The Enterprise under Central Planning

Portes, R. D.
April 1969
Review of Economic Studies;Apr69, Vol. 36 Issue 2, p197
Academic Journal
By central planning we mean planning as practised in a Soviet-type "command" economy. Its defining characteristic is central administrative allocation in physical terms of inputs and outputs within the sphere of industrial production. The model below considers some aspects of the planners' control over enterprise decisions in such a system. The planners manipulate certain parameters of the environment. We ask how closely the representative enterprise will follow the planners' desires: in particular, how the planners might improve enterprise conformity to their commands and to the logic of the physical allocation mechanism. Our results may illuminate some general aspects of the enterprise incentive systems used in Soviet-type economies. Moreover, "taut planning"(n2) and the overall comprehensiveness of the physical allocation system are seen to play a central role in maintaining plan discipline for the individual enterprise. This may help to explain why the planners enforce this tautness, and why they have resisted partial decentralization and attempts to introduce more flexibility into the system. The results seem to corroborate a view occasionally expressed, from rather different approaches, by specialists in this field (see [11] [23, Ch. 7]): that physical allocation cannot coexist peacefully with the world of prices, monetary variables, and partially decentralized decisions. The tighter and more comprehensive is the central allocation mechanism as a whole, the more effective will any given command be. As R. W. Campbell has said (arguing on different grounds) [6, p. 199]: "Rationalization of the administrative structure inevitably means movement towards one or the other of the polar models--the market economy or perfect administration [i.e., complete centralization--R. D. P.]." In the following, the behaviour of an enterprise in a centrally planned economy is formalized in a model of an...


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