1. Planned economies are sometimes called "command economies" because the state commands the use of resources (such as labour and factories) that are used to produce goods and services as it owns factories, land and natural resources. Planned economies are economies with a large amount of central planning and direction, when the government takes all the decisions, the government decides production and consumption. Planning of this kind is obviously very difficult, very complicated to do, and the result is that there is no society, which is completely a command economy. The actual system employed varies from state to state, but command or planned economies have a number of common features.
2. Firstly, the state decides precisely what the nation isto produce. It usually plans five years ahead. It is the intention of the planners that there should be enough goods and services for all.
3. Secondly, industries are asked to comply with these plans and each industry and factory is set a production target to meet. If each factory and farm meets its target, then the state will meet its targets as set out in the five-year plans. You could think of the factory and farm targets to be objectives which, if met, allow the nation's overall aim to be reached.
4. A planned economy is simple to understand but not simple to operate. It does, however, have a number of advantages:
- Everyone in society receives enough goods and services to enjoy a basic standard of living.
- Nations do not waste resources duplicating production.
- The state can use its control of the economy to divert resources to wherever it wants. As a result, it can ensure that everyone receives a good education, proper health care or that transport is available.
- Several disadvantages also exist. It is these disadvantages that have led to many nations abandoning planned economies over recent years:
- There is no incentive for individuals to work hard in planned economies.
- Any profits that are made are paid to the government.
- Citizens can not start their own businesses and so new ideas rarely come forward.
- As a result, industries in planned economies can be very inefficient.
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What kind of economics are planned economies?
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