What resources of production go unused or are wasted when an economy is in recession?

What is justification of economic planning with reference to Pakistan?

WIDER OPPORTUNITIES In the market system, the decision making attitude of an individual remains handicapped because of two reasons: (1) The limited life span of an individual (2) The limited resources at the disposal of an individual. Because of these problems in the market economy individuals undertake those projects which require small amount of resources and the fruits of these projects could be reaped within the life span of an individual. In this way the individuals would hardly be prepared to launch big projects like construction of highways, power-stations, land-reclamation, anti water-logging and sanity schemes, and rail-roads etc. because such projects are beneficial even for those individuals which are yet to born in distant feature. On the other hand, these problems do not exist in case of planning where the resource user is the community as a whole. This is because of two reasons: (1) Community, unlike an individual, never dies; (2) The resources at the disposal of the community are large. Because of these reasons, the economy as a whole in the form of planning can visualize a longer and larger horizon as compared with an individua1. In this way, planning offers greater and wider opportunities as compared with market. PUBLIC ORIENTED GOALSIn market economy only those goods are produced whose demands are backed by money offers. As a result the production of public goods like education, health services, parks, old-age institutes, orphan houses and shelters for homeless person etc. will not be made or they will be produced sub-optimally. Thus in capitalism when all the allocative and distributional activities move around the money vote, the resources will hardly be allocated for the socialization of the society. This will have a negative effect on the efficiency of the masses. Hence, it is the planning which distributes the resources between present consumption and future consumption, social development and economic development etc. As a result the goals of planned society are more welfare and public oriented. RETTER USE OF RESOURCES The market mechanism is furnished with unused and idle capacity during depression. This situation adversely affects the employment, output and potentialities of the economy. But in case of planned economy, there is no possibility of occurrence of trade-cycle and its devastating consequences. Here, an equality between demand and supply is brought about in advance. In the market economy, there are wasteful expenditures in the form of selling costs etc. Here a rivalry develops amongst the producers. While in a planned economy, the producers do not have to make expenditures on advertisement and sales promotion activities. Here the producers are partners, rather than rivals. Thus in planned economy, there is greater and optimal use of resources. GREATER RESOURCES The market economy is characterized with the limited resources. Here, one's resources may be consisting of savings, profits and share money etc. On the other hand, the planned economy has greater, command over' resources. In addition to private savings, govt. can follow compulsory devices like taxes and deficit financing etc. These resources which have been obtained by curtailing the consumption will be of greater significance for the UDC which are engaged in providing benefits to present as well as future generation. Thus, we say that devices to raise funds or compensatory finance do not exist 'in unplanned laissez-faire system. In addition to these monetary resources, the planned economic system can make better calculations regarding' manpower, land resources, forests and minerals. Moreover, under planned system, the planning authority can enlarge the future horizon of resources by modifying the production activity. A government can opt for a program which makes available more resources in future. A choice among construction of new plants or discovery of oil fields; facilities of higher education or primary education; improving the sanitation system or following the malaria eradication program providing job opportunities to women or following birth control devices - such a11 will affect the quantum and quantity of resources that will become available in future. While such all cannot be conceived, by the market system. Thus planning not only eliminates the wastage of resources but also leads to augment the resources in future. PRODUCTION PATTERN In a planned economy not only the production of goods and services may be greater, but the pattern of produced goods and services may also be different. This can be observed from this fact that planned economies divert major share of their resources in the production of capital goods rather in the production of consumer goods. The planned economy plans by keeping in view the needs of future. While in the market economy the individual producers act upon myopic vision that they have a short life span. The planners think that the community is immortal, hence the resources be diverted in such a way that future people could also avail the benefits. In connection with adopting a choice of technique in market economy, each producer will follow such a technique which yields him abnormal profits and superiority over others. Because of such temptations, the monopolies and cartels grow. While in the planned economy, such technique of production will be followed which is best suited from community's point of view - mostly labor intensive technique of production. This means that in market economy there is a pursuit of profit. While in planned economy, the employment strategy is given preference. LARGER SAVINGS AND INVESTMENT In a market economy investments are determined by the time preferences of individual savers. These preferences of investors may not be compatible with .the social goals. The individual preferences are irrational; the irrationality consists in discounting the future properly. On the other