Planned Economy
The state controls the macroeconomic policy and commercial activity, but it allows free economic decisions regarding employment and consumption at a certain level, that is, there is control by the state on the factors of production, in addition to focused planning on what is produced and how it is produced and who is being produced, and usually economic systems are criticized Centrally planned sometimes because it is not properly organized, or does not maintain quality control, incentives and worker protection, a common example of this system is the former Soviet Union.
The Difference between a Centralized and Decentralized Planned Economy
Centralized Planned Economy
It depends on planning the economy completely at the level of the state and the ruler in it, which is a system in which the state has full control over the factors of production.
Decentralized Planned Economy
For planning economic distribution to specific authorities or more from one side, and each in its specialization, then the authorities for economic planning shall be distributed to more than one specific authority.
Also read: The Concept of Socialist Economics and Good Knowledge of its Foundations
Advantages of a Planned Economy
Resource Mobilization
Executing mega projects, establishing a huge industrial power and achieving all social goals. The state can once build a heavy industry without the need for capital through expansion in light industries without relying on external financing.
Transforming Societies
To fit the government’s vision of this economy, the new administration is the nationalization of private companies, and workers receive new jobs based on the government’s assessment of them and their skill.
Economic Goals
Benefiting from all lands, money, and work to serve the country’s economic goals, and consumer demand can be restricted in favor of increasing capital for economic development, as happened in the Soviet Union when the government reduced GDP from 80% to 50%.
Also read: Understand Economic Transformations
Disadvantages of the Planned Economy
Ineffective Allocation of Resources
Economic planners cannot discover all the details of the consumer, the shortcomings and the surplus, and production cannot be efficiently coordinated, in addition to the depreciation of social needs. It is difficult to meet the needs of national and international markets and it is more complicated than the local.
Repression of Economic Democracy
The inability to expand self-management and economic democracy are incompatible with that, even if it overcomes some shortcomings in information and incentives and has survived by that only because it was an unprecedented comprehensive political backer.
Economic Instability
Studies by economists in Europe showed that the expectations were exactly the opposite, and showed greater fluctuations in production than market economies during the 1950s.
Also read: Learn the Factors of Production
What are the Countries with a Planned Economy?
China
World War II Mao Zedong created a communist-ruled society, through which the planned economy was imposed on China with great precision, and the current leaders were moved on a market-based system, yet they made five-year plans to define economic goals.
Also read: The Best Shipping Companies to Import from China
Cuba
Stabilization of the planned economy and communism after the revolution of Fidel Castro in 1959, and then the Soviet Union supported the Cuban economy in 1990 and the government is working slowly to integrate market reforms so as to stimulate growth.
Libya
In 1969, former President Muammar Gaddafi created a planned economy based on oil revenues.
Most Libyans were working for the government and were implementing all reforms to create a market economy.
But his assassination stopped all economic plans.
Russia
In 1916 Vladimir Lenin created the first communist planned economy and then Joseph Stalin built military power, in addition to that the economy was quickly built after World War II.
Also read: Feasibility Studies of Industrial Projects