Wednesday, October 19, 2016

A new future for central planning

Central planning failed in the past. The communist countries tried it and it produced dismal results.

After the collapse of central planning, we have nearly three decades of market economy. It has produced good results, generally. But it has also produced bad results with the wide income gap, the disappearance of the middle class, stagnant incomes, insecure jobs and high unemployment (including part time employment).

It is time to consider central planning at the macro level and market economy at the micro level. How will this work?

The state can take first step. Using the available data and proper analysis, it can determine the number of positions required for each major job category. It can train the young people for these jobs and give them the licence for that job. This will virtually ensure the availability of a job as the demand is likely to match the supply.

The supply can be calibrated according to the market demand. If there is higher demand for the jobs a few years in the future, the training and supply can be increased. More licences can be issued.

The actual employment can be left to the market at the micro level. The state can also set the minimum wage for each job based on the skill that is expected. The employer can pay more than the minimum wage to attract the skill and experience that they need.

If there is a big supply of labor to meet a smaller demand, the state can pass a regulation to reduce the working hours in the week. This ensures that the available work is fairly distributed to the available workers.

Matching at the micro level can be done efficiently using the Internet. Information is available to workers and employers to make the matching and provide fair terms of employment.

I see the market-oriented central planning to be a solution for the future. It combines the advantages of both systems. There will be problems that need to be addressed in this new system, but they can be addressed when they arise.

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