devdelopmental plainnng and project anlayis 2 ppt ch 1

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1. Chapter I Introduction WSU- By Deresse D.

2. Outline Understand about the three development thinking in three development periods starting post war II period up to the present period Post war II development consensus The Washington consensus The current or oscillating search and some theoretical revisions and points with the way forward Comprehend the historical periods of planning evolutions Recognize how planning in the western, and eastern Europe evolved and shaped through time Meaning of planning. WSU- By Deresse D.

3. 1. Evolution of Development T hinking The evolution of development thinking can be summarized in to three different periods: The Early Post War Consensus The Washington Consensus The Oscillating Search for Silver Bullet WSU- By Deresse D.

4. The Early Post War consensus This period covers immediately after cease of World War II up to the end of 1960's and beginning of 1970's. This is the interesting period for the developing world because it gets attention by academicians how growth and development could be achieved in these countries. That is why in the 1950's and 1960's, the previously neglected sub-fields of Development Economics were rediscovered. Available economic models seemed to offer only limited insights into the practical problems facing the so-called Third World. From Keynesian to Harrod-Domar - Solow WSU- By Deresse D.

5. The period, for ease of understanding could be looked into five important sub- periods. Dualism It attracted due attention during the 1950s and 1960s. The components under dualism are: Sociological dualism Technological dualism Physiocrats Classical dualism- Surplus labor as potential for growth when transferred from agriculture to non-agriculture. WSU- By Deresse D.

6. b) Need for Balanced Growth (structuralism ) Emphasized the need for balanced growth not only between agriculture and non-agriculture but also with in each sector, c) International Trade Scene U nfriendly for development and demanded for equitable exchange. d) Interventionist State This is due to: pre-colonial independent countries want to exercise their own development agenda . To bring industrial growth b/c industrialization was synonymous with development ( 2 nd industrialization revolution). e) Technology in generating growth Solow model WSU- By Deresse D.

7. ii. The Washington Consensus Supported by prominent economists and international organisations , such as the IMF, the World Bank, the EU and the US . Advocates , free trade, floating exchange rates, free markets and macroeconomic stability . The main ingredients of the consensus are: Privatization and unified and competitive exchange rates Simultaneous liberalization of financial markets (domestic and international) Relative openness to Foreign Direct Investment (FDI) and gradual deregulation of control systems Emphasize on R and D Changes at micro level: labor market productivity, legal, financial and other institutional reforms. WSU- By Deresse D.

8. iii. The Oscillating Search for a Silver Bullet Serious mainstream attention has been given to the distribution of income, to the extent to which private income poverty is reduced and to the extent to which public income poverty (the distribution of public goods) is being addressed. The public income poverty can be seen through various human development dimensions like infant mortality, life expectancy, literacy as fundamental objectives of development . WSU- By Deresse D.

9. 2. Historical background of economic planning WSU- By Deresse D. The idea of economic planning in its modern form is comparatively new and it is the 20 th century phenomena. Ideologically , the evolution is from three perspectives: Planning in eastern Europe (socialist perspective) Planning in western Europe (capitalist perspective) Planning in underdeveloped countries (mixed economic perspective)

10. WSU- By Deresse D. Planning in Eastern Europe During the 19 th century, intellectual theorists, thinkers and writers in the Eastern Europe became fed up with the inquiry and contradictions of pure capitalism. Therefore, they developed the idea of state intervention to set matters right and to prevent inequalities resulting from capitalism (free economy) a solution to the fallacy of laisser-faire. But it was only state intervention that was advocated. There was no mention of economic planning.

