Presentation on Command economy in relation with Building Economics.

1. Command Economy
BY
MTHOKOZISI ORLENCE SIBANDA

2. Definition
• A command economy is where a central government makes all economic
decisions. Either the government or a collective owns the land and the means of
production. It doesn't rely on the laws of supply and demand that operate in
a market economy. A command economy also ignores the customs that guide
a traditional economy. In recent years, many centrally-planned economies began
adding aspects of the market economy. The resultant mixed economy better
achieves their goals.

4. Characteristics of a Command Economy
• You can identify a modern centrally planned economy by the following five characteristics:
1. The government creates a central economic plan. The five-year plan sets economic and societal
goals for every sector and region of the country. Shorter-term plans convert the goals into
actionable objectives.
2. The government allocates all resources according to the central plan. It tries to use the
nation's capital, labor, and natural resources in the most efficient way possible. It promises to use
each person's skills and abilities to their highest capacity. It seeks to eliminate unemployment
3. The central plan sets the priorities for the production of all goods and services. That includes
quotas and price controls. Its goal is to supply enough food, housing, and other basics to meet the
needs of everyone in the country. It also sets national priorities. These include mobilizing for war
or generating robust economic growth
4. The government owns monopoly businesses. These are in industries deemed essential to the goals
of the economy. That includes finance, utilities, and automotive. There is no domestic competition
in these sectors.
5. The government creates laws, regulations, and directives to enforce the central plan. Businesses
follow the plan's production and hiring targets. They can't respond on their own to free market
forces. (Source: Bon Kristoffer G. Gabnay, Roberto M Remotin, Jr., Edgar Allan M. Uy,
editors. Economics: Its Concepts & Principles. 2007. Rex Book Store: Manila.)

6. Advantages
1. Planned economies can quickly mobilize economic resources on a
large scale. They can execute massive projects, create industrial
power, and meet social goals. They aren't slowed down by lawsuits
from individuals or environmental impact statements.
2. Command economies can wholly transform societies to conform to
the government's vision. The new administration nationalizes
private companies. Its previous owners attend "re-education"
classes. Workers receive new jobs based on the government's
assessment of their skills.

7. Disadvantages
• This rapid mobilization often means command economies mow down other societal
needs. For example, the government tells workers what jobs they must fulfill. It
discourages them from moving. The goods it produces aren’t always based on consumer
demand. But citizens find a way to fulfill their needs. They often develop a shadow
economy or black market. It buys and sells the things the command economy isn't
producing. Leaders' attempts to control this market weakens support for them.
• They often produce too much of one thing and not enough of another. It's difficult for
the central planners to get up-to-date information about consumers' needs. Also, prices
are set by the central plan. They no longer measure or control demand. Instead,
rationing often becomes necessary.
• Command economies discourage innovation. They reward business leaders for following
directives. This doesn’t allow for taking the risks required to create new solutions.
Command economies struggle to produce the right exports at global market prices. It's
challenging for central planners to meet the needs of the domestic market. Meeting the
needs of international markets is even more complex.

8. Examples
• Belarus: This former Soviet satellite is still a command economy.The government owns 80% of the country's
businesses and 75% of its banks.
• China: After World War II, Mao Tse Tung created a society ruled by Communism. He enforced a strictly planned
economy. The current leaders are moving toward a market-based system. They continue to create five-year
plans to outline economic goals and objectives.
• Cuba: Fidel Castro's 1959 revolution installed Communism and a planned economy. The Soviet Union
subsidized Cuba’s economy until 1990. The government is slowly incorporating market reforms to spur growth.
• Iran: The government controls 60% of the economy through state-owned businesses. It uses price controls
and subsidies to regulate the market. This created recessions, which it has ignored. Instead, it devoted
resources to expanding its nuclear capability. The United Nations imposed sanctions, worsening its recessions.
The economy improved once the nuclear trade deal ended sanctions in 2015.
• Libya: In 1969, Muammar Gaddafi created a command economy reliant upon oil revenues. Most Libyans work
for the government. Gaddafi had been instituting reforms to create a market-based economy. But his 2011
assassination halted these plans.
• North Korea: After World War II, President Kim Il-sung created the world's most centrally-planned economy. It
created food shortages, malnutrition, and several bouts of mass starvation. Most state resources go into
building up the military.
• Russia: In 1917, Vladimir Lenin created the first Communist command economy. The Russian people were
ready for a radical change, having suffered starvation during World War I. Joseph Stalin built up military might
and quickly rebuilt the economy after World War II. The Soviet State Planning Committee, or “Gosplan,” has
been the most-studied command economy entity. The USSR was also the longest-running command economy,
lasting from the 1930s until the late 1980s. Then, the state transferred ownership of the largest companies
to oligarchs.

9. Below you can see a world ranking countries by level of economic freedom, from the most free to the most repressed.
The Index of Economic Freedom for each country is based on
four indicators–rule of law, limited government, regulatory
efficiency and open markets

10. Development of the Theory
• Viennese economist Otto Neurath developed the concept of a command
economy after World War I. Neurath proposed it as a way to
control hyperinflation. The phrase “command economy” comes from the German
word "Befehlswirtschaft.” It described the fascist Nazi economy. (Source: John
Eatwell, Murray Milgate, Peter Newman, "Problems of the Planned Economy,"
1990. p 58.)
• But centrally planned economies existed long before Nazi Germany. They
included the Incan empire in 16th century Peru and the Mormons in 19th century
Utah. The United States used a command economy to mobilize for World War
II. (Source: John Gary Maxwell, "The Civil War Years in Utah." University of
Oklahoma Press. 2016. "Inca Government and Economy." Early Civilizations in the
Americas Reference Library, edited by Sonia G. Benson, et al., vol. 1: Almanac,
Vol. 1, UXL, 2005, pp. 179-198. World History in Context.)

11. Conclusion
• A command economy does not allow market forces like supply and demand to
determine what, how much, and at what price they should produce goods and
services. Instead, a central government plans, organizes, and controls all
economic activities, discouraging market competition. Its goal is to allocate
resources to maximize social welfare.
• The main advantage is that the government can rapidly move resources and
transform the structure of society to achieve a national goal. But there is not
much room for innovation. As a result, China, Russia, and Vietnam have veered
away from a pure command economy. They've combined elements from both
command and free market economies.

12. THANKYOU