In most cases, each country in the world has its own economic system in power, operating within its own type of economy. One known type is referred to as a command economy. Where an economic system is important to a nation, proper planning and development is an integral part to its overall success to evade from suffering financial difficulties and instability. For a command economy, it is primarily implemented in communist countries, such as the former Soviet Union, Cuba and North Korea.
This type of economic structure has suffered a negative reputation due to the control provided to the government. However, this structure can offer a nations citizens some strengths as well. Here is a look at the pros and cons of a command economy.
List of Pros of a Command Economy
1. It does not allow monopolizing.
It is impossible for a monopoly to rule in a command economy because all the forces of the market are regulated by the government. No provider will be given control to set the market and rule aside from the government in power. Monopolizing exists in other economies, but not present in a command economy.
2. It boosts industrial power.
Command economy creates industrial power to complete massive projects while attaining imperative social goals.
3. It adjusts production rates and availability of completed goods.
It is possible to adjust production rates to meet the population’s exact demands. Although there will not be many choices as compared to other economies, a command economy lessens the chances for shortages to occur.
4. It allows for better mobilization of resources.
Due to the unique make-up of command economy, production is done as efficiently and effectively as possible. So, all resources are mobilized on a very large scale, making sure that progress is fast.
5. It streamlines the society and government.
This type of economy is capable of transforming the society to conform to the government’s vision for the country, which means harmony between the two units.
6. It prioritizes social welfare.
In a command economy, social welfare is made a major concern. In fact, one of its overriding goals is making sure that maximum social welfare takes place. Because there is a sense of community bred due to the lack of income inequality, the society as a whole takes on production and benefit, and as a result, less divisions are formed.
7. It offers easy response to emergencies and internal disasters.
The command and central authority in this type of economy can easily increase production in most facilities that are not affected by a disaster or calamity. This is important in maintaining the continued flow of goods on the market. Aside from this, increased production of certain products can be done, which greatly helps communities to overcome disasters.
List of Cons of a Command Economy
1. It restricts freedom.
Due to the fact that this type of economic system is tied to communist countries, it is no surprise that it also takes the freedom away from the people and puts full control in the hands of the government alone. People cannot choose their careers based on their skills and interests; rather, it is based upon what the government forces them to do. All jobs are aligned with needs at a time, and people have little freedom of choice. This major downside to a command economy can lead to discontented citizens.
2. It may ignore societal needs.
Command economy often ignores the needs of the society for its betterment. Workers will not be given the options on where they can work or where they can move.
3. It slows down innovative developments.
Unlike a free market that encourages change and innovation, a command economy does not offer this advantage. Since the government controls the market, it does not make innovation a priority or does not encourage it all in all. This is because it controls all aspects of production and leaves no room for people to make it better, leading to a workforce that is less motivated to create higher-quality products or services.
4. It causes black markets to explode.
Because of restrictions by the government, some products and services are not offered in the command economy, so they would be offered on black markets.
5. It offers no competition.
Competition on the market is one of the main forces of improvement, but in a command economy, there is little competition. The government owns all the industries and does not encourage competition or actually exerts effort to eliminate it. The benefits gained from competition are not seen in this type of market.
6. It causes unbalanced amounts of goods.
Some items will probably be mass produced, while others will not be enough to support economic needs. It is difficult for the government entity controlling the economy to obtain up-to-date information about consumer needs, so most of the time, rationing becomes a way of life.
7. It leads to export problems.
The export of products becomes problematic as it is difficult for the controlling government entity to determine which goods and prices will be most successful within the international market.
8. It makes coordination difficult or even impossible.
Because planners coordinate their economic decisions on production, consumption, investment and trade of producers and consumers in the entire country, coordination is deemed impossible to be done efficiently. Products can even fall on shortages and mismatches occur on supply and demand. Other issues cannot be completely resolved by planners, such as the balance among transportation facilities, food and electronic devices.
9. It misplaces incentives.
Supply and prices are monitored and regulated by the central government, instead of planners and other market forces. Also, the government decides on the goods and services to be produced and distributed. As a result, rewards will not get to the deserving individuals.
Understanding command is a bit complex, but by going through its pros and cons, we can have ideas of how it does for a certain country and, eventually, come up with an informed conclusion.
Natalie Regoli is a child of God, devoted wife, and mother of two boys. She has a Master's Degree in Law from The University of Texas. Natalie has been published in several national journals and has been practicing law for 18 years.