11. WSU- By Deresse D. In 1928 the Soviet Union gave the idea of economic planning a real shape when it formulated its first five year plan. The main objective of the socialist (Soviet) plan was to achieve the rapid transformation of a backward agriculture sector (traditional sector) into a modern industrial sector. Planning in Eastern con’t ----------------------

12. WSU- By Deresse D. II. Planning in Western Europe Among the factors that necessitate planning in Western Europe: Wars ( eg . the Marshal plan); Great depression of 1930 th , Expansion of markets, and Specialization; The development of democracy;- to resolve social inequalities The development of science and technology not only made material progress possible, but also they made planning possible;

13. WSU- By Deresse D. III. Planning in Underdeveloped Countries In Less Developing Countries, planning was considered as an ideology rather than a means because in these countries planning was considered as a desire (expression) of many things, such as:- Desire of self control desire for industrialization(econ. Growth) Desire (expression) of independence Expression of self-determination Then planning as a political and cultural goal

14. WSU- By Deresse D. 3. Development Planning: Definitions, Objectives and Rationales What is planning ? Planning is the making of major economic decisions, such as the national income, income distribution, the saving rate, the investment rate etc. Or is the coordination of economic activities via conscious effort. It is a supplement to market forces. In most cases, price signals are misleading. As a result of this there should be a certain particular apparatus that coordinates economic activities in the economy. The very aim of planning is to compromise the different conflicting interests and to understand the desire of the economy by singling out social needs.

15. WSU- By Deresse D. Planning is an institutionalized activity by or on behalf of a certain authority for: The preparation of decisions and action to be taken by the central authority The coordination of decisions and actions by lower echelons of the economy as between themselves and the central authority for giving the development of the entire economy and its constituent parts so as to achieve certain goals for the economy.

16. WSU- By Deresse D. Meaning of Economic planning There is no agreement among economists with regard to the meaning of the term “economic planning” The term has been used very loosely in economic literature. It is often confused with communism, socialism or economic development. Any type of state intervention in economic affairs should not be treated as planning because the state can interfere with out making any plan.

17. WSU- By Deresse D. “Planning is neither the preparation of a list of schemes nor is it a political idealism; it is rational, wise and scientific method for achieving certain socio-economic goals and objectives.” Jawahahrlal Nehru Planning is a technique, a means to an end the realization of certain pre-determined and well –defined aims and objectives laid down by a central planning authority. The end may be to achieve economic, social, political, or military objectives. What is economic planning?

18. WSU- By Deresse D. Lewis has referred to six different senses in which the term planning is used in economic literature: i ) Planning refers to the geographical zoning of factors, residential buildings, cinemas and the like. Some times this is called town and country planning and some times just planning. ii) Planning means only deciding what money the government will spend in the future, if it has the money to spend. iii) A planned economy is one in which each production unit or firm uses only the resources of men, materials and equipment allocated to it by quota and disposes of its product exclusively to persons or firms indicated to it by central order. Economic planning----------------------

19. WSU- By Deresse D. iv). Planning some times means any setting of production targets by the government, whether for private or public enterprise. v ). Targets are set for the economy as a whole, purporting to allocate all the country’s labor, foreign exchange, raw materials and other resources between the various branches of the economy. vi) The word planning is sometimes used to describe the means which the government uses to try to enforce upon private enterprise the targets which have been previously determined. Economic planning----------------------

20. WSU- By Deresse D. But Ferdynanad Zweig maintains that: planning is planning of the economy, not within the economy. It is not a mere planning of towns, public works or separate section of the national economy, but of the economy as a whole. Thus planning does not mean piecemeal planning but overall planning of the economy. Economic planning----------------------

21. WSU- By Deresse D. To Hayek , planning means,” the direction of productive activity by a central authority”. One of the most popular definitions is by Dickinson who defines planning as ” the making of major economic decisions what and how much is to be produced, how, when and where is to be produced, to whom it is to be allocated, by the conscious decision of a determinate authority, on the basis of comprehensive survey of the economic system as a whole. Economic planning----------------------

22. WSU- By Deresse D. Although there is no unanimity of opinion on the subject, yet economic planning as understand by the majority of economists implies deliberate control and direction of the economy by a central authority for the purpose of achieving definite targets and objectives within a specified period of time. Hence, Planning is there in the household management or management of the private firms as well. It is a process which aims at choosing most economizing means for satisfying certain macro ends and a system under which coordination is brought about in the economic ends of individual producers and the production and exchange process is somewhat regulated and directed by the state, if not in its entirety. Economic planning----------------------

23. WSU- By Deresse D. 4. Need for economic planning Planning has been introduced in different countries for different reasons: In socialist countries - public ownership of resources followed, planning became an institutional need of the system In non-socialist countries , with private ownership, several factors have necessitated the use of the instrument of planning. In underdeveloped countries , development needs have been predominant in popularizing planning.

