Journal Issue
Share
Article

A Hard Look at Development Planning

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 1966
Share
  • ShareShare
Show Summary Details

IN AN ATTEMPT to determine where, when, how, and why development planning has been successful, a small group within the World Bank has since 1958 been examining data for countries throughout the world—over 100 countries, developed and less developed, in Africa, Asia, Europe, and the Americas, including socialized as well as mixed-economy countries. Out of this great assemblage of raw material, a comprehensive comparative study was published in December 1965.1 Those who are interested in development planning are now able to consider not only how it might be done but how in fact it has been done.

While countries about to start planning their development can learn much from the planning experience of other countries, few make use of this experience: this is the first lesson of the study. The reason, in part, is that the experience of other countries is not known; but mostly, it is because countries will not be guided by the experience of other countries, since they consider their own political, economic, and social conditions to be unique.

Yet the study reveals that most countries not only encounter the same planning problems; they make the same mistakes. They frequently confuse the mere formulation of a plan with planning, fail to take adequate account of what can be done, and hence plan for less than is realistic in some sectors and more than is realistic in others. They have their planners take on extraneous tasks which divert them from planning, set up unsuitable planning machinery, set it up in the wrong places, and so forth.

Plans Versus Planning

Planning has undoubtedly promoted development in many countries. But postwar history reveals that there have been many more failures than successes in carrying out development plans. Indeed, among developing nations with some kind of market economy and a sizable private sector, only one or two countries seem to have been consistently successful in carrying out plans.

Except for short periods, most countries have failed to realize even modest income and output targets. What is even more disturbing, the situation seems to be worsening instead of improving. In Asia, where countries’ experience with planning has been greater than that in any other region, the rates of growth in the early 1960’s fell short not only of targets but even of the growth rates of the 1950’s. The situation is not very different in the other continents.

While most countries with development plans have not succeeded in carrying them out, some countries without national development plans or national planning agencies have been developing rapidly. For example, Mexico between 1940 and 1955, when it had no planning agency or plan (and even until now, since in fact it has no plan to which the Government adheres), maintained an annual average rate of growth of 5-6 per cent. Israel, which had no plan before 1961 and still does not have one which the Government follows, has been able to maintain an even higher growth rate. Puerto Rico has become a showcase of development without benefit of a development plan. And among the more developed countries, Germany, without plans, has increased income and output at least as rapidly as France with plans.

It could be contended—and I do contend—that if these countries had had development plans they might have done even better. But the fact is that a country can develop with or without a plan.

A development plan, however, is not the same as development planning. Planning as a process involves the application of a rational system of choices among feasible courses of investment and other development possibilities based on a consideration of economic and social costs and benefits. These may or may not be put into writing in a “plan.” Those who equate a development plan with development planning—and they are many—confuse what should be a product of the planning process with the process itself. A plan can play an important part in the planning process when it makes explicit the basis and rationale for planning policies and measures. But if a plan is prepared before the process has begun in earnest or is unable itself to generate the process, it is likely to have little significance for development.

Importance of the Political Factor

Why are so few development plans carried out? Lack of government support is the prime reason. This lack of support manifests itself in many ways, among them the failure to maintain the discipline implied in plans and the failure to adopt appropriate policies for carrying them out.

Sustained governmental commitment is a sine qua non for development; this is cardinal. Pakistan’s experience, for example, gives dramatic evidence of the overriding importance of government support. Although the planners of Pakistan’s First Five-Year Plan produced a development plan with targets well within the limits set by economic and financial resources, the Plan did not get very far because it did not have help from the Government. Given support from a strong and stable leadership, the Second Five-Year Plan overfulfilled its main targets.

Experience in other countries has been similar. In the nineteenth century, Japan, with fewer resources than Burma, China, India, or Indonesia, nevertheless became the most industrialized country in Asia. In large part, this was because of sustained effort supported by a determined Government. In the twentieth century, the histories of such diverse countries as the Republic of China, Israel, Mexico, Mainland China, the U.S.S.R., and Yugoslavia give ample evidence of the importance to a country’s development of firm and continuing support from a stable government.

Economic Incentives

Until the political leaders of a nation become committed to development, the people themselves are unlikely to show much interest. If a country’s leaders make development one of their central concerns, experience shows that the people’s interest can be obtained. But except on occasion—for example, during or immediately after a war or other catastrophe or upheaval—interest is not likely to be obtained through appeals to their patriotism, devotion to abstract ideals or altruism, or panegyrics about individual or group accomplishments. Direct government controls over economic activity, or threats of imprisonment or other punishment, are also generally ineffective.

