A Command Economy Tends to Exist Under a

A command or planned economy occurs when the government controls all major aspects of the economic system and economic production. In a command economy, it is the government that decides what to produce, how to produce appurtenances and how to distribute goods and services within the economy. Command economies were often associated with the political system of Communism. It was Karl Marx, in the Communist manifesto who argued for ‘common ownership of the means of production.’

A command economic system works in contrast to a gratis market economy. In a free market place economy, goods and services are produced by individual enterprise with distribution occurring according to market place forces.

How a control economic system works

• Government ownership of the means of production. In command economies, governments will ain some or all of the industries producing goods and services.
• Authorities pricing and product decisions. In a command economy, production is decided by government agencies, who decide the virtually socially efficient goods to produce. Government agencies may too set prices or give consumers rations directly.
• Government macro-economic objectives. In a command economy, the regime volition have over-riding macroeconomic objectives such equally employment rates and what to produce.
• Some centrally planned economies may consist of not but country-owned enterprises, but some privately owned firms who are closely directed by state management.

How a command economy compares to a free market economy

Advantages of  command economies

• Supporters of control economies argue that it enables the government to overcome market failure, inequality and create a order that maximises social welfare rather than maximises profit.
• Command economies can forbid corruption of monopoly power.
• Command economies can prevent mass unemployment, oft a feature of capitalist economies.
• Control economies could produce goods which benefit society and ensure everyone has access to basic necessities.
• Although Command economies are associated with declining inefficient economies of the late Soviet Union and Cuba, in the 1920s and 30s, the Soviet Union made periods of very rapid economical growth. Betwixt 1928–40 – the first three Five-Twelvemonth Plans, the Soviet Wedlock fabricated rapid economic growth irresolute from a largely agrarian society to a major industrial nation. (This also occurred during a period of depressed world demand during the Nifty Depression.)

Disadvantages of command economies

• Government agencies usually have poor information nearly what to produce. Centralisation means that decisions are taken past people who may accept no access to what is actually happening. Command economies, similar the Soviet Union, often produced appurtenances that weren’t used.
• Unable to respond to consumer preferences.
• Inefficient firms are protected and kept going; making it hard for resource to move to dynamic and efficient firms.
• Threat to democracy and freedom. A command economic system creates a very powerful government which limits individuals rights to pursue economic objectives. This invariably creates a climate where governments can extend their control into other areas of people’s lives.
• Bureaucratic. Command economies tend to be very bureaucratic with decisions held up past planning and committees.
• Toll controls invariably pb to shortages and surpluses.

Transition from control to market economies

From the 1980s, many command economies, such as the Soviet Union began to make the transition to a mixed economic system. This involved a process of privatisation and price deregulation. A mixed economy enables the benefits of both costless market place and some selected government intervention.

People’s republic of china has also fabricated the transition from a command economy to a mixed economy – though politically the country still remains communist.

Related

• Mixed economy
• Should the government intervene in the economic system?