Understanding the Command Economy System, Characteristics, Advantages, and Disadvantages

As a businessman working in economics, are you familiar with the concept of a command economy?

The goal of a command economy system is to position the central government as the primary arbiter of economic policy and control.

This system is not subject to the supply and demand rules that govern a market economy. In addition, the command economy ignores the norms that govern conventional economics.

Basically, the government controls all production and capital resources. Several countries, including North Korea, China, Cuba, and Vietnam, have adopted this command economy structure.

Obviously, this command economy system has several benefits and consequences for society.

Advantages of Command Economy and Its Impact on Society and the State

The economic system provides several benefits that will directly benefit society and the nation. What are the benefits of this? Here’s the summary

1. Potentially Reduces Unemployment

The command economy approach has succeeded in reducing unemployment in several friendly countries.

The government exercises full control over all factors of production and resources.

For example, in North Korea, SOE personnel are indigenous people. Indigenous people have many job options.

2. Economic responsibility to the government

Since the government has full authority, it is responsible for the state of the economy.

In addition, the government’s economic policy must be innovative so that the country becomes stable, grows, and progresses to ensure the welfare of its population.

3. There is social security

A mature economy must strive for the welfare of its citizens. In a command economy, the government also controls the factors of production, enabling the government to provide the goods and services that its population needs.

4. Ease of price control and equalization

With a government-managed command economy, the price conditions for goods and services will also be easy to regulate. Entrepreneurs and other interested parties cannot cut prices arbitrarily; they can only benefit.

As a result, countries that follow this command economy system often have stable prices and an easier time to meet economic demands.

5. Easy to control Inflation

Inflation like what happened in our country has always been the main driver of rupiah depreciation.

However, inflation will be manageable and generally stable in a country with a command economy structure.

6. Domestic Market Conditions Will Be Fairly Smooth

The government which has full power is free to regulate its own market.

The government will be able to create commodities for domestic needs, adapted to the needs of the community, while still generating profits.

Imports are maximized in countries that have a command economy structure.

Disadvantages of the Command Economy

  • Rapid mobilization often results in reduced community needs. For example, the government instructs employees on the tasks they must perform to produce anything.
  • On the other hand, things are not always created in response to customer requests. Finally, many individuals are looking for solutions to meet their basic needs. The black market is one of them.
  • This allows them to buy and sell items that the command economy does not create. Attempts by leaders to control this market will erode their popularity.
  • Countries often produce excessive quantities of a single commodity but do not produce other goods that are sometimes needed.
  • Central planners have difficulty keeping up-to-date information on customer wants.
  • In addition, prices are set by the central plan. They are no longer responsible for or in control of requests. Instead, allotment is often both a requirement and a solution.
  • The command economy stifles creativity. They admire corporate executives who adhere to established procedures.
  • Risks cannot be taken to develop new solutions and breakthroughs.

Characteristics of a Command Economy System

An identifiable Command Economy by Five traits. The five characteristics of a centrally planned command economy are as follows:

  1. The government developed a concentrated economic strategy. The five-year plan sets economic and social goals for many sectors and regions of the country. Short-term plans help turn goals into actionable items.
  2. The government allocates all resources according to the central government’s strategy. The government makes every effort to maximize the efficiency of the state capital, labor, and natural resources. Utilize as much as possible the talents and talents of each citizen. This strategy aims to eradicate unemployment.
  3. The central plan establishes production priorities for all products and services. Quotas and price limits are examples. The goal is to provide sufficient food, shelter, and other basic needs for everyone in the country while also setting national priorities. This may include mobilization for war or rapid economic development.
  4. The government has a monopoly. This is a sector that is considered important for the command economy. This includes the financial, utility, and automotive industries. Domestic competition does not exist in this area.
  5. The government enacts laws, regulations, and directives to carry out the objectives of the central plan. The business adheres to production and hiring targets. They are not able to respond independently to free-market pressures.

Conclusion

Thus an explanation of the meaning of the command economy system. By understanding it we can distinguish it from other economic systems of various countries.