Economic Decision Making

INTRODUCTION….

Our aim in this chapter is three fold: 1-To see different kinds of economic decisions and to analyze

their characteristics and their objectives ,their time frame ,Possible resources to achieve them.

2-Identify different forces that influence the decision making process.

3-The evolution of planning machinery, its administrative structure, and its powers.

ECONOMIC DECISION MAKING BY STATE AUTHORITIES…

The decisions which are taken by state authorities are mainly based on the duration or time period of the problem or choice with which the problem is concerned.

TYPES OF ECONOMIC DECISIONS….Type of Decision Level Objectives Means available/

Measures taken

1-Very short run Local AdministrationCentral GovernmentProvincial Government

-Provision of essential goods-Ensuring immediate relief in physical calamities i-e floods ,rains

-Movement of goods from surplus areasStrong action against black marketing and hoarding

2-Short run Central GovernmentProvincial GovernmentPlanning commission

-Raising revenues for the functioning of state machinery.-Price stability-Foreign trade balance

Direct/indirect taxesForeign/domestic borrowingPrice IncentivesControlling money supply and interest rates

3-Medium term Central GovernmentPlanning commission

-Formulation of 5 year plan with strategies/ objectives-Overall goals of sustained growth in per capita income and self reliance

Fiscal policyMonetary policyCommercial policyForeign borrowing

4-Structural changes Central Government Equitable distribution of economic assets Restrictions on monopoly practicesStrengthening the economic and bargaining conditions

-Land reforms and tenancy regulation-Nationalization-Trade union activity and minimum wages

FORCES WHICH INFLUENCE ECONOMIC DECISION MAKING….

Sector Classes/Groups Sources of Power

Agricultural sector Large landlords/medium size farmers/Tenants/landless laborers

Land holdings < 150 acresSignificant portion of rural population

Manufacturing sector -Big industrialists-Medium industrialists/Small sized industrialists/Industrial labour

Ownership of industrial assets

Trading sector/services -Big trading firms-Small trading firms

Numbers/Trade unionsControl trade and influence prices

Foreign sector -Western aid giving countries i-e USA,UK-Loan giving agencies i-e IMF, world bank

Play a major role in financing development plans and giving balance of payments support

Other important groups BureaucracyUrban groups/ students

Central state power create disturbances.

THE PLANNING MACHINERY IN PAKISTAN….

The Period of economic coordination (1947-53):-

The first phase dates back to 1947-53 when some attempts were made at economic co-ordination and planning in the immediate post independence period. The effort began in 1950 with the Colombo plan when the development board compiled ,within a period of three months ,a six year development plan 1951-7,this plan was a plan more in name than in content and represented merely a loose aggregation of a number of individual projects in various fields.

During this period, despite a multiplicity of planning committees and other organizational units ,the planning machinery was hardly equipped to do its job effectively.

CONT…. The period of planning board (1953-8) :-

The creation of planning board in 1953 marked the beginning of second phase of economic planning which lasted till 1958.The planning board had serious problems of shortage of staff ,absence of statistical data, uncertain status in the Government, resentment from other strongly well-established Ministries and Departments i-e Ministry of Finance and State bank which regarded it as a rival institution. The institutional liaison between the planning board and other ministries remained fairly weak and the annual development programmes were never seriously followed.

CONT….

The period of powerful planning commission (1958-68):-

The third phase in the evolution of economic planning process begun in 1958 with the assumption of power by the military Government of Ayub khan. The new regime choose to make Economic development through a market Economy and reliance on the private sector as its primary objective. The status of planning commission was raised to a Division in the president’s secretariat. The President himself assumed the chairmanship of planning commission and a Deputy chairman was made the operational head of the commission.

The important developments during 1958-64 were institutionalization of planning process.

Provincial planning Departments were organized .planning cells were created and Decision making committees were organized.

CONT…. The period of Decline of Planning commission (1968-77):-

The decline of planning commission declined with the fall of Ayub Khan’s Government. The planning commission had become very closely identified with Ayub Khan’s Government during 60’s and the rejection of growth strategy followed was also taken to reflect adversely on the planning commission. The first major blow to power and authority of planning commission came during the Government of Yahya khan when serious planning was almost completely given up by the Government. One reason for this was that the Government decided to run the economy through annual plans rather than through a comprehensive five year plan.

CONT…. Recent Attempts in the revival of Planning commission (1980-

present):- More recently, however the Government has taken steps to revive the planning

commissions as an effective and authoritative economic decision making body. A deputy chairman of the planning commission has been appointed and given

the authority of formulating plans. Similarly the Government has appointed members to the planning commission

to ensure both more technical competence as well as better regional representation.

CHRONOLOGY AND FUNCTIONS OF PLANNING MACHINERY IN PAKISTAN

Chronology of Planning Machinery

Development Board established in 1948 in the EAD

Planning Board set up in 1953. First 5 year plan prepared for 1955-60

National Planning Board established in 1957

Planning Commission setup under the Chairmanship of President in 1959

Functions Consultation with: Federal Ministries / Provincial

Governments Donors Civil Society Formulation of

National Plan Annual Plan Five Year Plan Rolling Plan Perspective Plan (15-25

Years) Project Management Approval of Development

Projects Monitoring of Major Projects Evaluation of on-going and

completed projects Association with EAD in

matters of Foreign Assistance