Centrally Planned Economy

Topics: Planned economy, Economic system, Mixed economy Pages: 6 (2013 words) Published: March 3, 2013
The world’s economies consist of three main economy systems with different economic mechanisms. There are centrally planned economy, mixed economy and unplanned economy. Centrally planned economy is one kind of planned economy, it is also known as command economy or socialism. The process of implementation of centrally planned economy is called planification. The phrase is originally generated from “Befehlswirtschaft” in German which used to represent Nazi economy (Amadeo, 2012). Incan empire in 16th century Peru, the Mormons in 19th century Utah had already proven with the existence of command economy. However, many believe that the idea of command economy is derived from the work of Karl Marx. The goals of command economy are to boost the economy, lower inflation and unemployment rate, utilize scarce resources without wasting on domestic business competition and benefit from consolidation of natural resources or labor when making decision on allocation of resources. Besides, government also aims to provide resources and basic needs to every nation and advocates the equality of equity for every nation. These macro-economic plans are normally carred out through five years plan created by government. Command economy is based on top down administration where the highest state planning agency gives instruction to lower level entrepreneurs on the factors of production, allocates labor based on the ability, sets the priorities for production of all goods and services. For example, Mao concentrated all the resources in the production of steel in order to increase economic growth. Mixed economy is also known as dual economy which takes the characteristics from both centrally planned economy and market economy. There are private-owned enterprises, state owned enterprises and cooperative enterprises under mixed economy. The price of products, interest rates and exchange rates are determined by market while government intervenes to protect the welfare of nation and environment through application of taxes, subsidies, tariffs and implementation of regulations such as law of equity. Businesses are run privately while entrepreneurs have the right in employment and deny employment. Entrepreneurs also allowed to trade freely without regional limitation as long as didn’t bleach the law. The term “mixed economy” generated in the political debate in United Kingdoms during the postwar period and the policies appeared from at least the 1930’s. Supporters of mixed economy are mostly associated with British Labour Party. Since Britain’s transition to mixed economy in the early 1980s, there is a liberalization wave around the world (Zhu, 2007). Many countries that abandoned centrally planned economy such as china and Vietnam have shown great success. In recent years, we have witnessed the healthy and optimisc economic growth in People’s Republic of China. It is certainly true that China economic has impressively improved for the last three decades. As mentioned above, China was once used centrally planned economic system while all the decisions regarding production are formulated by a central authority (Kimberly, 2012). However, China has successfully boosted the economic and development in country by using the mixed economic system because decision making regarding production has been decentralized to individual household and firms. The characteristics of mixed economies are market economies with strong regulation oversight which simply means governmental provision of public goods, but unlike centrally planned economic that decisions are fully made by government. Government plays an important role in mixed economic system too, since they have to provide environmental protection and standardized welfare system to the citizen.

In mixed economiy, individual household and firms have the ability to make decisions that maximize their profit. this is contrast to centrally planned economy where resources are distributed evenly among nation....
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