Command economy, also referred to as planned economy, is an economic system wherein a central authority controls the quantity of products to be produced as well as other economic activities of a nation, including the prices of commodities. This is the economic system followed by most communist societies like China, North Korea and Cuba. Although this has worked for these countries, there are overt setbacks to this kind of economic system. To have an idea, here are some of the pros and cons of command economy.
List of Advantages of Command Economy
1. It does not have a room for monopoly.
With a central authority chosen by the government to dictate on the number of goods to be produced and prices manufacturers can ask for, it will be hard for suppliers of staple products to control the market. In the end, consumers will be the ones to benefit from this type of system.
2. Mobilization of resources is streamlined.
Another advantage of command economy is the power of the central authority to demand higher production of goods needed in case of emergency situations like famine and war. This way, people of affected regions can have the supplies they need faster since the government will decide the quantity of products affected areas require. That said, it will be easier and faster for the public to access these goods at a price set by the governing body.
3. It makes goal-setting possible and achievable.
The presence of a central authority is an advantage in itself. Since there is a body that has the power to control economic activities, it also has the capability to set well-defined goals and schedule a time frame for achieving these goals.
List of Disadvantages of Command Economy
1. It can result to either products shortage or surplus.
There is no way the central authority can have accurate information about the market and the exact number of goods consumers demand. As a result, some manufacturers might not be able to supply enough products if they were allowed to produce goods that are much less in quantity than what the public really needs. The opposite can also occur if the central authority mandates them to produce large quantities of goods with less market demand.
2. It becomes too controlling.
With the government having the power to control economic activities, businesses might not be able to get enough profit and eventually fail. This can also dissuade individuals to invest in business start-ups for fear of not getting their ROI in time. In the end, this can also affect the country’s economy.
3. It does not support innovation.
Since the central authority has full control in the production and sale of goods, manufacturers will not attempt innovation on their products. When this happens, the quality of goods will remain as it is. This also suppresses the freedom of entrepreneurs in a way as well as deprives consumers to have better products.
All types of economic systems have advantages and disadvantages but all were created with the intent to do good more than harm. However, one question still remains. Whose interests are these economic systems protecting?
Keith Miller has over 25 years of experience as a CEO and serial entrepreneur. As an entrepreneur, he has founded several multi-million dollar companies. As a writer, Keith's work has been mentioned in CIO Magazine, Workable, BizTech, and The Charlotte Observer. If you have any questions about the content of this blog post, then please send our content editing team a message here.