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Planned economies implemented by the way of authority, such as those in Stalinist countries such as the Soviet Union , have become widely known as Command Economies . Although most economies today are Market Economies or Mixed Economies , planned economies exist in some countries such as Cuba and North Korea . SUPPORT FOR CENTRALLY PLANNED ECONOMIES Supporters of planned economies cast them as a practical measure to ensure the production of necessary goods—one which does not rely on the vagaries of Free Markets .
Taken as a whole, a centrally planned economy would attempt to substitute a number of firms with a single firm for an entire economy. As such, the stability of a planned economy has implications with the Theory Of The Firm . After all, most corporations are essentially 'centrally planned economies', aside from some token intra-corporate pricing (not to mention that the politics in some corporations resemble that of the Soviet Politburo). That is, corporations are essentially miniature centrally planned economies and seem to do just fine in a free market. As pointed out by Kenneth Arrow and others, the existence of firms in free markets shows that there is a need for firms in free markets; opponents of planned economies would simply argue that there is no need for a sole firm for the entire economy. OBJECTIONS TO CENTRALLY PLANNED ECONOMIES Critics of command economy argue that planners cannot detect demand with sufficient accuracy (in a market economy, price signals serve this purpose). For example, during certain periods in the history of the Soviet Union , shortages were so common that one could wait hours in a queue to buy basic consumer products such as shoes or bread. These shortages were due in part to the central planners deciding, for example, that making tractors was more important than making shoes at that time, or because the commands were not given to supply the shoe factory with the right amount of leather, or because the central planners had not given the shoe factories the incentive to produce the required quantity of shoes of the required quality. This difficulty was first noted by economist Ludwig Von Mises , who called it the " Economic Calculation Problem ". Economist János Kornai developed this into a Shortage Economy theory. Critics also argue that the claimed advantages of the latter are in fact achievable by state intervention within the framework of market economy as well. In particular, it is possible to create unprofitable but socially useful goods within the context of a market economy. For example, one could produce a new drug by having the government collect taxes and then spend the money for the social good. It is also claimed that market economies allow societies to evaluate the cost of social goods and choose rationally between different alternatives. Critics also point out that certain types of command economies may require a state which intervenes highly in people's personal lives. For example, if the state directs all employment then one's career options may be more limited. If goods are allocated by the state rather than by a market economy, citizens cannot, for example, move to another location without state permission because they would not be able to acquire food or housing in the new location, since those were not preplanned for (however, advocates of planned economy may point out that a market economy does not guarantee the existence of food and housing at the new location either). PLANNED ECONOMIES AND SOCIALISM ''Main article: Socialist Economics '' In the 20th century, most planned economies were implemented by states that called themselves Socialist . Also, the greatest support for planned economics comes from socialist authors. For these reasons, the notion of a planned economy is often directly associated with socialism. However, they do not entirely overlap. There are branches of socialism such as Libertarian Socialism , that reject a centralized state, and some of these tendencies reject economic planning as well. Furthermore, planned economies are not unique to socialist states. Socialism is concerned above all with achieving some degree of equality of wealth between members of society, but a planned economy, as such, does not necessarily imply an egalitarian distribution of wealth. Some authors have argued that elements of centralized economic planning exist in various modern non-socialist systems, such as the Mixed Economies of Liberal Democracies (widely seen as being capitalist countries) and the economies of Fascist nations. Pre-modern economies (those existing before the Industrial Revolution ) are more difficult to analyze by today's standards, but a number of them, particularly those of Hydraulic Empire s, may be seen as having been centrally planned as well. There is a Trotskyist theory of the Permanent Arms Economy , put forward by Michael Kidron , which leads on from the contention that war and accompanying Industrialisation is a continuing feature of capitalist states and that central planning and other features of the War Economy are ever present. A Permanent Arms Economy by Michael Kidron, First printed in International Socialism 1:28 (Spring 1967) TRANSITION FROM A PLANNED ECONOMY TO A MARKET ECONOMY The shift from a command economy to a market economy has proven to be difficult; in particular, there were no theoretical guides for doing so before the 1990s. One transition from a command economy to a market economy that is widely considered to be successful is that of the People's Republic Of China , in which there was a period of some years lasting roughly until the early 1990s during which both the command economy and the market economy coexisted, so that nobody would be much worse off under a mixed economy than a command economy, while some people would be much better off. Gradually, the parts of the economy under the command economy decreased until the mid-1990s when resource allocation was almost completely determined by market mechanisms. By contrast, the Soviet Union 's transition was much more problematic and its Successor Republic s faced a sharp decline in GDP during the early 1990s. While the situation has since improved, these countries have yet to generate the high rate of sustained economic growth that China has. SIMILAR ECONOMIC MODELS A Palace Economy may be considered as a Subsistence Economy augmented with elements of command economy. SEE ALSO
REFERENCES : An article against "The myth of the permanent arms economy" |
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