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Back to Economic Literacy
All the material included here belogs to               ENCYCLOPÆDIA BRITANNICA
economic planning
"Jo.Hac."

the process by which key economic decisions are made or influenced by central governments. It contrasts with the laissez-faire approach that, in its purest form, eschews any attempt to guide the economy, relying instead on market forces to determine the speed, direction, and nature of economic evolution.

By the late 1960s the majority of the world's countries conducted their economic affairs within the framework of a national economic plan. But in the 1980s the theory and practice of economic planning went through a crisis. In the developed market economies the rate of economic growth slowed from the very high levels reached in the 1960s and '70s, and unemployment rose significantly. At the same time, public confidence in the ability of governments to influence for the better the performance of the economy diminished. As a result, the popularity of national economic plans waned and the scope left to the free play of market forces widened. In developing countries, forms of economic planning practiced earlier yielded disappointing results characterized by the growth of heavy state bureaucracies and inefficient public enterprises. In these countries also, although the role of the state remained preponderant, market forces were increasingly relied upon to improve economic performance. In the Soviet Union and its satellites, the backward state of the economy and widespread examples of waste and inefficiency led to attempts to introduce more market solutions into the process of economic planning. These attempts proved largely unsuccessful, however, and the inherent rigidity of the Soviet economic model proved an important factor in the collapse of Communism in eastern Europe and the Soviet Union itself, beginning in 1989.