24. WSU- By Deresse D. Developing countries need economic planning in order to achieve the following objective: To increase the rate of economic development ; To improve and strengthen the market mechanism ; To reduce unemployment and disguised unemployment ; To enhance the linkage between the agricultural and industrial sectors ; To create social overhead that enhance agricultural and industrial growth ; To expand domestic and foreign trade ; To eradicate poverty ; To be Self sufficient in food and raw materials ; To reduce inequality. Need for econ plan……….

25. WSU- By Deresse D. 5. Stage of planning There are four well defined stages through which an economic plan has to pass for its successful working:- 1). Plan formulation The first stage in planning is the formulation of the general objectives of the plan and their definition in quantitative terms. It is possible that the task of formulation of general objectives may be attempted by the government itself, the government for final acceptance.

26. WSU- By Deresse D. The definition of the general objectives in quantitative terms i.e. the drafting of the plan is a task which is left to be performed by the planning commission. The planning commission is a body of experts and specialists in different fields of activities. After due deliberation and thought, the planning commission works out the economic plan for the country and presents it to the government for final acceptance. Plan formulation-------------------

27. WSU- By Deresse D. 2). Plan adoption The adoption of the plan is the function of either the parliament or the government. In principle, the parliament or the government can make any changes they like in the plan. But these bodies usually do not introduce any drastic or far-reaching changes in the draft of the plan. The reason is that the plan is a comprehensive, coherent and well-knit document. Any substantial or far-reaching changes effected anywhere in this document will upset the entire plan and necessitate its reformulation by the planning commission. In light of this , the parliament or the government makes only minor changes at the time of plan adoption.

28. WSU- By Deresse D. As soon as the plan is adopted by the parliament or the government, it becomes a law. It then becomes the statutory/legal obligation of the government to execute the plan. The position regarding the formal status of plans differs from country to country. Q- What is importance and drawbacks of provision of plan a legal status?? Plan adoption-------------------------------------------

29. WSU- By Deresse D. The two clear advantages in giving the plans a legal status: Firstly , the enactment of a plan into law raises its status in the eyes of political leaders, government officials and the general public thereby increasing the chances for its fulfillment. Secondly, it ensures continuity in the plan. eg. if governments change frequently. Against this, there are two disadvantages in putting a development plan on the statute book : Firstly : if the plan in enacted into a law, it will lack the desired flexibility which is an essential feature of a good plan. Secondly : if the plan is submitted to the legislature for approval, amendments may be introduced to it which disrupts the internal balance and consistency of the plan. Plan adoption-------------------------------------------

30. WSU- By Deresse D. As pointed out above, the planning commission is only an advisory body. It has no power to implement or execute the plan. The execution of the plan is the responsibility of the government. The various government departments and agencies take the necessary measures to execute the plan. These departments and agencies maintain continuous liaison with the planning commission which is the final authority as far as the interpretation of the provisions of the plan is concerned. 3. Plan implementation

31. WSU- By Deresse D. Every plan, however, well – drawn it may be, has to be constantly changed during its execution to adapt it to new requirements and new situations. In the words of A. Lewis “Implementation of a plan is more difficult than making it. “ Making a plan is an exercise of imagination, while implementation is a struggle with reality. eg. Before crossing the Atlantic, the pilot of an aircraft plots his course in relation to expected weather and winds. Once aloft, reality is found to differ from expectation. The plan must be modified continually to cope with changing facts.” Plan implementation-------------------------

32. b The supervision of the fulfillment of the plans is one of the fundamental prerequisites of planning. Planning can not be considered as good unless it takes in to account the course of the fulfillment of the plan. If the plan is not bound up with plan fulfillment, it becomes a mere scrap of papers. The supervision of the plan, however, calls for an independent body of experts and technical accountants unconnected either with plan formulation or plan execution. 4). Plan evaluation

33. WSU- By Deresse D. This body should evaluate plan fulfillment in a strictly impartial manner. It should boldly bring to the notice of the government the failures and drawbacks which it detects in the course of its evaluation. Q- There are four well-defined stages through which an economic plan has to pass for its successful working. Discuss those stages. Plan evaluation--------------------------------

