Planned Economy

Planned economy or directed economy is an economic system in which the state or workers' councils manage the economy. It is an economic system in which the central government makes all decisions on the production and consumption of goods and services. Its most extensive form is referred to as a command economy, centrally planned economy, or command and control economy. In such economies, central economic planning by the state or government controls all major sectors of the economy and formulates all decisions about the use of resources and the distribution of output. Planners decide what should be produced and direct lower-level enterprises to produce those goods in accordance with national and social objectives. Planned economies are in contrast to unplanned economies, such as a market economy, where production, distribution, pricing, and investment decisions are made by the private owners of the factors of production based upon their own interests. Less extensive forms of planned economies include those that use indicative planning, in which the state employs "influence, subsidies, grants, and taxes, but does not compel." This latter is sometimes referred to as a "planned market economy".

A planned economy has 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:

· There is no incentive for individuals to work hard in planned economies.

· Any profits that are made are paid to the government.

· Citizens cannot start their own business and so new ideas rarely come forward.

· As a result, industries in planned economies can be very inefficient.