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What is Command Economy?

Updated on July 14, 2024 , 994 views

The command Economy meaning can be defined as the Market where the government controls all the decisions regarding the production, sale, and distribution of goods and services. Even the price for the goods and services are established by the government. In the communist areas, the command economy is practiced by the government of the country. The best examples of command economy include Soviet Union, Cuba, and North Korea. China was also included in the command economy for several years before converting into a mixed economy.

Command Economy

In the command economy, it is believed that the government will make all kinds of important decisions regarding the Manufacturing, marketing, pricing, and distribution of the goods and services produced within the country. It is assumed that there is no Land, labor, or any form of private property that exists within the nation, or even if there is any private organization, its uses will be confined to the central economic plan.

It is absolutely different from free economies, in which the supply and demand factors affect the prices of the goods and services. From controlling the production activities to limiting the competition among the private companies, everything related to marketing and manufacturing is managed and run by the government in communist societies. There also exist command economies that are fully controlled and managed by the central government of the country. In such economies, there is no role in the private sectors as the government manages all companies.

Details of the Command Economy

As mentioned earlier, the government in the command economy set certain economic priorities. They suggest ways to set economic priorities, determine the ways to speed up Economic Growth, and the ways to allot resources to production and marketing. In the countries where the command economy is followed, the government enjoys a monopoly in all sectors. Now that there is no role of the private companies and organizations in the command economy, these sectors do not experience any sort of competition. From the manufacturing firms to utility companies to the financial organizations, every sector in the command economy enjoys a monopoly.

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The laws, procedures, and regulations concerning the marketing and manufacturing of the goods and services will be set by the central government that’s responsible for controlling the economy-related operations. Once these regulations and procedures are established, each company in the country will have to abide by these regulations. The companies cannot work according to the free market forces.

Major Challenges of the Command Economies

With all the economic decisions and economy-related activities managed by the government, there is no free-market or power in the hands of private companies. This leads to two major issues – incentive problems and knowledge problems. The major drawback of the command economy is that it creates a monopoly in the market. There is no competition among the private organizations, which makes it a little challenging for the economy to grow and expand on a global level.

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