China is this week set to begin mapping out something that ought to be an embarrassment: the country’s 15th five-year plan. The phrase itself reeks of Soviet failure—empty shops, useless tractors, bureaucrats fumbling with production quotas for pig iron.
Stalin’s original five-year plan in 1928 became the template for economic disasters worldwide. Mao’s versions killed tens of millions. By 1991, when the Soviet Union finally expired, the five-year plan had turned into a joke.
Except it hasn’t stayed dead. China treats its planning cycles with the utmost seriousness. More curious still, the contagion has spread westward. The European Union runs on seven-year budget cycles that would make any Soviet planner jealous. Britain wants to ‘level up’ by 2030. Japan churns out economic visions with the regularity of bullet trains.
This isn’t socialism through the back door. Markets still do the heavy lifting of shuffling resources around. But governments everywhere have noticed that markets are rubbish at certain kinds of problems. Getting to net zero, rewiring economies for the digital age, coping with ageing populations—these puzzles need someone to bang heads together. The trick is doing that without recreating the Soviet mess.
Beijing’s better mousetrap
Today’s planners have learnt what killed the Soviet system: trying to replace markets rather than steer them. China’s next plan will bang on about ‘new productive forces’, which translates as ‘please make more semiconductors and electric cars’. But the actual work falls to companies like BYD and CATL, which fight each other tooth and nail for market share. The government just points everyone in roughly the same direction and clears bureaucratic obstacles.
Europe’s Multiannual Financial Framework—a name only Brussels could love—splashes 2.02 trillion euros around with specific targets: 30 per cent must go toward climate projects, 20 per cent for digital transformation. Private firms still compete for contracts and customers. The money just tilts the playing field toward what politicians think matters. The European Green Deal promises carbon neutrality by 2050, which sounds mad until you realise it mostly means tweaking regulations and subsidies so that going green makes financial sense.
South Korea wrote the playbook for this approach. Between 1962 and 1996, a string of five-year plans helped the country go from poorer than Ghana to richer than Spain. GDP per capita jumped from 158 US dollars to over 33,000 US dollars. The government didn’t tell Samsung what to build. It built ports, trained engineers, and made sure the chaebol fought viciously for export markets. Competition stayed brutal; the planning just made sure everyone was competing in industries that actually mattered.
Why Denmark has all the windmills
The planning bug has spread because modern problems are coordination nightmares. Take renewable energy. No rational investor builds wind farms without knowing the grid will take their power. No grid operator upgrades transmission lines without knowing where the wind farms will be. Everyone waits for everyone else. Planning cuts through this paralysis by making credible promises about what infrastructure will exist in five years’ time.
Denmark cracked this puzzle forty years ago. After the 1973 oil shock, successive governments committed to wind power through plans that started ambitious and got madder with each iteration. They changed regulations, subsidised turbines, and guaranteed grid connections. Private companies like Vestas and Ørsted did the actual innovation and took the commercial risks. But they could do so knowing the government wouldn’t suddenly change its mind. The result is that Denmark now gets more than half of its electricity from wind and sells turbines to everyone else.
Estonia pulled off something similar with its e-Estonia programme. In 1997, the country decided to go fully digital. Not ‘let’s have a website’ digital, but ‘every citizen gets a digital identity card and does everything online’ digital. This only worked because the government moved everything online simultaneously. Citizens got digital IDs because all government services required them. Services went digital because everyone had IDs. Twenty-five years later, Estonians do all their government business online, vote from their phones, and wonder why other countries still use paper.
The Americans, who normally break out in hives at any hint of industrial policy, have caught the planning fever too. The CHIPS Act throws 280 billion US dollars at semiconductor manufacturing. The Infrastructure Act commits 1.2 trillion US dollars through 2031. The Inflation Reduction Act—which has nothing to do with inflation—splurges 369 billion US dollars on green energy. Washington swears blind this isn’t planning. It just happens to involve the government deciding which industries matter, pouring money into them, and hoping the private sector takes the hint.
Singapore’s crystal ball
The difference between plans that work and those that don’t comes down to intellectual humility. Soviet planners thought they could calculate how many shoes Leningrad would need in 1987. They couldn’t. Modern planners don’t pretend to know what specific technologies will win. They just try to create conditions where winners can emerge.
Singapore gets this. Every five years, it publishes Research, Innovation and Enterprise plans that read like wish lists rather than commands. When the government decided biotechnology mattered in 2000, it didn’t pick which drugs to develop. It built research labs, poached foreign scientists, and made regulations that didn’t terrify pharmaceutical companies. Biotech now generates 20 per cent of Singapore’s manufacturing output. The government created conditions for success, but private companies had to actually succeed.
China’s relative success—compared with the Soviet disaster—stems from this same flexibility. Chinese plans sketch broad outlines. Local governments try different approaches. Private companies elbow each other aside. When plans go wrong, as with the infamous ghost cities and overcapacity in solar panels, companies go bust and assets get sold. It’s messier and slower than pure market discipline, but it does eventually work.
How to waste half a trillion euros
Of course, planning can still go spectacularly wrong. China’s Belt and Road Initiative has buried developing countries under dodgy infrastructure and unpayable debts. Germany’s Energiewende has burned through 500 billion euros while leaving the country dependent on the fossil fuels it meant to replace. California’s high-speed rail, now in its 16th year of construction, might reach its first passengers sometime before the heat death of the universe.
The subtler problem is capture. Once a plan exists, armies of lobbyists descend to ensure their clients benefit. Europe’s Common Agricultural Policy shovels 55 billion euros annually to farmers, mostly the biggest ones who least need help. The French will burn Paris before reforming it. America’s ethanol subsidies, meant to reduce oil dependence, now exist purely to buy votes in Iowa. Bad plans develop constituencies that make them immortal.
Hubris poses the biggest threat. South Korea’s early plans worked brilliantly. So naturally, Korean politicians assumed they could plan their way out of any problem. They couldn’t. The country’s recent attempts to pick winners have mostly picked losers. Success at planning simple things breeds dangerous confidence about planning complex ones.
The tool in the shed
What explains the quiet return of five-year planning? Simple pragmatism. Governments have noticed that some problems won’t solve themselves. Climate change needs massive coordination. Ageing societies need complete rewiring. Supply chains need reshoring. Waiting for markets to spontaneously coordinate millions of actors is like waiting for a room full of cats to form an orderly queue.
But planning only works when it respects what markets do well: discovering prices, allocating capital, and ruthlessly punishing failure. Good plans create frameworks for competition, not substitutes for it. They point directions without dictating destinations. They acknowledge that nobody—not Beijing’s technocrats, not Brussels’ bureaucrats, not Washington’s lobbyists—knows what the economy will need in ten years.
The most successful plans share certain traits. They tackle specific coordination failures rather than trying to run entire economies. They set broad goals but let markets figure out the details. They build in escape routes for when things go wrong. Most importantly, they remember that the point isn’t to suppress market forces but to channel them somewhere useful.
The five-year plan has crawled out of history’s dustbin, dusted itself off, and put on a suit. Today’s versions would horrify Stalin and puzzle Gosplan’s bureaucrats. Where communist planners tried to replace markets, modern planners try to make markets work better. Where Soviet plans commanded, today’s plans cajole.
As top brass in Beijing approve China’s latest plan, and European politicians haggle over their next seven-year budget, and American congressmen pretend they’re not doing industrial policy while doing massive industrial policy, the ghost of communist planning might wonder what happened to its offspring. The answer is simple: evolution. The plans that survived learned to live with markets rather than fight them. Those that didn’t ended up where the Soviet Union did—in the cemetery of very bad ideas.
Photo: Dreamstime.
