Economics - Headway

Standard 4 - Economic systems differ in the ways that they address the three basic economic issues of allocation, production, and distribution to meet society's broad economic goals.

Benchmark - 9.2.3.4.2 - Compare and contrast the characteristics of traditional, command (planned), market-based (capitalistic) and mixed economies.

By: EconomyWatch   Date: 14 October 2010

 

In a Command Economy or Planned Economy, the central or state government regulate various factors of production. In fact, the government is the final authority to take decisions regarding production, utilization of the finished industrial products and the allocation of the revenues earned from their distribution. 

The government-certified planners come second in the hierarchy. They distribute the works among the labor class, who actually undergo the toiling part of the entire process. China and former USSR and are perhaps two of the best instances of Command Economy. Though many countries now-a-days are switching off from Planned Economy to Market or Mixed Economy, yet nations like North Korea and Cuba are some countries where Planned Economy still exists in full form. 

In case of a Command Economy, both state-owned and private enterprises receive guidance and directives from the government regarding production capacity, volume, modes of production and course of their actions. Planned economic system is broadly segregated into two groups – Centralized and Decentralized. The centralized or centrally Planned Economy, as prevalent in former Soviet Union, is a more familiar concept between the two. The decentralized Command Economy, on the other hand, is more theoretical in nature with little or no application in the actual economic spheres.

Characteristic features of Command Economy:

By nature, a Command Economy is more stable, guaranteeing constant exploitation of the existing resources. It is least affected by financial downturns and inflations. 

In a carefully planned Command Economic system, both surplus production and unemployment rates remain at a reasonable level 

The steady nature of Planned Economy encourages investments in long-standing project-related infrastructures without any possibility of financial recessions.

Command Economy is just opposite to the concept of Market Economy, with respect to the basic money-making approaches. While Market Economy tends to multiply the wealth of a nation through the gradual process of evolution, Command Economic system prefers deliberate planning of the entire money-making process for better results. In fact, such sincere economic planning in the long run proves beneficial to improve the economic conditions of a country.

Command Economy emphasizes more on collective benefits, rather than the requirements of a single individual. Under such circumstances, rewards, wages and other monetary benefits like bonus are distributed on the basis of the joint rendering of services. This is how Planned Economy actually eradicates the profit-making at individual levels. 

 

 

1.  Who owns the resources in a command economy?

2.  Do consumers have any sovereignty within this system?  how is this different from a market based economy?

3. How does this system answer these questions:  How to produce?  what to produce?  for whom to produce?