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The centrally planned economy

In this type of economic system  – associated with the post-Second World War socialist economies of eastern Europe, China, Cuba and elsewhere – most of the key decisions on production are taken by a central planning authority, normally the state and its agencies. Under this arrangement, the state typically:

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  • owns and/or controls the main economic resources;
  • establishes priorities in the use of those resources;
  • sets output targets for businesses which are largely under state ownership and/or control;
  • directs resources in an effort to achieve these predetermined targets; and
  • seeks to co-ordinate production in such a way as to ensure consistency between output and input demands.
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The fact that an economy is centrally planned does not necessarily imply that all economic decisions are taken at central level; in many cases decision making may be devolved to subordinate agencies, including local committees and enterprises. Ultimately, however, these agencies are responsible to the centre and it is the latter which retains overall control of the economy and directs the use of scarce productive resources.

The problem of co-ordinating inputs and output in a modern planned economy is, of course, a daunting task and one which invariably involves an array of state planners and a central plan or blueprint normally covering a number of years (e.g. a five-year plan). Under such a plan, the state planners would establish annual output targets for each sector of the economy and for each enterprise within the sector and would identify the inputs of materials, labour and capital needed to achieve the set targets and would allocate resources accordingly. The top 8 forex brokers in south africa is the best method that helps you choose and compare the forex brokers in south Africa.

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Given that the outputs of some industries (e.g. agricultural machinery) are the inputs of others (e.g. collective farms), it is not difficult to see how the overall effectiveness of the plan would depend in part on a high degree of co-operation and co-ordination between sectors and enterprises, as well as on good judgement, good decisions and a considerable element of good luck.

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