s through a planning mechanism is a complex operation. Planner
s have to decide what is to be produced. They have to decide, for instance
, how many pairs of shoes, how much alcohol or how many tanks are to be manufactured. They
then have to decide how it is to be made. They must decide what technique
s of production are to be used and which factors of production are to be employed. Finally decision
s about distribution have to be made: which consumers will receive what goods and services.
Planners tend to make use of input-output analysis when drawing up their plans. This is a method of charting the flows of resources in an economy. For instance, with a given technology, planners know how many workers, how much iron, how much coal etc. is needed if the economy is to produce, say, 20 million tonnes of steel. Having allocated so many tonnes of coal to steel production, planners now need to work out how many inputs are needed to produce the coal. A complex chart of the economy then arises showing how the factors of production (the inputs) are to be distributed to produce a given quantity of output. Most planned economies have used a mixture of 5, 10, or 15 year plans to outline the growth of their economies in the long term, whilst preparing yearly plans to cover short term planning.
Planning and forecasting is notoriously difficult. Accurate forecasting to produce maximum output assumes that planners know the most efficient way to produce goods and services (i.e. that they have available to them an efficient production function for each industry. Planners must have accurate statistics about the current state of the economy. There are also many variables which are beyond the control of forecasters. The weather is one important factor which can lead to severe misallocation in the economy.
In practice, planning is so complicated that some choices at least are left to individuals. In all command economies today, workers receive wages. They are then free to choose within limits how to spend this money. Some goods and services, such as education and health care may be provided free of charge to citizens. Others, such as housing, may need to be paid for but there is no free market in the product. Housing is allocated by the state and it is not possible to choose which house to occupy. However, some goods are available for purchase such as food or clothing.