Overview
This lecture explains the command economy system, highlighting its structure, features, examples, strengths, and criticisms.
What is a Command Economy?
- A command economy is an economic system where the government controls production, distribution, and pricing of goods and services.
- Resource allocation is done through central planning rather than market supply and demand.
- The government typically owns most resources, including land, factories, and businesses.
- Economic decisions aim to meet national objectives such as stability or equality.
Key Features of Command Economies
- Government ownership of resources is central; the state controls production facilities and assets.
- Central planning authorities set detailed economic plans and production priorities.
- Consumer choice is limited as the government decides what goods are available.
- Wages and prices are set by the government, not through market negotiation.
Examples of Command Economies
- The Soviet Union (20th century) had centralized control, using five-year plans to direct industry and agriculture.
- North Korea currently operates as a command economy, with the government controlling nearly all sectors.
- Cuba traditionally had government control over major industries, though some market reforms have occurred recently.
Strengths of Command Economies
- Rapid resource mobilization for large-scale industrial development (e.g., Soviet Union).
- Focus on meeting basic needs like healthcare and education for all citizens (e.g., Cuba).
- Potential for full employment, with the government providing jobs even during downturns.
Criticisms of Command Economies
- Inefficiency due to central plans failing to match actual supply and demand, causing surpluses or shortages.
- Lack of innovation because of limited competition and weak incentives.
- Limited personal freedom, with the government dictating jobs and available goods.
- Risk of corruption and mismanagement due to concentrated governmental power.
Key Terms & Definitions
- Command Economy — An economic system where the government controls most economic activities and resource allocation.
- Central Planning — Government agencies create detailed plans for production and distribution.
- Market Economy — An economy driven by supply, demand, and private ownership.
Action Items / Next Steps
- Review examples of command economies and contrast them with market economies.
- Prepare for discussion on the strengths and weaknesses of different economic systems.