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 Cuba, Libya, Saudi Arabia, Iran and North Korea. 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. 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 planned economy only particular fields are thoroughly and deeply investigated and donated, only those which government considers as essential to its interests, usually military industry.
An example of such happening is Cold War, a space and military race between Soviet Union and USA, despite a smaller economy of the former one. In addition to that centrally planned economy unintentionally favors ‘secondary economies’, e. g. moonlighting, corruption and black market, due to the fact that consumers are faced with goods of low quality and lack of overall choice. Secondary economies responds to the excess of demand over supply, by providing necessary mechanism, as well as distracting centrally planned targets through the utilization of needed assets on nonproductive uses.
Furthermore secondary economies exist, because planning authorities are only interested in their own needs and objectives. Demand, no matter how high, has no influence on the output established by government. On the basis of preceding discussion it can be concluded that centrally planned economy has both it positive and negative sides. It is up to us to outweigh those two sides and choose ‘the lesser evil’. In my opinion by all means should we end the presence of command economy, as there is no essentiality in its participation in a global market.
Currently most countries have chosen to support and act according to free market laws, for what reason I am extremely glad, as being a demanding and fastidious consumer I opt to select goods of high quality and affordable price. And only free market economy can guarantee me such a possibility. To end my essay, I would like to quote an American writer, George Glider, who once said, ‘A successful economy depends on the proliferation of the rich, on creating a large class of risk-taking men who are willing to shun the easy channels of a comfortable life in order to create new enterprise, win huge profits, and invest them again. ‘