Centrally Planned Economy Social 9 - Chapter 6

Planned Economy (Command Economy) Economy directed by the government All means of production (land, labor, capital) are state owned and controlled. The government makes all economic choices of WHAT to produce, HOW to produce, and WHO receives the products that are produced.

Rise of the Planned Economy People believed that other economic systems were exploiting the working class Came as a response to the industrial revolution Some people believed that if the government controlled the economy and chose what should be produced, how and for whom; there would be greater economic equality

Elements of a Planned Economy Cooperation Public ownership Equality as incentive Central planning A group of economic experts carry out the goals of the government

disadvantages advantages Income & wealth more evenly distributed Little unemployment Experiences fewer booms and busts in economy Profits used to expand production Production of goods and services is planned to meet society’s needs Consumers receive basic necessities. Lack of incentive Lack of technological progress Bureaucracies (planning creates inflexibility) Black markets Loss of individuality Inefficient and widespread waste of resources.

Traditional economy

Tradition Economy Roles and economic decisions are defined by custom Customs and religion determine the WHO, WHAT, and HOW Examples: Australian Aborigines, Canada’s Inuit, central African Mbuti India has a caste system which restricts occupational choice (A social class separated from others by distinctions of hereditary rank, profession, or wealth)

advantages disadvantages Everyone knows which role to play There is little uncertainty about WHAT, HOW, and FOR WHOM to produce Discouragement of new ideas and new ways of thinking This leads to a lower standard of living than other societies