HUNGARYS REFORM PROCESS

a.

Evaluate the failures of central planning, drawing on the Hungarian experience.

Suggested answer

Central planning requires the state to have direct control over the assets and human resources
necessary to achieve the desired goal of the community through its political process. Central
planning assumes that the central planner will have the perfect knowledge of all resource
availabilities, technical capabilities of all production units and society's social welfare
function and also that all the instructions of government will be carried out. Central planning
requires total control over the operations of different units in order to set them properly.
There are several reasons for the failure of central planning methods.

Limited information sharing

First, Central planners will be unable to share total information in a clear and logical manner
among the respective units in the organization. Perfect information can only be made a reality
if everything is connected to each other through a live-network. Satisfactory information
cannot be transmitted to others without transmitting total information, in which case the
information will be too much and without any form. Once total information is transmitted to
the central board by the unit, it is difficult to decide what portion of the total information is
required to send out to other units. It is also possible that the information transmitted by the
central planning board is not the information requested or used in a timely manner to have
any positive effect. Such limitations prohibit the flexibility and reliability on the performance
of the units. Certainly this is not an economic way of doing things.

Elaborate decision making process

Second, the managers of the units will have to wait for answers from the central board to their
questions or queries. Immediate opportunities, experienced by a unit manager or a worker,
will be lost if it has to go through the central planning board for approval of action. Centrally
controlled organizations often go through elaborate and unrealistic decision making process.
Organizations are not empowered to freely make operational decisions in order to enhance

the performance of the organization. Exerting excessive control by central planner will not
allow people to perform at their peak performance.

Inefficient resource utilization

Finally, the human and material resources will not be used most effectively, if the unit
manager is not giving the authority and responsibility to act independently in certain
circumstances that can have potential long term benefit for the entire organization and the
unit. The common sense approach is discouraged by the central planning board. The members
of the central planning are far from the day-to-day activities of the organization. Manager
shall be given responsibility to coordinate and implement the new ideas and immediate
requirements for the success of the organization.

Conclusion

The three limitations imposed by central planning methods clearly suggest that organizations
must be made autonomous entities with clear understanding of responsibility and outcomes.
Central boards can maintain strategic control over the organization, but it must not involve in
operational responsibilities that rightly belong to managers and staff at the frontline. The
actions taken by the manager must be justified according to the primary priorities of the
organization.