COMMAND ECONOMY

What is 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, how to distribute.

Rise of the Command 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.

Problems Created by the Industrial Revolution

Low wages Long hours Urbanization
Crime Poverty Disease Pollution

Unfair labor practices Unsafe working conditions

Elements Of Command Economy

Cooperation Public ownership Equality as incentive Central planning

COMMAND ECONOMY

Advantages of the Command Economy

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 societys needs Consumers receive basic necessities.

Disadvantages of the Command Economy

Lack of incentive Lack of technological progress Bureaucracies (planning creates inflexibility) Black markets Loss of individuality Inefficient and widespread waste of resources.

Command Economy- Typically begin with revolutions.

Karl Marx was the founder of the communist/ command economy ideology. He claimed that as long as there existed a business owning class oppression would continue.

Marxs Beliefs
The bourgeoisie exploited the workers by forcing them to create goods and services with a greater value than the wages received. Capitalism would bring itself to ruin
Economic depression Imperialism Wars Revolution by the proletariat.

After a series of revolutions capitalism would be eliminated and people would live in a cooperative and voluntary society. Production would be distributed by the motto from each according to his abilities, to each according to his needs.

The Ideal Marxist Society

Individual differences would still exist but no one could amass enormous wealth while others lived in poverty. Equal opportunity (classless society) Abolish private property and profit motive (public ownership) With the existence of surplus goods crime and greed would not exist. Common Good

Lenins Additions To Marxism

Adapted Marxs ideas to conditions in Russia. Views referred to Marxist-Leninist
Marx
revolution could only occur in a capitalist and industrialized country Lenin

organized a dedicated group of professional revolutionaries (who sought support from peasants and workers) to overthrow Russian autocratic government.

CASE STUDY
Central Planning in the Former USSR

FIVE KEY ELEMENTS OF CENTRAL PLANNING IN THE FORMER SOVIET UNION

1. NATIONALIZATION
Nationalization
The taking over of ownership of a company by the government.

No individual owns capital (mines, mills, machines, railways). Government controls them and appoints managers to manage them. No one can make a profit from the nations resources.

2. COLLECTIVIZATION OF AGRICULTURE
Collectivization
The practice of working together in groups supposedly for the good of all.

During the 1920s & 30s privately owned farms were seized by the government and made into large state owned farms. (Kulaks) 97% of farmland was government owned. Workers worked on immense government owned farms. (500-700 workers) State farms also set up to test new agricultural methods. (operated by government but workers were paid on a wage basis.

3. CONTROLLED DISTRIBUTION OF WEALTH

Controlled planners decide how to distribute the goods produced. (Gossnab determined how commodities were distributed.) Soviet Union used price controls to influence buying practices based on what was in the best interest of the country.(i.e. low prices on school books, high prices on vodka) Standard of living in the USSR lagged behind other major countries because Planners believed in economic equality, those who were efficient producers had their efforts used to provide income for others. Planners concentrated on needs for the future rather than wants for the present.

4. COMPREHENSIVE PLANNING
Gosplan
The economic planning commission for the former USSR. With the best experts, advisors, computers available it was Gosplans task to decide What to produce? How to produce? For whom to distribute to? Major advantage of central planning was it allowed the govt. to determine which goods the country needed/equality in distribution.

Disadvantages to Central Planning

Slow to respond to changes Shortages Absence of initiative/incentive One bad decision was effected the whole nation

5. CONTROL BY THE COMMUNIST PARTY

Gosplan was the economic planning committee for the former Soviet Union. Gosplan took orders from the Communist Party. The Communist Party established the national goals and it was Gosplans task to achieve these goals.

A Little More On
War Communism:
Lenin introduced this right after the Communist Revolution to bring about the perfect Communist Society occurred during the civil war Involved nationalization and was a failure Actually resulted in DECREASED agricultural and industrial output.

A Little More On
The New Economic Policy
Introduced by Lenin to try and kick-start the economy Re-introduced some limited prive ownership of land and business, allowed farmers to sell surplus for profit Obviously this is a step away from pure communism, but Lenin saw it as one step backwards to take two steps forward Only intended to be a temporary policy Had limited success

 Transformed the economy and society of the USSR into the form it would remain until 1991 Known for his FIVE YEAR PLANS This involved setting goals and quotas for every industry in the Soviet economy in 5 year chunks of time

JOSEPH STALIN

The Five Year Plans

The First Plan (1928-32)
Concentrated on heavy industry (oil, construction, steel, etc) Citizens asked to make sacrifices in their standard of living because production was not concentrated on consumer goods Stalin promised to concentrate on consumer goods during the second plan

The Five Year Plans

Stalin concentrated on heavy industry for two reasons:
1. Fear of capitalist democracies attacking

2. Knew war with Fascist Germany was inevitable

In order to encourage production, planners used incentives such as bonuses (for meeting quotas) or harsh punishments (for failing to meet quotas) For the most part, it was a success in helping the USSR catch up with the rest of the world

The Five Year Plans

The Second Plan (1933-38)
Heavy industry (especially communications) Huge rise in steel production

The Third Plan (1938-42)

Mechanization for the war

The Fourth Plan + Fifth Plan (1946-55)

Reconstruction

Traits of a Command Economy

The government controls all aspects of the economy Private property is illegal Supply and demand are determined by the government, not by consumers and producers. Everyone is paid equally no matter what job they do. Industry and businesses are owned and controlled by the government, not private individuals.

Examples of a command economy

In the former Soviet Union the government killed small property owners and redistributed their land to workers. In Cuba all residents are given rations of foods. Instead of purchasing food in a market Cubans go to government food supply centers.

Example of Command EconomyCubas Fidel Castro and Che Guevarra established a command economy by expelling Cubas small business and land owners. Many of those who lost their business now live in Miami.

Criticism of Command Economies

Command economies are inefficient and reward unproductive workers. Critics claim that since workers are awarded the same amount of money for doing every job workers arent productive. Command economies result in shadow/ illegal markets. Because the government controls the distribution of goods, rather than consumers and producers individuals begin to sell things illegally. Command economies cease to stay competitive in the world because competition and entrepreneurship is discouraged.

Examples of a Command Economy- In North Korea the former dictator Kim Il Sung controlled the economy with an iron hand and had statues of himself built to show his people who was in charge of the government and the economy.