Command economies The presentation is made by Marina Berela (GMU-121)
Types of economic systems Traditional economies Command economies Socialism Communism Market economies Market socialism Economic democracy Mixed economies Japanese system Socialist market economy American school
What is command economy? Command economy is a type of economic systems, in which a central authority makes the major decisions about what, how and for whom to produce. Ø The government makes the major economic decisions Ø Severely limited private property rights Ø Limited individual freedom
Advantages of command economies Ø The main strength of a command system is that it can change direction drastically. For example, the former Soviet Union went from a rural agricultural society to an industrial nation in a few decades by emphasizing the growth of heavy industry. But during this period, the central planning agency shifted resources on a massive scale. Ø Another advantage of command economies is that many health and public services are available to everyone at little or no cost.
Disadvantages of command economies Ø Command economies ignore the basic wants and needs of consumers. So people can suffer of hunger and live without consumer goods and adequate housing. Ø A second disadvantage is that the system gives people the incentive to fill their quotas instead of producing a good product. Ø A third weakness is that a command economy requires a large decision-making bureaucracy. This structure slowed decision making and raised the cost of production. Yet a fourth weakness is that the planning bureaucracy lacks the flexibility to deal with minor day-to-day problems. As a result, command economies tend to lurch from one crisis to the next – or collapse completely, as did the former Soviet Union. Ø Finally, rewards for individual initiative are rare in a command economy. Each person is expected to perform a job in a factory or on a farm according to the decisions made by central planners.
Because command economies tend to be unproductive, few pure systems exist today. North Korea and Cuba are the modern examples, but in the 1970 s and 1980 s, the communist bloc countries of the former Soviet Union had command economies. In the former Soviet Union, for example, the State Planning Commission determined needs, set goals, and established production quotas for major industries. If it wanted growth in heavy manufacturing, it would allocate resources to that sector. If it wanted to strengthen national defense, it directed resources to military production.
What is socialism? Socialism is an economic system characterized by social ownership of the means of production and co-operative management of the economy. A socialist economic system would consist of a system of production and distribution organized to directly satisfy economic demands and human needs, so that goods and services would be produced directly for use instead of for private profit driven by the accumulation of capital. As a political movement, socialism can be libertarian socialism, democratic socialism and so on.
What is communism? Communism (from Latin communis - common, universal) is a revolutionary socialist movement to create a classless, moneyless and stateless social order structured upon common ownership of the means of production, as well as a social, political and economic ideology that aims at the establishment of this social order. This movement significantly influenced the history of the 20 th century, which saw intense rivalry between the "socialist world" (socialist states ruled by communist parties) and the "Western world" (countries with capitalist economies).
Check yourself! 1. 2. 3. 4. 5. What two groups of command economies can you call? Does command economy have a low possibility of financial recessions and inflations? Does command economy emphasize more on collective benefits or on requirements of a singular individual? What is the best instances of command economy? Who regulates all factors of production in command economy?
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