Command Economies

Command Economies

In a COMMAND ECONOMY (PLANNED ECONOMY) resources are allocated by a government through a planning process. Therefore the economic decision making is centralised.
There are three main types of actors within a planned economy: the planners (government), consumers and workers.
Characteristics of a command economy:
 Motivation – consumers, workers and government are all assumed to be selfless,
co-operating together to work for a common good. (In a free market economy agents are motivated only by their own self- interest.)
 Public ownership – all part of production apart from labour are owned by the state (although labour services can be directed by the state). There is no private property.
 Planning – resources are allocated through the planning process. At its most extreme, this means that the state will direct labour into jobs as wells as directing consumers what to consume. Although it is more likely that they will direct producers what to produce, thus determining the choice of goods available to consumers.

Planning Process
Allocating resources through a planning process is a complex operation. Planners have to decide what it is to be produced, how it is to be produced and for whom it is to be produced.
Planners tend to use of input – output analysis when drawing up their plans. This is a method of charting the flows of resources in an economy. Planning and forecasting is extremely difficult. Accurate forecasting to produce maximum output assumes that planners know the most efficient way to produce goods and services i.e. they have available to them an efficient production function for each industry. Planners must have accurate statistics about the current state of the economy. There are also many variables such as weather that are beyond control of forecasters.  

An Evaluation of Command Economies
 Choice – individuals have a relatively little choice; workers may be allocated jobs in a particular occupations, in a...