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National planning and the role of markets

6th September 2013

By: Saliem Fakir

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The National Development Plan (NDP) is receiving vitriol from both the left and liberals these days. The left sees the NDP as being too market friendly, while the right sees it as being too Statist.

Some segments of the liberal constituency are in awe of the messenger and the message. Now the divided liberals are in a twist as to where they should go from here. Followers of economist Fredrich Hayek suggest that the NDP is a concerted conspiracy for central planning and the vigour with which the idea of planning is being pursued by an arm of the State is a sign of a new undercurrent that will harken the dark ages of State control and interference.

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Images are conjured up of the bygone days of Russian-type central planning, such as the Gosplan, trying to regulate every detail of economic activity, such as how many widgets a factory in Moscow should produce or how much bread rations should be imposed on citizens. This may have been familiar in Hayek’s time, but one would be hard-pressed to find in the same countries the same past reality that Hayek took to task then.

It is worth remembering that Hayek’s book was published in 1944 – it is over 60 years since then. The world has changed and so have the nature of communist regimes and thinking. The central theme throughout Hayek’s book is about coercive power, resistance against threats to abolish private property, freedom for entrepre- neurship, and his fears about collectivism.

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In essence, Hayek did not mind certain types of planning and the State enforcing the rule of law – as long as it did not interfere with competition and the individual’s ability to make decisions that are in the interests of market efficiency.

Hayek’s book is not also without its problems. He does not say much about what must be done when markets fail. Often, State planning is a riposte to too much faith being placed in market mysticism, given the challenges of underdevelopment our country faces, that unconventional approaches are not given ‘sufficient time of day’.

At least, the notion of planning as a tool to think through and rationalise effort and resource allocation is getting a great deal more attention than has ever been afforded in this country’s policy and economic decision- making. Many of us would say it is about time. No country should go headlong into the future without some direction as to what an end goal should be. Besides, it is a matter of interpretation whether something that is called a plan is really a plan. The NDP is at best a planning framework. It is not infallible and it is not a plan in the strictest sense. There are many sections in the NDP that vary between commentary, proposals for actions to be taken and recommendations on things that need to be planned for, without specifying a plan on how to get to an end point.
As critics of the plan from unions and other quarters have noted, it has missing parts. Presumably, the varieties of actions and recommendations will be further rationalised and put through a planning process that will have a budget and delivery mechanism linked to them.

If anything, there is a feeling that there is too little visioning, planning and thinking going on about the long-term needs and expec- tations from the South African economy that should ideally be reflected in today’s decision-making process – hence, the National Planning Commission.

What is true for government is also true for business. No business runs its affairs without a vision and some strategy and plan to deliver the outcome. Plans are also driven by context, understanding of resource availability and capability that can match future needs.

With regard to communist planning, in the 1960s, countries such as China threw out the Russian approach to planning and adopted a more pragmatic approach, resulting in their five-year planning cycles, which continue to be shaped by the powerful National Development and Reform Council. China, by all accounts, has used State planning tools effectively, as testified to by its three decades or more of high growth rates. In essence, China learnt from Japan and South Korea.

In the early post-World War period, Finland’s State was active in building a diversified and strong State-owned sector. Finland’s active State engagement led to a range of new sectors being built in mining, chemicals, engineering and energy, besides others. The Finnish government implemented a strident coordinated market economy that led to rapid development in Finland.

In all of these cases, country-specific circumstance drove the innovation of tailor-mixed approaches rather than a marriage to particular ideologies. The NDP is not the only planning mechanism in place.

As the NDP evolves, we already have various forms of planning instruments in place, such as the Medium-Term Expenditure Framework, which the National Treasury uses to guide spending and monitor budgets. The Integrated Resource Plan (IRP) for the electricity sector is, in effect, a de facto 20-year plan to rationalise generation capacity, based on various assumptions.

Ironically, this plan involved extensive input from private expertise through the Energy Intensive User Group. The IRP provides clarity on the vision for the energy mix, the price path and the power technologies to be implemented and when they should be implemented.

The National Treasury is also to introduce long-term fiscal planning instruments that are currently used successfully, primarily by developed liberal and free-market economies.

Often, the allergic reactions to the NDP lead some too hastily caricature both Hayek and the NDP, reducing commentary to what Keynes once warned us against – reaching the third degree “when we devote too much intelligence to anticipating what average opinion expects average opinion to be”.

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