Indicative planning is a form of economic planning implemented by a state in an effort to solve the problem of imperfect information in market and mixed economies in order to increase economic performance. However, indicative planning takes only endogenous market uncertainty into account, plans the economy accordingly, and does not look into exogenous uncertainty like technology, foreign trade, etc.
When utilizing indicative planning, the state employs “influence, subsidies, grants, and taxes [to affect the economy], but does not compel”. Indicative planning is contrasted with directive or mandatory planning, where a state (or other economic unit) sets quotas and mandatory output requirements. Planning by inducement is often referred to as indicative planning.
Indicative planning is coordinated information that guides the choices of separate state and private entities in a market economy or mixed economy.
This method of economic planning originated in France after the Second World War and was carried out by the Commission General du Plan. The underlying concept behind indicative planning is the early identification of oversupply, bottlenecks and shortages so that state investment behavior can be modified in a timely fashion to reduce the incidence of market disequilibrium, with the goal being a concerted economy. Indicative planning was one aspect of dirigisme.
People’s Republic of China
Since the 1978 economic reforms in China, the state reduced its role to directing economic activity rather than managing it through directive plans. By the early 21st century, the Chinese government had limited the role of directive mandatory planning to goods of national importance and large-scale construction, while increasing the scope of indicative planning and market forces in all other sectors of the economy. The current Chinese socialist market economy is largely based on market forces for consumer goods and indicative planning for heavy industry in the public sector.
Union of Soviet Socialist Republics
The Soviet Union utilized indicative plans for its state-run economy up until 1928, before they were integrated into mandatory planning under the Supreme Council of the National Economy and later by the Gosplan. Alexei Kosygin’s 1965 Soviet economic reform tried to introduce some sort of indicative planning in the USSR.
The Japanese government practiced indicative planning through the Japanese Economic Planning Agency.
National economic planning
The term National Economic Planning is associated with government’s effort to coordinate the working of both the public sector and the private sector through a structured mechanism. Although, during the 20th century, the term was more associated with the communist and eastern economies, through the 1970s, theorists and practitioners documented the growth of this practice amongst western economies too [permanent dead link]. In the latter part of the 20th century and till date, economists have demanded that underdeveloped and developing countries — especially in continents like Africa — should embrace National Economic Planning to a large extent . Famous proponents and practitioners of National Economic Planning have been Nobel Prize–winning Russian politician Leonid Kantorovich, John M Hartwick , Carl Landauer (who, in 1947, wrote one of the first western books on the subject, titled Theory of National Economic Planning), American Republican politician Alf Landon, the Russian born Canadian politician David Lewis, Chinese politician Zhang Baoshun and German sociologist Adolph Lowe.
- ^Alec Nove (1987), “Planned Economy,” The New Palgrave: A Dictionary of Economics, v. 3, p. 879.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.