China, North Korea, and Cuba are more toward to the command economy, although not 100%. The command economic system is a key feature of several communist states. This system often fails due to political corruption, not the inherent weaknesses in the economic system. A famous example is the Soviet Union.
And at this time, the failure is at least evident from the few countries that have adopted a command economy. Most countries combine it with a free-market economic system (known as a mixed economic system).
Command economy definition
The command economic system is an economic system in which the government controls the use of economic resources. The market mechanism does not work as in a free market economy. The supply and demand do not determine what, how much, and at what price to produce goods and services. That’s because the government determines the allocation of resources.
The central government is responsible for planning, regulating, and controlling all economic activities. Consequently, the private sector does not take the role of the economy.
Command economy characteristics
This economic system has several distinctive features.
- Individual rights to own property are restricted
- Centralized economic plan
- The government controls and decides the allocation of economic resources
- Social motives replace the profit motive
- The market mechanism does not work
- The government determines the types, volumes, methods of production and distribution of goods and services
- The public sector dominates and no opportunity for the private sector
Is the command economy good? Or is it bad?
To answer this, I will write several advantages and disadvantages of this system. Take your conclusions.
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Supporters argue this system has several advantages, including:
- Low economic inequality. Competition between individuals is almost non-existent because the government has set their roles, jobs, and salaries. The government make the distribution of income more equitable
- Low unemployment. Individuals are working on government projects. They are less likely to be unemployed. And, therefore, this system enables the achievement of full employment.
- Mutual goodness replaces profit as the main incentive for production. If there is no political corruption, everyone gets an equal share in the economy.
- The government can prevent the production of socially unwanted goods. Conversely, social services such as education and healthcare can be free, as in Cuba.
- Centralized planning allows faster utilization of resources. The government can require everyone to work in the strategic sector.
On the other hand, critics claim several weaknesses inherent in the command economic system, including:
- Low innovation due to lack of competition. “Why inventing a new product, if it does not produce profits.”
- Inefficient economic resources allocation. To function correctly, governments need large amounts of information, which is almost impossible.
- Lack of quality goods because there is no innovation and competition.
- This system gave rise to political corruption among high-ranking government officials. They can abuse their absolute power.
- Surpluses and scarcity are common phenomena due to a lack of information and non-functioning market mechanisms. And, when scarcity occurs, rationing and queuing are prevalent in the distribution of goods.