to the objectives they seek to achieve, not in isolation

¬  at least two common criteria exist that may be used to judge the quality of a policy regime:

1.       al policies should unambiguously work towards the stated objectives

2.       all policies should be consistent

Properties of a Good Development Plan

¬  based on the experiences of countries that have followed a planned approach to development, we can draw some useful generalizations of desirable properties a development planning process should have

¬  they can be summarized as;

·         consultation- giving due consideration to the views and requirements of a  wide cross section of the society in plan preparation; often requiring qualitative judgments as analytical techniques are insufficient; this provided a way of informing the private sector of what government is doing

·         flexibility- adequate provision must be made to adjust targets and reorient the strategy mid-way through implementation, due to uncertainties in the external environment

·         selectivity- governments should be selective in the adoption of goals and instruments for best results

·         policy coordination- there is no prescription for institutional arrangement, though it is necessary for a successful development plan; each country has to develop its own mode depending on its specific socio-political circumstances

·         paying due attention to information collection and monitoring- information is crucial to any planning activity; policy makers need to know where they want to take the economy, as well as  where it currently stands, and this is only attainable via statistical data; monitoring being necessary during implementation, to ensure that planned activities make adequate progress towards the goals, again reliable statistical data becomes importantDownload: eType1.com/f.php?FThoii

 -Mr. S. A. Karunaratne