are the backbone of a planned economy. The economic freedom comprises freedom of consumption, freedom of choice of occupation, freedom to produce and the freedom to fix prices for the products. Under planning, the crucial decisions are made by the Central Planning Authority. The consumers, producers and the workers enjoy no freedom of choice.
Therefore, Hayek explains in his book ‘Road to Serfdom’ that centralized planning leads to loss of personal freedom and ends in economic stagnation. The decisions by the Government are not always rational. But, freedom to private producers will be misused; profit will be given top priority, welfare will be relegated. .
Elimination of Initiative Under centralized planning, there will be no incentive for initiatives and innovations. Planning follows routine procedure and may cause stagnation in growth. The absence of initiatives may affect progress in following ways. a.
The absence of private ownership and profit motive discourages entrepreneurs from taking bold decisions and risk taking. Attractive profit is the incentive for searching new ideas, new lines and new methods. These are missing in a planned economy. b.
As all enjoy equal reward under planned economy irrespective of their effort, efficiency and productivity, nobody is interested in undertaking new and risky ventures. c. The bureaucracy and red tapism which are the features of planned economy, cripple the initiative as they cause procedural delay and time loss. The ease of doing business is disrupted.
It is because of this, even socialist countries like Russia and China offer incentives to private enterprises. . High cost of Management No doubt the fruits of planning such as industrialization, social justice and regional balance are good. But the cost of management of the economic affairs outweighs the benefits of planning.
Plan formulation and implementation involve engagement of an army of staff for data collection and administration. As Lewis remarks, “The better we try to plan, the - - Economics of Development and Planning more planners we need”. Inadequate data, faulty estimations and improper implementation of plans result in wastage of resources and cause either surplus or shortages. .
Difficulty in