Command Economy: Definition, Examples and Benefits

Explore the distinct characteristics and impact of command economies, which have been implemented in various countries throughout history, from ancient Egypt to the Soviet Union. Delve into the differences between communism and command economies, while examining the advantages and disadvantages inherent in this unique economic system. If you're curious about the pros and cons of command economies, read on!

Unveiling the Essence of Command Economies

In a command economy, also referred to as a planned economy, the government assumes responsibility for making all economic decisions. The central objective of a command economy is to promote societal welfare and ensure the equitable distribution of goods.

In a command economy, the government maintains comprehensive control over all facets of economic activity, including production, distribution, and consumption. They own and manage resources and production facilities, determining prices and quantities of goods and services.

For further insights into diverse economic systems, discover our explanations on communism and different types of economies.

In a command economy, the government ensures the equal distribution of essential goods and services among all citizens, regardless of income or social status. For instance, in times of food shortage, the government can intervene and distribute food uniformly among the population.

Key Features of a Command Economy

A command economy generally exhibits the following characteristics:

• Centralized economic planning: The government controls the production, pricing, and availability of goods and services.
• Lack of private property: Private ownership of businesses or property is limited or non-existent.
• Emphasis on social welfare: Priority is given to promoting social welfare and equitable distribution over maximizing profits.
• Government-controlled prices: The government determines fixed prices for goods and services.
• Limited consumer choice: Citizens have restricted options for purchasing goods and services.
• Elimination of competition: Since the government controls all economic aspects, competition between businesses is minimal or absent.

Understanding Command Economy System: Comparing Command Economy and Communism

The primary distinction between communism and a command economy lies in their scope. Communism encompasses broader political ideology, including economic, social, and political dimensions, while a command economy solely concerns the economic system. Communism grants control over not only the economy but also political and social aspects to the people.

Communism

In a communist system, land, industries, and machinery are collectively owned by the government or community, and the generated wealth is shared among all individuals.

In some instances, a command economy can exist without embracing communism. Certain authoritarian governments have implemented command economies without adopting the entire communist ideology. For instance, the Old Kingdom of Egypt in 2200 BC and the Inca Empire in the 1500s used variations of command economies, marking the oldest documented instances of such systems.

Pros of Command Economy

Advantages attributed to a command economy include:

1. Emphasis on social welfare over profit.
2. Elimination of market failures by producing and distributing goods and services according to social needs.
3. Capacity to undertake large-scale projects while achieving critical social objectives.
4. Ability to adjust production rates to meet specific societal needs, reducing the likelihood of shortages.
5. Ability to mobilize resources on a massive scale, facilitating rapid advancement and economic growth.
6. Typically low unemployment rates.

Cons of Command Economy

Disadvantages associated with a command economy include:

1. Lack of incentives: Government control over production and decision-making can hinder incentives for innovation and entrepreneurship, potentially impeding economic growth.
2. Inefficient resource allocation: Government interference with pricing signals can lead to inefficient allocation of resources.
3. Restricted consumer choice: The government dictates which goods and services are produced and distributed, which may not align with consumer preferences or needs.
4. Elimination of competition: A command economy, in which the government controls all industries, eliminates the benefits of market competition.

Summarizing the Pros and Cons of a Command Economy

The advantages and disadvantages of a command economy can be summarized as follows:

Pros of a Command Economy

• Emphasis on social welfare over profit.
• Elimination of market failures through production based on social needs.
• Achievement of large-scale projects while addressing critical social objectives.
• Mobilization of resources on a massive scale, fostering rapid advancement and economic growth.
• Low unemployment rates.

Cons of a Command Economy

• Lack of incentives for innovation.
• Inefficient resource allocation.
• Restricted consumer choice.
• Lack of competition.

While a command economy can promote social equality and stability, it is often accompanied by economic inefficiency and limitations on individual freedoms. Achieving economic efficiency and balancing individual freedom becomes a trade-off within a command economy.

Examples of Command Economy

It is essential to note that no country in the world fully implements a pure command economy. Similarly, there is no country with a completely free-market system.

Most economies today exist on a spectrum between these two extremes, with varying degrees of government intervention and market freedom. While some countries exhibit greater government control over the economy, such as China or Cuba, there are still elements of market competition and private enterprise present.

Conversely, even in countries with relatively free markets, such as the United States, government regulations and policies influence the economy.

Examples of countries with command economies include Cuba, China, Vietnam, Laos, and North Korea.

China:

China serves as a prominent example of a country with a command economy. Following policies like the Great Leap Forward in the late 1950s, which failed to address economic challenges and led to famine and economic decline, China continued to develop in subsequent decades. Investments in education and infrastructure contributed to significant improvements in literacy rates and poverty reduction.

Market-oriented reforms were implemented in the 1980s, propelling China to become one of the world's fastest-growing economies.

Cuba:

Cuba exemplifies a country with a command economy, governed by communist ideology since the Cuban Revolution in 1959. Despite facing a US embargo and other challenges, Cuba has made remarkable progress in poverty reduction, achieving high literacy rates, and ensuring widespread access to healthcare.

However, the country has also faced criticism regarding political freedoms and human rights violations.

Vietnam:

Vietnam, similar to China, has transitioned from a command economy to a more market-oriented approach. Nevertheless, government intervention in the economy remains significant, with policies aimed at reducing poverty and enhancing social welfare. Political freedom in Vietnam remains restricted, mirroring its communist influence.