Planned economies allow societies to focus on achieving specific goals and avoid problems associated with market economies. They can mobilize economic power quickly and allow social values to shape economic life. Command economies maximize these benefits and disadvantages, with complete state direction of production. Planning can concentrate a nation’s productive power on one crucial goal, and pursue social goals through economic means. Planned economies can escape the volatility of market economies, but may produce lower rates of productivity in exchange for economic security.
A planned economy allows a society to directly focus its efforts on achieving specific goals and can also limit or prevent some of the common problems associated with market economies. One of the major benefits of a planned economy is the ability to quickly and fully mobilize economic power to fight wars or complete major projects. A planned economy allows social values to shape economic life in ways that a given society might find culturally appropriate, but which would not emerge naturally in an unplanned system. Planned economies are also immune to some key problems of market economies.
In a planned economy some central agency, usually the state, directs all activity, or at least all production. The most extreme version of a planned economy, sometimes called a command economy, maximizes a planned economy’s benefits and disadvantages. Command economies feature complete state direction of production and may also include the control of consumption, through mechanisms such as rationing. Historically, planned economies are products of the modern era as they were widely introduced during World War I, although elements of economic planning were common in Europe from Colbert’s period of French mercantilism onwards.
One of the most important benefits of a planned economy is the ability to concentrate all of a nation’s productive power on one crucial goal. Economic planning was used to industrialize the Soviet Union in the 1930s. The planning was also used by every nation in both world wars. Many nations included a managed role for corporations, but overall economic direction came from centralized authorities. This type of planning ensured that the majority of each nation’s efforts were directed towards war production.
Some national goals are less concrete than the victory over fascism, but can still be achieved more easily if resources and actions are coordinated at the national level. For example, the population of the Soviet Union was largely illiterate in 1917 but was on par with other developed nations, in terms of literacy, at the time of its collapse. This example highlights another of the benefits of a planned economy: the ability to pursue social goals through economic means. Market forces may lead to increased literacy, but planning and direction greatly accelerated the increase in literacy rates in the Soviet Union.
Market economies, while capable of enormous productivity, are subject to periods of volatility. One of the significant benefits of a planned economy is the ability to escape the volatility of the market economy and the business cycle. This process has historically led to lower rates of productivity, but has often produced greater satisfaction among citizens, who have historically been willing to trade a certain amount of productivity for the promise of economic security.
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