Command economy is a type of economic system, in which government takes the control over the production factors and all decisions are made up by them. The government decides about use and distribution of state income. Actually, command economy is also called planned economy, because the planners make up decisions about what should be produced and they influence the performance of all enterprises. Command economy is known to be against free market economy where pricing, distribution and production issues are made by private owners and of the production factors. It means that the interests of both private and public sectors are paid equal attention. Command economy concentrates mainly on overarching of offered macroeconomic plan(Brabandt, 34).
Nevertheless, the positive moments about command economy exist. For example, the proponents say that command economy ensures high levels of production of necessary goods and services – “one which does not rely on the vagaries of free markets”(Brabandt, 65). In command economy the government is able to harness capital, labor and land with the purpose to serve economic objectives of the country. Greater capital investments for economic development are paid more attention than consumer demand. Due to planned economy, the government can build a heavy industry at once and thus, to stimulate prosperity of underdeveloped economy without long years of capital. What is more important, command economy promoted development without external financing(Myers, 145).
The next strength is that consumers are able to express their economic demands even without money. It means that they are allowed to take part in democratic decision-making bodies in order to make decisions about the economy. Further, command economy is able to minimize the long-lasting utilization of scarce resources. It means that business cycles don’t affect negatively the economic development of the state. Under command economy, unemployment and idle production shouldn’t exist beyond the minimal levels. The strongest point is that it promotes development in stable manner without inflation rates fluctuations and recessions. Command economy satisfies social needs rather than individual meaning that it works on the welfare of the whole nation. Under this economy, rewards are distributed in accordance with the social value of the performed service. Command economy “eliminates dependence of production on individual profit motives, which may not in themselves provide for all society’s needs”. Finally, command economy assist in maximizing national wealth by evolution meaning that economy supports design. In particular, evolution tends to local maximum and design tends to achieve global maximum relatively(Myers, 68).
Despite certain positive feedbacks, weaknesses are present as well. For example, it is argued that command economy is unable to detect consumer preferences, surpluses and shortages accurately. Therefore, economy inefficiently coordinates production. In the Soviet Union the shortages were very common and people had to stay for hours in a queue in order to buy necessary goods, especially shoes, bread and clothes. Surpluses in command economy indicate a waste of labor and materials which should be used to more pressing needs of people. It is also said that markets in command economy prevent long-term surpluses, as the price is forced to sink because of operation of supply and demand. When supply exceeds demand, critics admit, then producers must stop production as, otherwise, they would face profit losses(Ollman, 112).
One more weakness is that planned economy doesn’t allow prices to float freely and, therefore, there is no proper mechanism of determining what is being produced in “unnecessarily amount”. Critics argue that command economy is less likely to promote innovations compared with free market economy. For example, investors can ensure huge benefits implementing new technologies and offering new incentives. The structure of planned economy is characterized by one model of operating, whereas in free market economy several models exist(Ollman, 114).
Brabant, Joseph. 1991. The Planned Economies and International Economic Organizations. USA: Cambridge University Press.
Myers, Danny. 2004. Construction Economics. UK, London: Spon Press.
Ollman, Bertel. 1997. Market Socialism: The Debate among Socialists. UK, London: Routledge.