34. WSU- By Deresse D. Following are the limitations of planning: (1) Planning Creates Rigidity: There may be a case of need changes can be brought in, but it must be admitted that only small changes are possible. Big changes are neither possible nor in the interest of the organization. Since it is not possible to introduce desired changes according to the changed situations, the organization loses many chances of earning profits. For this limited flexibility in planning, both the internal as well as external factors are responsible. These facts are called internal and external inflexibility. 6. Shortcoming of planning

35. WSU- By Deresse D. (A) Internal Inflexibility: At the time of planning the objectives of the organization, its policies, procedures, rules, programmes, etc. are determined. It is very difficult to bring in changes time and again. It is known as internal inflexibility,

36. WSU- By Deresse D. ( A ) External Inflexibility: External inflexibility means various external factors that cause limited flexibility in planning. These factors are beyond the control of the planners. The chief among them are: political climate, economic changes, technical changes, natural calamities, policies of the competitors, etc. For example, in political context, as a result of change, a new government brings up a new trade policy, policy of taxation, import policy, etc. All these changes make every sort of planning a meaningless waste. Similarly, a change in the policies of the competitors suddenly makes all types of planning ineffective.

37. WSU- By Deresse D. (2) Planning Does Not Work in a Dynamic Environment: Planning is based on the anticipation of future happenings. Since future is uncertain and dynamic, therefore, the future anticipations are not always true. Therefore, to consider planning as the basis of success is like a leap in the dark. Generally , a longer period of planning makes it less effective. Therefore, it can be said that planning does not work in dynamic environment. For example, a company anticipated that the government was thinking about allowing the export of some particular product. With this hope the same company started manufacturing that product. But the government did not allow the export of this product. In this way, the wrong anticipation proved all planning wrong or incorrect. It brought loss instead of profit.

38. WSU- By Deresse D. (3) Planning Reduces Creativity: Under planning all the activities connected with the attainment of objectives of the organization are pre-determined. Consequently, everybody works as they have been directed to do and as it has been made clear in the plans. Therefore, it checks their incisiveness. It means that they do not think about appropriate ways of discovering new alternatives. According to Terry, “Planning strangulates the initiative of the employees and compels them to work in an inflexible manner.”

39. WSU- By Deresse D. (4) Planning Involves Huge Costs: Planning is a small work but its process is really big. Planning becomes meaningful only after traversing a long path. It takes a lot of time to cover this path. During this entire period the managers remain busy in collecting a lot of information and analyzing it. In this way, when so many people remain busy in the same activity, the organization is bound to face huge costs.

40. WSU- By Deresse D. (5) Planning is a Time-consuming Process: Planning is a blessing in facing a definite situation but because of its long process it cannot face sudden emergencies. Sudden emergencies can be in the form of some unforeseen problem or some opportunity of profits and there has been no planning for all these situations beforehand and which now requires immediate decision. In such a situation, if the manager thinks of completing the planning process before taking some decision, it may be possible that the situations may worsen or the chance of earning profit may slip away. Thus, planning is time consuming and it delays action.

41. WSU- By Deresse D. (6) Planning Does Not Guarantee Success: Sometimes the managers think that planning solves all their problems. Such thinking makes them neglect their real work and the adverse effect of such an attitude has to be faced by the organization. In this way, planning offers the managers a false sense of security and makes them careless. Hence, we can say that mere planning does not ensure success; rather efforts have to be made for it.

42. WSU- By Deresse D. 7. Problems of planning A. Lack of Focus A business plan should focus on one goal to be effective. The process of achieving that goal is made up of reaching a series of milestones. However, the resources and processes put into a business plan should be focused on achieving only one goal at a time. If you have several objectives you would like to tackle simultaneously, then you need to create a plan for each business goal.

43. WSU- By Deresse D. B. Unrealistic Expectations When you create business plans, you use historical data and current trends to arrive at projections. One of the biggest problems in planning is using unrealistic expectations as the basis for your business program. For example, if your company has had a history of 12 percent growth per year for the past several years, and economic factors do not indicate any kind of boost to that rate, then trying to reach 20 percent growth is unrealistic.