The evidence teaches that the best long-run method of getting people to act in such a way as to achieve plan objectives is to make it profitable for them. Where governments have replaced administrative controls by economic incentives, the result has usually been accelerated economic activity. In Pakistan, for example, government officials as well as outside observers agree that administrative restraints hampered industrial growth during the First Plan period. They also agree in attributing the high rate of industrial progress during the Second Plan period largely to the reduction of government controls over imports and foreign exchange and the introduction of a system of tax incentives and bonuses which encouraged businessmen to expand capacity and output. In Pakistan’s agriculture, also, the use of incentive prices played an important part in increasing production.

Since the early 1950’s, when Yugoslavia replaced centralized controls based on the Soviet model with decentralized management of the economy, that country has evolved a system of economic incentives based on tax, credit, and price policies by which workers and enterprises are rewarded in accordance with their efficiency. These incentives have done so much to raise production that other Eastern European countries, notably Czechoslovakia, but also Poland and Hungary and even the U.S.S.R., are moving toward the Yugoslav system.

In contrast, many governments in countries with mixed economies rely on direct controls and administrative intervention in the private sector in preference to incentives, and often depress their economies as a result. The problem now is how to get the mixed-economy countries to readopt the system of economic incentives that the socialized countries seem to be taking over from them.

Separation of Plan Formulation from Implementation

Economic development is so difficult that, if political leaders are not very deeply committed to it, the plans which they approve are not carried out because no provision is made for carrying them out. Prime Minister Jawaharlal Nehru of India, who as Chairman of the Indian Planning Commission showed an uncommon grasp of planning problems, once pointedly remarked, “We in the Planning Commission and others concerned have grown more experienced and more expert in planning. But the real question is not planning, but implementing the Plan …. I fear we are not quite so expert at implementation as at planning. …” This statement is notable not only because it recognizes—correctly I think—that the problems of plan implementation are more difficult than those of plan formulation, but also because it distinguishes—wrongly I believe—”planning” from “implementation.”

The word “planning” is often used, as it was by Prime Minister Nehru, to refer to the formulation of plans, but not to their implementation. The conceptual separation of “planning” from “implementation” is more than a question of semantics: it is symbolic of an attitude which is unfortunately prevalent among planners. Experience shows that nothing hampers the success of development plans more than the separation of plan formulation from provision for implementation. Planning cannot leave off where plan formulation ends and action to execute a plan begins. Every target must be accompanied by policies and measures which have been devised specifically to fulfill it; otherwise it becomes only a forecast or projection.

The link between the targets of a plan and the policy and other measures required to attain them is one which many planners and political authorities find difficult to grasp. There is frequently a lack of understanding in developing countries that investment is not enough to ensure growth, that appropriate policy, administrative, and organizational measures are almost always more important for development than is higher investment.

Most plans are prepared in central planning agencies whose officials have little authority over economic policy that is formulated elsewhere. Consequently, one often finds countries where tax, price, monetary, and credit policies impede rather than help to realize plan objectives. For instance, in Pakistan’s First Plan, agricultural price policy discouraged farmers from planting crops whose output the Plan sought to increase.

Discounting Overambitious Plan Targets

A planner may not be able to do much about a government’s administrative inefficiency and its lack of political commitment or will to develop. But if in preparing his plans he ignores these critical factors, which together constitute the main limitations on the ability of most less developed countries to realize their economic possibilities, he ends up by separating his activities and the plans he formulates from the real world that has its being outside of national planning agencies.

This is precisely what happens in many less developed countries. National development plans are based on a country’s economic potentialities or its needs as determined by population growth, and are little related to the country’s administrative capacity, or to the government’s will, to carry them out. In these countries, plans are not so much blueprints as hortatory instruments. It can hardly be surprising, therefore, that most planning aims are never achieved. Because the aims are related to what is possible or desirable, with little regard to what is likely, they are usually set so unrealistically high that they never have a chance. For instance, in Bolivia’s Ten-Year Development Plan for 1962-71, the target of average annual increases of 9.2 per cent in gross national product in the first five years may have been economically possible, but it was far beyond the country’s administrative and political capacities. The Government wisely abandoned it as overambitious.

If planners are to set realistic targets in their plans, they must somehow find means to measure administrative inadequacy and the lack of political will to develop, so that they can “discount” the unduly optimistic targets set when plans are formulated solely on the basis of economic potentiality. This sounds difficult, but it is not impossible. For example, it is possible to quantify the cost of administrative inefficiency, in terms of money and time, on the basis of past discrepancies between original estimates and actual performance in projects and programs. By deflating the estimates by a factor based on past errors, such adjustments can go a long way toward closing the gap between promise and performance.

Similarly, it is possible to quantify a country’s political will to develop if planners set up for each major area of policy (e.g., taxation, credit, investment, money, and incomes) feasible alternatives, including the effects of each on development, from which political authorities can make a choice before a plan is drafted. In the process of selecting the alternatives which best suit them, the political authorities will be supplying specific information about the extent to which they are prepared to adopt policies and other measures for furthering development which, collectively, can be said to constitute a veritable measure of their “will to develop.”

