Planned economy

A planned economy is a type of economic system where investment and the allocation of capital goods is performed through economy-wide economic and production plans. A planned economy may be based on centralized, decentralized or participatory forms of economic planning. A command economy or administrative command economy is any of the nominally-planned economies of the former Soviet Union and Eastern Bloc, highlighting the central role of hierarchical administration in guiding the allocation of resources in these economic systems as opposed to planned coordination.

Planned economies are usually associated with Soviet-type central planning, which involves centralized state planning and administrative decision making. In command economies, important allocation decisions are made by government authorities and are imposed by law. Planned economies are held in contrast to unplanned economies, specifically market economies, where production, distribution, pricing and investment decisions are made by autonomous firms operating in markets. Market economies that use indicative planning are sometimes referred to as “planned market economies”.

The traditional conception of socialism involves the integration of socially-owned economic enterprises via some form of planning with direct calculation substituting factor markets. As such the concept of a planned economy is often associated with socialism and socialist planning. More recent approaches to socialist planning and allocation have come from some economists and computer scientists proposing planning mechanisms based on advances in computer science and information technology.

Planned economies are held in contrast with command economies, where a planned economy is "an economic system in which the government controls and regulates production, distribution, prices, etc." but a command economy, while also having this type of regulation, necessarily has substantial public ownership of industry. Therefore, command economies are planned economies, but not necessarily the reverse.

Whereas most of the economy is organized in a top-down administrative model by a central authority, where decisions regarding investment and production output requirements are decided upon at the top in the chain of command, with little input from lower levels. Advocates of economic planning have sometimes been staunch critics of these command economies. For example, Leon Trotsky believed that those at the top of the chain of command, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and understand/respond to local conditions and changes in the economy, and therefore would be unable to effectively coordinate all economic activity.

Although planned economies have historically been associated with Marxist-Leninist states and the Soviet economic model, some argue that the Soviet economic model did not actually constitute a planned economy in that a comprehensive and binding plan did not guide production and investment; therefore the further distinction of an administrative command economy emerged as a more accurate designation for the economic system that existed in the former Soviet Union and Eastern bloc, highlighting the role of centralized hierarchical decision-making in the absence of popular control over the economy. The possibility of a digital planned economy was explored by Chile with the creation of Project Cybersyn and Alexander Kharkevich head of the Department of technical physics in Kiev in 1962.

This page was last edited on 20 June 2018, at 14:16 (UTC).
Reference: under CC BY-SA license.

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