PLAN AND MARKET


Jan Tinbergen On Central Planning


by
Jamie Gill, April 2002

 Jan Tinbergen was born on April 12, 1903 in the Netherlands. A considerable mathematical genius, he became a statistician for both the Dutch government and the United Nations later in his life, as well as a professor in economics. (University of St. Andrews) He also jointly won the Nobel Prize in 1969 for developing the first ever macroeconomic model. (University of St. Andrews) An economist with left-wing tendencies, Tinbergen is most widely known for his theory of convergence. This theory states that the capitalist and the communist governments or societies were ‘converging’ toward a mixed government that contained elements of both systems of government. He considered a mixed economy to be the most optimum type for growth and development. His theories were a result of the Cold War and what appears to be his attempt to make sense of the ideologically divided world. However, a less widely known set of ideas were Tinbergen’s views on the issue of central planning. He did not think that planning was limited to communist governments and even more importantly, that it should be. However, he focused on planning as a means to maintain or increase a nation’s growth potential, under the assumption that the planning was done efficiently.

Tinbergen saw the issue of planning as developing from two sources – the Russian communist planning and the Western macro-planning. (Tinbergen 4) He felt that the Russians had developed planning due to their reliance on the military, which may have been caused by the influx of military needs prior to World War I. There were, he thought, similarities between a planned economy and an army or military organization. The Russians also focused on the importance of technology and the need for intervention in the daily lives of its citizens. (Tinbergen 5) The Western or capitalist nations instead relied on planning as a means to understand the operation of the economy as a whole. These governments were influenced by the creation of national accounts which later led to “macro economic models.” (Tinbergen 5) Most decisions were left to the private firms and the government served as a form of indirect intervention, usually only in sensitive markets and during emergencies such as war time. (Tinbergen 5) Tinbergen thought that plans required the coordination of the whole economy and were essentially devised in essentially three steps. These were a forecast, then a comparison of the forecast to the aims of the economy and finally a change in policy to meet said aims. (Tinbergen 9)

 In a comparison of planned and unplanned economies, Tinbergen saw three differences. The first was that planned economies depended up on estimation of the future instead of relying on the situations of the past. (Tinbergen 42) Secondly, planned economies stated explicit general aims instead of stating that “incidental action” was responsible for changes in the economy. (Tinbergen 42) Finally, planners focused on coordinated action instead of random actions performed by individual ministries or services. (Tinbergen 42) Tinbergen saw coordination as a means to breakdown inconsistencies within the economy. (Tinbergen 44) If the government had a policy that was followed and maintained by all sectors, actions within the economy as a whole would be more consistent. He also believed that poorer nations tended to depend more on the coordinated action of a group to uphold the economy. (Tinbergen 44) These nations did not have a successful economic plan and therefore focused on uniformity to stimulate growth. Tinbergen also relied on the importance of mathematics, probably due to his background in statistics. He felt that math could be used as a means to spot inconsistencies in the economy by preparing and implementing economic models. (Tinbergen 46)

Most plans contained descriptions of the desired development of the whole country or sometimes they focused on specific sectors of the economy. (Tinbergen 46) On the negative side of planning, he thought that the majority of plans were imprecise. The authors of the plans needed to get them passed through whatever type of government structure the nation had and therefore they had to water down the specifics to maintain approval. He also felt that most people in governmental positions had little knowledge of economic development. (Tinbergen 48) Planned actions did not aid society because they were time consuming, information was incomplete and the plans were created at a centralized level and therefore there was no one to correct any large errors. (Tinbergen 48) Tinbergen felt that there was, however, an optimal level of government interference and government planning possible although it was not commonly seen in the world. Governments must think in terms of marginal costs and benefits; that is, if the costs of planning are too high then they will have no benefit on the economy. (Tinbergen 49) The benefits of planning, on the other hand, can be very large but are hard to identify due to the unavailability of two pure economies for comparison. (Tinbergen 51)