hand, under planned economic system, not only the amount of savings and investment can be greater, but the investment can also be made in those fields commanding greater social considerations. DISTRIBUTION OF INCOME The capitalist economies are not only furnished with inequitable distribution of income and misallocation of resources, but there are also a variety of chances of unearned incomes and windfal1 gains (as well as losses), etc. Such incomes may be spent lavishly on luxuries and other unproductive channels. While in the planned economies on the one side the distribution of income can be made fair, while on the other side there is no possibility of such windfall gains etc, hence no wasteful consumption expenditures. As a result, there will be no class conflict in the planned economy, no possibility of have and have-nots; no privileged class and no deprived class and there is equalization of opportunities in respect of skill, training and education etc. in the planned economic system. If a market economy, whatever the efforts are made to raise the incomes or-lower class, there is no guarantee that inequalities will lessen. If the incomes of low income brackets are increased, the incomes of high income brackets win. Increase far more. This is concerned with the basic proposition of market economy that it cannot exist without private property and unequal income distribution: NATIONAL TASKS AND EMERGENCIES A planned economy can give priorities to the matters relating to national tasks and deal the matters relating to emergencies in a better way. As for security purpose, it can divert the resources from the civilian to military sector, i.e. switching of resources from peace time needs to war time needs. Again, after the war, it can convert the war based economy to peace time needs. The planned economy can build the war affected sectors of the economy in a better way than a market-oriented economy. Moreover, the planned economy can do the best in connection with the development. It can divert the resources of the economy in those fields which will directly or indirectly promote economic growth. Planned economy can ensure a balance in between saving and investment; consumption and income; outgoings and incomings in the external sector of the economy. No one can refute to admit that planned economy is more suitable to face the national emergencies like crop failures, earthquakes, epidemics, storms and floods etc. On the other hand, market economies fail to deal properly with the emergencies, natural calamities, national development and war time needs. Accordingly, the social and economic wastes under market economy will be more as compared with the planned economy. PROBLEMS RISING FROM FOREIGN TRADE Now-a-days the problems of foreign trade have become more acute. The UDCs have to face the persistent deficits in their BOPs. The terms of trade are going against them. They have to confront with protectionist policies on the part of DCs. The debt burdens are mounting. The international financial and developmental agencies charge heavy interest rates. The gap between have and have-nots is increasing day by day. Such an problems relating to open economy are attributed to market economy. Therefore, to remove them some type of planning is required. CO-ORDINATION BETWEEN ECONOMIC ACTIVITIES In 'Laissez-Faire' economy every body is inspired of self-interest. As a result, it may happen that some good is produced in abundance while there is shortage of some other goods. As in case of Pakistan an efforts were made to develop textile industry while steel, iron and automobile like industries were completely ignored. Moreover, there is a concentration of industry in the overcrowded cities like Karachi, Faisalabad and Multan while Baluchistan remained like an island of backwardness. Thus to bring co-ordination between economic activities and remove regional disparities planning is advocated. SOCIAL AND SOCIOLOGICAL PROBLEMS There are so many social evils in the free enterprise economies like illiteracy, poverty, redtapism, bribery, black-marketing, generation gap, industrial problems, problems relating to urbanization and corruption, etc. Therefore to remove them state intervention in the form of economic planning is justified. MARKET IMPERFECTIONS AND PRICE DISTORTIONS In market economies of poor countries not only there are market imperfections but one can also find price distortions both in commodity as we11 as in factor market. These distortions rise because of institutional arrangements. As the wage rate in some sectors of the economy exceeds the opportunity cost of the labor. This may be due to trade-unionism etc. Moreover, the goods whose demand is less elastic their producers may pursue monopolistic' behavior. There may be dualistic practices in the money market. In the organized money market the rate of interest is kept artificially low or inexpensive credit facilities are provided to the favored clients like big businessmen and industrialists. While on the other hand in rural areas the rate of interest is extraordinarily high. This situation also results in price distortions. Again in the presence of severe inflation, the real rate of interest will be negative where cheap credit money policy is adopted. In developing countries major part of money market is dominated by a minority of borrowers. It is said that govts. In developing countries are also responsible for price distortions when they reduce the role of demand and supply in capital and labor markets. Moreover, these poor market economies are also' adhered to keep an over-Valued rate of exchange. As a result, exports fan and there will be a flood of imports. As a result, the commodity prices will also be distorted. Furthermore the state enterprises are also responsible for price distortions when they follow their own pricing policies or subsidize the consumers with the view of public welfare. By: Shafaq Chohan

What resources of production go unused or are wasted when an economy is in recession?

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