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Unformatted text preview: Chapter 14. Problems in Growth: Common Traits between Planned Economies and Poor Countries Planning the economy is just one manifestation of the perennial desire to mold society into a very precise, rigid, shape. All too often, unfortunately, that shape results from a few individuals&whim. The problem with planning is two-fold: on the one hand its aims are intuitively appealing, since they are nothing less than society&s future welfare. Also, the unfortunate appeal of planning is founded on the belief that private interests are fundamentally opposed to public interests. That belief is very deep, and may be traced as far back as we can go in history. Han Fei Tzu justies this opposition by the very way privateand publichave rst been written: In ancient times when Ts&ang Chieh created the system of writing, he used the character for private&to express the idea of self-centeredness, and combined the elements for private&and opposed to&to form the character for public& . The fact that public and private are mutually opposed was already well understood at the time of Ts&ang Chieh. To regard the two as being identical in interest is a disaster which comes from lack of consideration 1 . A further di culty to dismiss planning o/hand is that it is almost impos- sible to imagine that its consequences will be the exact opposite of its intent. A planned economy, as it will turn out, will achieve neither the objectives assigned to it, nor its potential. In this chapter, we will describe some of the problems encountered by planned economies. We will then draw a parallel between those economies and countries whose fate is to remain poor unless they put together a number of conditions necessary for growth and development. That society could acquire more of some essential goods or services at a lesser cost is a natural wish. Why shouldn&t a central authority decide upon 1 See Han Fei Tzu in Basic Writings of Mo Tzu, Hsn Tzu, and Han Fei Tzu , translated by Burton Watson, in: Records of Civilization: Sources and Studies, Columbia University Press, New York, 1965. It is believed that Han Fei Tzu&s work dates from the middle of the third century B.C. 1 the amount of goods to be produced and the prices at which these should be sold? In the event of possible refusal, producers may be coerced to do so, for instance by turning private ownership of capital (land and all industrial equipment) into public, or state property. In order to understand the consequences of such actions from the sole economic point of view, we need to review brie&y some basic concepts and laws that apply on any given market. 1 A brief review of some useful concepts in economics We start with the concepts of consumersdemand, producerssupply, the law of supply and demand, and nally the measurement of the benets society can derive from a given situation on a single market. This brief review is intended solely for those readers who have not had an introduction to economics.to economics....
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This note was uploaded on 06/16/2010 for the course MS&E 249 taught by Professor Olivierdelagrandville during the Fall '08 term at Stanford.
- Fall '08