The Advantages & Disadvantages of Command Economies

Written by sarah rogers
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The Advantages & Disadvantages of Command Economies
Fidel Castro helped create a command economy in Cuba. (Handout/Getty Images News/Getty Images)

A command economy, also known as a planned economy, is a type of economic system in which the state or central government centrally plans and directs the economy. On the other end of the spectrum is capitalism, where there is no planning, just private actions by private individuals. Most countries in the world, however, use a blend of both command and capitalist systems. Cuba and the former USSR are two examples of a command economy.

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Basic Needs Met

A command economy focuses on providing for all the basic needs of its citizens and promoting equality, or the values it holds important. It aims to provide food, housing, education, health care and other services for the citizenry, as well as careers for everyone (though the choices are restricted). In theory, a major advantage of a command economy is the eradication or avoidance of extreme poverty and inequality.

Stability

Due to intensive planning on a macroeconomic scale, a command economy is quite stable. It does not suffer from short-term conditions, such as market fluctuations and bubbles, like capitalism does. If an unforeseen situation does arise, however, the central government can respond quickly to handle or correct the situation, as it in effect owns all the resources.

No Need for Marketing

In a capitalist economy, private individuals and businesses are competing with one another for business and spend much time and money on advertising and marketing their products and services. In a command economy, however, as there is no competition, the time and resources that would normally have gone to advertising and marketing could be spent on production and distribution instead.

Lack of Outside Innovation

There is little motivation for technological innovation by outsiders in a command economy. While the central government can sponsor research and development by individuals trained in the specific fields that interest the government, other individuals tend not to innovate without the profit motive. This has the possibility of leading to technological stagnation. On the other hand, there is also the possibility of great technological innovation in the fields the central government deems of greatest benefit to the society.

Fewer Consumer Options

Command economies plan for society's needs, which do not necessarily take into account people's wants and whims. For example, a command economy may decide to produce only one or two kinds of milk, which means that consumers have few options when buying milk and their preferences may be ignored. Luxury or frivolous items may also be unavailable if the central government did not rate them as important enough to produce or devote resources to.

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