The Planned Economy
The Planned Economy
Key Characteristics
What to Produce: Central Planning Committee (CPC) determines national priorities and implements 1 and 5 year plans
How to Produce: CPC allocates resources to production managers so as to meet targets. Production carried out to meet the national interest, not profit.
For Whom to Produce: Influenced by income levels but the CPC often determines those income levels as it also offered incentives for workers to do the more demanding jobs. Most often a sense of moral duty provided the incentive to contribute to the production process.
There are limited material incentives since the CPC sets all wages and profit margins from production. Enterprises are state owned. Moral and coercive incentives are used where national pride and a sense of belonging are seen to be important. Sometimes there are threats/penalties for non-compliance.
COMMAND (or planned) ECONOMY
Basic economic decisions are made by government on behalf of the people.
Resources are owned in common by the people and allocated by the government.
Everyone should have equal access to the economy’s production of goods and services.
Every citizen should receive the same income.
Examples are Cuba and North Korea.
CHARACTERISTICS
Capital and land resources are commonly owned, by everybody, and controlled by the state.
The basic economic “what”, “how” and “for whom” decisions are made by a central bureau.
Basic needs are free or very cheap and no one is unemployed.
BASIC DECISIONS
What to produce
One of the reasons for the downfall of the former Soviet Union was the dissatisfaction of consumers.
They often found that basic requirements were unavailable and were only able to choose between a very narrow range of consumer goods and services.
At the same time, military and medical equipment was produced at a standard to rival the world’s best.
Decisions about what to produce were made by the government in the country’s best interests.
Despite this, consumers were often given
Key Characteristics
What to Produce: Central Planning Committee (CPC) determines national priorities and implements 1 and 5 year plans
How to Produce: CPC allocates resources to production managers so as to meet targets. Production carried out to meet the national interest, not profit.
For Whom to Produce: Influenced by income levels but the CPC often determines those income levels as it also offered incentives for workers to do the more demanding jobs. Most often a sense of moral duty provided the incentive to contribute to the production process.
There are limited material incentives since the CPC sets all wages and profit margins from production. Enterprises are state owned. Moral and coercive incentives are used where national pride and a sense of belonging are seen to be important. Sometimes there are threats/penalties for non-compliance.
COMMAND (or planned) ECONOMY
Basic economic decisions are made by government on behalf of the people.
Resources are owned in common by the people and allocated by the government.
Everyone should have equal access to the economy’s production of goods and services.
Every citizen should receive the same income.
Examples are Cuba and North Korea.
CHARACTERISTICS
Capital and land resources are commonly owned, by everybody, and controlled by the state.
The basic economic “what”, “how” and “for whom” decisions are made by a central bureau.
Basic needs are free or very cheap and no one is unemployed.
BASIC DECISIONS
What to produce
One of the reasons for the downfall of the former Soviet Union was the dissatisfaction of consumers.
They often found that basic requirements were unavailable and were only able to choose between a very narrow range of consumer goods and services.
At the same time, military and medical equipment was produced at a standard to rival the world’s best.
Decisions about what to produce were made by the government in the country’s best interests.
Despite this, consumers were often given