Planned Economics

Planned economics are sometimes called “command economics” because the state commands the use of resources (such as labour and factories) that are used to produce goods and services as its own 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.

Firstly, the state decides precisely what the nation is to produce. It usually plans five years ahead.

Secondly, industries are asked to comply with these plans and each industry and factory is set a production target to meet. If the factory and farm meets its target, then the state will meet its target as set out in the five-year plans.

3. A planned economy is simple to understand but not simple to operate. It, however, has a number of advantages:

n Everyone in society receives enough goods and services to enjoy a basic standard of living.

n Nations do not have to waste resources duplicating production.

n 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 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:

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

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

n Citizens cannot start their own businesses and so new ideas rarely come forward.

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

4. A major problem faced by command or planned economies is that of deciding what to produce. Command economies tend to be slow when responding to changes in people’s tastes and fashions. Planners are likely to underproduce some items as they cannot predict changes in demand. Equally, some products, which consumers regard as obsolete and unattractive, may be overproduced. Planners are afraid to produce goods and services unless they are sure substantial amounts will be purchased. This leads to delays and queues for some products.

VIII. Ответьте на следующие вопросы к тексту:

1. What does the standard of living depend on?
2. Why does a planned economy can be also called a command economy?
3. Who ensures good education and health and transport service to people in a planned economy?
4. Industries in planned economies can be very inefficient. Why is it so?
5. What leads to delays and queues for some products?