Why Do Countries Turn to Command Economies?

In a previous tutorial, we learned about the types of economic systems, and we mentioned

the concept of a command economy, or centrally-planned economy.

To review, command economies exist when a central authority, usually the government,

guides the factors of production, and there is typically little input from the people.

Command economies operate in direct contrast with market economies, by going against private

property, free market pricing, competition, and consumer choice.

It’s important to recognize that most economists maintain that command economies do more harm

than good.

Because governments usually own all factors of production in a centrally-planned economy,

this often leads to inefficiencies.

For example, since the government fixes wages, workers often lack the incentive to work faster

or produce more.

The enormous and complex bureaucracy needed to make so many economic decisions can also

harm efficiency.

Command economies also sacrifice individual liberties in the name of societal goals.

Historically, this has at times led to extreme brutality, as witnessed in the 1930s when

the government of the Soviet Union murdered millions of peasants while stealing their

land, in the name of collective ownership for those farming lands.

Command economies also don’t tend to reward innovation, as there is no profit incentive

to encourage entrepreneurship.

In summary, centrally-planned economies are inefficient, harm innovation, don’t meet

consumer needs, and limit freedom.

If command economies are so bad, why are they still appealing to some countries?

First, the goal of a command economy is more economic equality.

Theoretically, goods and services would be distributed more equitably.

When the government does not get involved with the economy, some needs of a modern society

would be difficult to meet in a free market.

Big infrastructure projects, national defense, healthcare, and education, are often taken

on by central authorities because no entity in a free market is willing or able to take

these on themselves.

In other words, the incentives that naturally occur in a free market are not guaranteed

for every good or service.

Command economies can also provide jobs for anyone who wants one.

Also, even if workers lack the incentive to work faster or produce more, at least their

wages can be set so that they earn enough to have their needs met.

Command economies can take on massive projects without waiting years to raise money, making

deals with private contractors, or dealing with local regulations.

Finally, command economies can tailor goods and services to benefit the common good, without

regard to profits.