Can we plan development?

-This article was originally published in The Himalayan Times on 24 April 2016 by Ashesh Shrestha.

Poverty alleviation — the perennial quest for Nepal has been on our periodic plans forever. Every period, we plan some poverty reduction, and every period, we achieve some of it.

National Planning Commission (NPC) has updated the poverty rate projections and set it at five per cent for 2030, from the existing 23.8 per cent (from previously targeted zero per cent, as per the Sustainable Development Goals). But is it really planning that has been reducing the poverty rates? And can we plan our way to development?

Evidence first

Yes, in the last couple of decades Nepal has made some noteworthy strides in terms of poverty reduction, but in the same period, remittances have also grown hundred folds. And the NPC itself has acknowledged in previous plans that remittance has had a big role to play in it. But is the NPC also promoting out bound migration for employment? We know that it has been one of the biggest contributors to the cause. However, the fact that all policy makers remind us of how unfortunate it is that some 1500 youth go abroad in search of employment opportunities every day.

Nepal has exercised planned development for 60 years already. After its formation in 1956, NPC has formulated and tested 13 periodic plans and several other short-term and long-term plans. Each plan has set its own goals, and laid strategies to meet them. However, one would have to be looking through heavily rose-tinted lenses if s/he were to say that these plans have been yielding desired results. Like in the aforementioned case, some of the results come from some totally unplanned factors. Quite a few times, we plan to achieve something in one period, it does not happen, and then we put it up again in the next plan as a priority project. And sometimes, we even retrogress despite all planning.

What the evidence tells us

Now that we have seen how Nepal has not exactly gone along the path that planners have been planning for in the last 60 years, it calls for a discussion on why this happens — why does planning fail to deliver? Austrian economist FA Hayek’s essay “The Use of Knowledge in Society” can lend some insight on this. Hayek argues that to find a definite solution to a problem in society, one ought to have all the relevant information and complete knowledge of the means that are available for solving the problem. So, in order for central planning to be successful, the planner ought to have all the information and knowledge, which, it doesn’t. But then, what if the planner somehow had all the information? The answer lies in this other question — is it possible to acquire all the information? Society is dynamic. By the time, all the information is acquired, the circumstances of time and place change, people’s preferences change. By the time the central planner acquires information, formulates a plan, and takes it to implementation, the people could choose to leave the country and get a job somewhere else. What this is telling us is that a single entity, no matter how many experts are there in it, cannot gain access to all the information in society.

Planning does not work

In the same essay, Hayek argues that it is impossible for anyone to have perfect information and knowledge about every aspect of society. However, everyone possesses the best knowledge about his/her own circumstance and the situation in which s/he is. For example, a landowner who owns a piece of land has the best knowledge about the mode of usage of his land that gives him highest return. He may choose to lease out the land, use it for farming if he has none, or sell it altogether and invest the proceeds in another venture. He does whatever is most beneficial for him at minimum cost. With knowledge and preferences an individual has, he makes voluntary actions and interactions which according to him, best suits his wants — not guided by any external force. Similarly, thousands of people in society act and interact with one another creating a system, the basis on which society functions. The involvement of an external force (the central planner here) brings distortion in the system and only leads to wrong allocation of resources. Let’s talk agriculture one more time; the government of Nepal spends billions of rupees on agriculture subsidy every year in a bid to enhance our agriculture productivity. On the other hand, cereal imports alone grew by an average of 67 per cent annually between 2010 and 2014.