Planned economy

Also known as: Central administration economy, central planning economy

The planned economy is a form of economy, the most important feature of which is the central design and control of all market processes by a central state body.
Unternehmen und Konsumenten haben dabei nur wenig bis gar keine Entscheidungsfreiheit über die Art, wie sie an der Market economy teilnehmen wollen, da Pricing policy, Güterzuweisungen, Einstellungen oder Entlassungen von Arbeitskräften, Geldüberweisungen bis hin zu Werbemaßnahmen von der Regierung bestimmt werden.

At regular intervals, the state draws up a plan, usually a five-year plan, which sets the targets for the corresponding period.

advantages and disadvantages

The direct control of the government over the entire economic system, which enables direct intervention in the event of problems, is certainly considered to be advantageous. This also enables a more equitable distribution of resources and money; more socialist planned economies therefore had a much smaller income gap, social injustices and class struggles did not exist in historically planned economies.
However, these advantages are offset by massive disadvantages, which were also the reason for the collapse of the planned economy GDR and the entire Eastern Bloc:

Above all, it must be mentioned that the individual has no rights as such and no one is allowed to run his own company of a certain size. As a result, as an artificial head of a company, you not only have no motivation to innovate, but also cannot determine the company's deliveries and deliveries yourself. The government regulates all of this.

But it means that the flow of goods is all regulated by a distant state body, instead of those who are allowed to determine who are directly aware of the effects on the company.

In this way, bottlenecks in production are usually cumbersome and slow to overcome because they first have to be discussed at the government level itself. Because of this scheduling, the system is also much more susceptible to chain reactions. Ultimately, a planned economy is more dictatorial than democratic, since the majority of those involved have no right of determination.

The disadvantages of a planned economy at a glance:

  • short-term adjustments cannot be made
  • The risk of negative chain reactions is very high
  • Individuals have no rights and cannot operate optimally
  • Innovations and competition are prevented
  • So far, no planned economy has proven to be an advantageous form of market in any country

Change from planned to market economy

Mainly in the socialist and communist countries of Eastern Europe and Asia, the planned economy was practiced until the collapse of the Soviet Union.

A switch to Market economy This often turns out to be problematic for the population, as state property is privatized and social security can also be lost. In the past, this often meant massive waves of layoffs in order to save personnel costs and thus rehabilitate the economy.

An increase in unemployment and social inequality are often the result.

Planned economy - current situation

The planned economy has been an obsolete model for 25 years. It is only used rudimentarily in a few countries, including Latin American countries such as Cuba and Venezuela. In addition, it sometimes still exists at a communal level with a lower level of complexity, such as the Israeli kibbutzim.

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