The general planning framework

The primary task of an economic system is to develop institutions and means through which the tastes and preferences of decision makers can be translated into a specific mix of goods and services produced. This requires decision making mechanisms for what is to be produced and in what quantities, how it is to be produced and distributed, and to whom. However, economic systems differ in terms of who makes the decisions and how they are made. They also function within vastly differing historical contexts, cultural and political settings, and stages of economic development. All these variables will affect the character of demand for goods and services and the technical and production capacity of the economy to satisfy it.

Some of the issues relating to the environmental setting of the economic system, such as technical backwardness and political and ideological setting, were dealt with in the first two chapters. Therefore in this chapter the means by which decisions concerning resource allocation are made, who makes them, and how they are implemented will be analyzed.

Three hypothetical economic-system models were outlined in broad-brush terms in Chapter 2 (see pp. 38–40). Somewhat the same ground will be covered here, but from a more specific and operational point of view, especially as it relates to resource allocation in particular sectors. As far as China, or indeed any living socialist system, is concerned only two of these three hypothetical models are applicable: those based on physical and on price planning. In fact, as will be shown below, in China resources are allocated both through the bureaucratic command system and through the market mechanism.