Is world essentially a centrally planned economy

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Jan Hoang Xuan A6

Is world essentially a centrally-planned economy?

   To begin with answering to the stated above question, we have to define what exactly a centrally-planned economy is. In brief we understand it as an economic system in which decisions on resource allocation are guided by the state. It’s up to governments what types of goods and services are to be provided, at what price and amount. All means of productions are state owned. Examples of countries with such economies still to be in use are , , ,  and  .  So, is it         a must-have to implement a centrally-planned economy? To tackle this question, I would like to modify it a bit by rephrasing it in a following way – ‘should the world be a centrally-planned economy’?

   One of the main arguments in favor of command economy is the fact it is more stable, guarantees constant exploitation of the existing resources and is least affected by financial downturns and inflations. This is caused by abandonment of project is which returns are believed to be too risky or diffuse, e.g. fusion reactor technology and public education respectively. Moreover, economic decisions are based on long-range goals, with no concern for consumer demand, which can be restrained in order to achieve a greater capital investment for economic development in a desired pattern. Same fact can also be a reason for a downside, as planners cannot detect consumer preferences, shortages and surpluses with sufficient accuracy, so the production cannot be managed efficiently. For instance, in the days of Soviet Union it was known for people to queue for whole day, simply to purchase a loaf of bread or few slices of cold meat. All caused by shortage of these basic products, resulted from planners incentive to build capital goods instead. This problem, named ‘economic calculation problem’, was first spotted by economist Ludwig von Mises, who argued that the only solution to it is price mechanism present in free market economy. He also stated that in centrally planned economy all signals of price mechanism are being ignored, therefore this system could never work. Followed by shortages are surpluses. Since prices are not allowed to float freely we cannot determine accurately which goods are produced in unnecessarily large amounts and which are under-produced. Efficiency is believed to be maintained at the maximum level only when each individuals are producing according to their own profit motive.

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   However, command economy emphasizes more on collective benefits , rather than requirements and necessities of a single individual. The state provides a minimum level of payment to everyone, and as people are not allowed to possess a property, wealth cannot be accumulated through a private ownership. What comes with that though is lack of incentive and low efficiency caused by poor motivation, resulting from no profit gaining possibilities. This if followed by lack of new technology development. In free market people are encouraged to promote innovation, as they are aware of huge benefits they might obtain, whereas in centrally ...

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