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A command economy is a type of economic system in which decisions are made by a centralized authority to government. A command economy is an economic system where the means of production are controlled by a central government. In a command economy, all products and services are considered public goods, and the government is responsible for allocating resources to what it deems necessary, without market rewards or prices. Here we discuss the advantages and disadvantages of a command economy.
A command economy is a system in which government officials have the power to make decisions about goods, production, processes, quantity, and price. Under this system, the government manages income and investments.
A command economy is also called an authoritarian economy, as the government has complete control over the economy. This type of economy is mostly seen in third-world countries. However, it can be modeled to some extent in a developed nation like the US.
There are several advantages of a command economy system such as:
In a command economy, the supply can never be increased to meet the increasing demands of society. In other words, the income of an individual or society is limited by its demand. The real demand is generally unknown and is difficult to predict. A command economy by making a precise estimation of the needs of society can provide the right amount of supply. It reduces the wastage of resources and allocation of excessive production which may lead to a cut in demand.
Its authority is concentrated at the center and unorganized groups (like labor unions, consumer organizations, etc.) are not allowed. The government can make decisions in an easy manner to increase industrial power which is generally not possible in a mixed market system.
Governments are providing all the resources so it’s up to businesses to use them. Businesses with more capacity get a boost in their industrial power.
The command economy is not allowed to monopolize any product, supply, or service. It is generally illegal to suppress the supply of a product so that a monopolist can sell it at high prices. Because of this, the prices of a product remain very low. The prices of this product are not increased until it is demanded. It also promotes a sense of freedom among people.
A command economy has a consistent structure in which all the decisions are made by the government. It is uniformly implemented. This system is better than a market economy, as each country has its own economic structure. It is easier to implement a consistent structure among countries. Every operation is handled by the government and changes are not necessary. Its operation is also a transparent process.
In a command economy, it is not easy to equalize the production of goods even if there is a shortage of resources. In a command economy, it is possible to allocate resources uniformly. Because of this, there is no wastage of resources and all the resources are used according to a planned procedure.
A command economy allows the government to make decisions regarding taxation. However, taxes are not levied. Because of this, people do not have to pay any additional expenses. It is also easy for the government to keep track of the amount of tax.
The government has to plan the development of a country with respect to the economy too. It plans and implements the development based on its resources. So, the resources are kept according to the requirement. Because of this planning, a country is able to reduce its dependency on other countries. Its GDP increases and it becomes independent.
There is no restriction on the type, quantity, or style of production. Any product can be produced with any other product. The supply is increased in a uniform manner. All products are produced in a uniform manner, thereby increasing the production and consumption of all products.
Governments generally do not allow people to spend their money frivolously. In a market economy, nobody has to spend money on things that are not required. People can spend their money in other ways like buying homes, cars, jewelry, etc. But in a command economy, there are restrictions on spending. People have to spend their money on things that are essential.
Because of centralization, there is no competition in a command economy. The government has to provide for the country’s needs. The government tries to ensure that all citizens have the same level of income and opportunities. It helps the government to reduce inequalities.
Because of centralization, it is easy for the government to create jobs and reduce unemployment. It creates jobs in different sectors like the private sector and the public sector. It also creates jobs in countries that are unable to create jobs.
It is easier for the government to plan and implement development plans which are useful for the poor people. It helps to increase their income and employment opportunities. You can build infrastructure in areas where it is very essential.
A command economy reduces socioeconomic inequality by providing equal opportunities to everyone. For example, farmers and laborers both get the same opportunity to produce and consume. All the resources are equally distributed among all sections of society.
It is easy for the government to make decisions and implement them in a short span of time. In a command economy, it is not that easy to make decisions because of a lack of resources and consumers’ changing demands. The government allocates all the resources which are needed at a particular place. So, it can provide the necessary supply in a short span of time.
It is generally easier to decide and make laws regarding the welfare of the people. Moreover, it is not easy to implement laws that are beneficial for a particular person. In a command economy, it is easy to decide which laws will be beneficial to the general population and makes policies accordingly.
It is easier for the government to monitor the economy and control it. It makes policies that prevent sudden crises. In a market economy, it is very difficult to control an economy because of a lack of resources and continuous fluctuations in prices.
In a command economy, it is easy to implement laws and policies which are beneficial to the people. This prevents corruption in the system. They do not allow bureaucrats to misuse their power. Because of this, there is no scope for corruption and bribery.
It is easier to tackle corruption in a command economy than in a market economy. The command economy is centralized and the government can implement rules without much difficulty.
It is easier for a government in a command economy to handle laws related to justice. It avoids problems like torturing, public lashing, etc. It also prevents other problems like smuggling and black marketing.
In a command economy, the government is able to provide monetary policies which are beneficial to the people. It can avoid crises like recession, inflation, etc.
In a command economy, there is no scope for the waste of resources. It uses fewer resources, so both the natural resources and the human resources are conserved. It allows the government to provide basic necessities to its people.
Sometimes, the government takes decisions without taking into consideration the views of the people. So, the government can become a dictatorship. As there are advantages of a command economy system, there are also some disadvantages of a command economy system such as
In the command economy system, the government has more power to make decisions than the people. Due to this, people have less freedom to decide which company they want to work with and what kind of work they want to do. It is not possible for people to choose a job or the company they want to work with. It is always the government that decides for them.
People generally have the freedom to start a business in a command economy. But, here people cannot start their own businesses. The government does not allow them to take risks.
The people get fewer resources since the government takes control of all the resources which are used. The government takes decisions regarding the production of goods and services. It is not possible for the people to get what they want, because of this there is no competition and the government does not have to give importance to the demands of its people.
In a command economy, there are restrictions on labor. The government gives special jobs to its people. It gives jobs to only those people who belong to her own country. So, the citizens are not free to choose jobs. There cannot be any competition between the government and private sector in a command economy.
Command economies are very adverse to technological development. They do not encourage the use of technology in any way. There is no scope for development in this system at all. It is one of the reasons why production is much lower in a command economy.
Command economies discourage innovation which is a common feature in a market economy. The government does not provide any incentive for the people to innovate or come up with new ideas. It is not possible to encourage innovation in a command economy as there are restrictions on labor.
The government can distort pricing signals, which can lead to inefficiencies in the economy. The government can manipulate prices which is not possible in a market economy.
The government can implement and fix prices that are not possible in a market economy. There is no competition in a command economy. The government has more power to decide on prices without considering the competitive forces of the economy. So, inefficiencies are higher and there is less production.
The government has so much power to decide on prices that it can overrule the views of its people. It can cause a dictatorship, a common feature of all command economies.
A Command economy is not good for savings. The government can take decisions on the policy which is based on savings. So, people have less chance to save money.
What is the purpose of a command economy?
The purpose of a command economy system is to ensure that the people are satisfied with their basic necessities and food at least. The government takes care of it and makes sure that they do not need anything else. It ensures that the country has a sufficient amount of resources and goods.
my aim is to guide the advantages and disadvantages of a command economy. The government has more power to decide on prices and production in a command economy. It has less freedom to save money and to choose a job. It cannot allow competition between the government and the private sector in a command economy.