Centrally Planned Economy

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

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