If the three basic elements that enter into the planning process—economic potential, administrative capacity, and political will to develop—are all taken into account in formulating plans, planning aims are bound to be more in line with a country’s real capacity to achieve its economic potentialities.

The Projects Problem

The current artificial separation between the formulation and implementation of plans accounts for the failure of planners, concentrating as they do on aggregative planning, to recognize soon enough that the weakness in most developing countries is not the lack of an elegantly integrated comprehensive plan based on economic potentialities but the lack of well-planned individual projects that can really be carried out. For example, after 18 months of work on Bolivia’s Ten-Year Plan, the planners found themselves in the embarrassing position of conceding that “the principal deficiency that will be noted in the formulation of the present Plan is the small number of specific investment projects …” 2 needed to execute it. Similar statements can be found in the plans of many other countries.

Because it usually takes several years to identify and prepare a sufficiently large number of good projects needed to implement a plan, it is too late for planners to become concerned about them after a plan has been prepared or even when it is being formulated. Unless preinvestment and investment studies of projects for implementing a comprehensive plan are sufficiently advanced, it does little good to prepare such a plan. Yet all too often this is exactly what happens. Few projects are carefully worked out before the work of implementing them begins. As a result, many projects and programs are not carried out at reasonable cost and in reasonable periods of time. Attempts to reduce the time spent in preparing projects frequently result in the choice of low-yield projects; substantially increased costs and delayed construction because of technical or other problems that were not foreseen; poor phasing of raw material, transport, staffing, or other requirements; failure to provide adequate financing; shoddy construction; and inability to make full use of completed projects.

Only a few of the less developed countries are fully aware of the need for selecting soundly conceived projects with potentially high yields, defining their scope with clarity, estimating their national currency and foreign exchange requirements with a sufficient degree of accuracy, and laying down realistic schedules for their execution; even fewer have the administrative capacity and the political will to cope with these needs and, especially, to carry out the projects in accordance with carefully developed programs of action.

Changing the Planning Mix

One reasonable conclusion to be drawn from experience is that it may be desirable to reverse the usual proportions of the planning mix. Planners have almost invariably concentrated on aggregative planning rather than on the proper preparation and execution of projects, but experience shows that countries with well-prepared projects coordinated by sound budgetary procedures and controls can dispense with comprehensive plans, at least for a time, and still maintain high rates of growth. It seems clear, therefore, that improvements in project preparation and budgetary controls, where needed, are at least as urgent as the preparation of aggregative plans.

These findings obviously have an important bearing on the sequence in which planning problems ought to be attacked. If the planning process is to be realistic, planners must not start, as they often do, with a series of theoretical abstractions of planning as it ought to be, and they must not try to force these ideas in an inhospitable environment where governments are unstable, not genuinely committed to development, or otherwise unready for aggregative planning. Instead, while not forgetting the long-run objectives that theory demonstrates to be desirable, they must—at least at first—attune their plans to “things as they are.”

Improving Planning Organization

Since effective projects should be prepared in the agencies that will actually carry them through, the organization of programing units in these agencies should get much higher priority than it now has in many developing countries, perhaps even higher than central planning agencies. Improved budget offices also may be more important in these countries than improved central planning agencies.

Changing Technical Assistance

The type of technical assistance needed for preparing technically and economically sound projects, and executing and operating them, differs from the type of technical assistance that has been supplied for aggregative or comprehensive planning. Aggregative planning is a business for economists who need only a modest knowledge of agricultural and industrial techniques; but project preparation requires engineers, agronomists, and other technicians, including some who are capable of translating financial costs and benefits into economic costs and benefits.

Because the preparation, execution, and operation of projects involve many people in a government, it is becoming imperative that foreign technical assistance be largely made up of “demonstrators” rather than “doers.” Doers can be used for a few special purposes, but only demonstrators working on the job with groups of government employees actually engaged in project preparation and execution can hope to train in a reasonable period the large numbers of workers who must become involved in project preparation, execution, and operation.

What I have written is not an attack on comprehensive planning. Ideally, planning should be undertaken “from the top down” as well as “from the bottom up.” But experience reveals that in most countries planners begin with the first and rarely get around to the second. Since planning from the bottom up is essential to development, while planning from the top down is not, it seems sensible for a country to begin with the preparation of sound projects and sector programs and, with these as a foundation, to advance toward comprehensive planning as rapidly as circumstances permit.

Albert Waterson, Development Planning: Lessons of Experience (Baltimore, 1965).

Junta Nacional de Planeamiento, Plan National de Desarrollo Económico y Social, 1962-1971: Resumen (La Paz, Bolivia, 1961), p. 24. (Author’s translation).

Other Resources Citing This Publication