Tinbergen felt that planning had a positive impact when there was a more pronounced need for forecasts, aims, or coordination. (Tinbergen 65) More specifically, these needs were brought about by specific inefficiencies in the economy. The need for forecasts was created when there are wide fluctuations between either the price or the level of production. (Tinbergen 66) Aims were needed when a difference between reality and set aims existed and coordination was called for when the number of economic means was very high. (Tinbergen 66) It is now more suitable to deal with these three needs individually. Forecasts are most helpful if the production process is long, which is exemplified in the agricultural and building sector. (Tinbergen 67) Secondly, they are useful if there is an erratic change in production. (Tinbergen 67) He felt this occurred most frequently in the agricultural sector especially concerning the effects of a bad crop season or a natural disaster. Finally, forecasts should be utilized depending on the longevity of the products. (Tinbergen 67) A good example is the creation of new housing. If the demand for housing is low, new housing should not be built because there is little need for replacement. New housing is usually an addition to the market. (Tinbergen 67) Tinbergen felt that forecasting was generally most useful in the agricultural, fishing, building, metal, and educational sectors of the economy. (Tinbergen 68) The development of aims should be used to continue current rates of production or to increase the level without causing any levels of volatility in the society. (Tinbergen 69) Tinbergen’s examples of these included economies on a war standing, underdeveloped nations, and some of the policies implemented during the Great Depression. Finally, coordination is important if an economy or the bureaucracy is large and there could therefore be contradictory actions. (Tinbergen 70) Coordination efforts are mainly incorporated in larger countries or firms and communist nations over that of laissez-faire countries. (Tinbergen 71)

If a system of planning should be utilized in a nation also depends on three factors. These are the technical competence of the nation, the level of literacy or civic spirit among the business sector, and the availability of data. (Tinbergen 71) If any of these factors are not accounted for, the planning will be inefficient and will not result in the growth of the economy. Essentially, he stated that the nation needs a high level of technology and cooperation. However, Tinbergen felt that ways to compensate for lower levels of any of these factors was through an increase in foreign aid or through a focus on training and learning. (Tinbergen 72) It seems, however, as though these two additions would only aid the technology sector. Tinbergen also specified what nations should focus their economies on planning. These included developing nations that wished to increase their level of growth, developed nations that wished to maintain their level of growth, and on an international level to stimulate clearer and more focused policies. (Tinbergen 72)

Tinbergen recognized the conflict during the Cold War era between the Western and Eastern blocs. He felt that the essential difference was that Westerners saw their economic system as an extension of their political system and that the Communist Bloc focused on their ideas as a socio-economic system. (Tinbergen 74) Tinbergen thought that different circumstances called for different policies regardless of whether a country identified itself as capitalist or communist. Sometimes, the government of a nation would simplify their views for the public and emphasize their differences and therefore lose the reality of their circumstances. He referred to this simplification as the “doctrinaire views.” (Tinbergen 75) Tinbergen asserted the idea of convergence when he attempted to prove that communist and capitalist planning systems were not very different and also that they shouldn’t be. The implementation of planning systems should be entirely circumstantial.

Tinbergen identified the Western world as focusing on the idea of protecting everyone’s rights and the Communist Bloc as focusing the rights of the workers. However, the focus is therefore the same. In the East, everyone was a worker and in the West the government was working to close the gaps between societal differences. (Tinbergen 77-78) He saw this as the convergence of the capitalist and communist worlds. Both blocs utilized planning even if it were for different reasons. The Communists used planning to fit their economies into the international economy while the West added plans to maintain their higher levels of growth. (Tinbergen 78) His ideas on central planning stated that economies should not focus on their differences but instead they should incorporate whatever elements were necessary to increase their growth. He felt that the nations on either side of the Iron Curtain should study the other’s activities in order to change and grow beneficially. Throughout his whole discussion on planning policies, Tinbergen continued to emphasize his belief in the ideal situation of ‘mixed economies’. His theory was a true product of the Cold War and a fine attempt to change the world’s view about the differences between the capitalist and communist worlds.

Works Cited:

 1)     Tinbergen, Jan, Central Planning. London: Yale University Press, 1964.

 2)  Department of economics, “Jan Tinbergen,” University of St. Andrews, Scotland, December 1997.

 3) (www-groups.dcs.st-and.ac.uk/~history/Mathematicians/Tinbergen.html), accessed on April 23, 2002.

           

 

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