Have you ever wonder how a nation’s economy works or what system are they using? Most people think that all countries have a free trade market where business decisions, such as production, are decided by a company’s stakeholders. However, some countries use a different type of economic planning that’s government-centered, it is called centralized economic planning.
Centralized economic planning is where there is a central authority on the decision, production, and market of the economy that are identified and executed by the country’s government. This planning is also generally referred to as the ‘Communist economy’ or ‘Command economy.’
This planned economy system is theoretically based on Karl Marx’s work. Ideally, centralized economic planning may control the somewhat distribution of supplies all over the country and potentially avoid market failure. The centralized economic planning eludes the over-allocation of supplies to the capitalists class, which provides equality to the country. This type of planning is usually performed by countries with socialist systems like the following:
Cuba is known for its centralized economic system, which helped the country shape its national healthcare assistance, their sponsored free education for all levels, and even government-funded food programs. Although centralized economic planning has reformed its state significantly, Cuba is shifting towards a mixed economy.
Although China has declared to be a country practising mixed economy, it was once one of the few countries which designed their economic system based on the centralized economic planning for years. It still has portions of its land which are economically government-controlled, but it has a significant declining rate as it continues as of today.
The theory of centralized economic planning once planned Vietnam’s economy, yet they have shifted towards a mixed economy, with government-controlled portions like China. With the new practice, its economy experienced rapid growth.
As of today, North Korea continues to practise the centralized economic planning, which is strongly approved due to the totalitarian government. It is observed that several countries have terminated the provision of supplies and trading with North Korea because of its strict restrictions and other allegations against the government.
The Soviet Union (1917-1991)
With centralized economic planning, The Soviet Union dominated its economy as it became its central authority. During the 20th century, they were in opposition against the United States in terms of political and economic views. But after years of practice with the financial system, the Soviet Union eventually collapsed.
Many countries used a centralized economy before. If you look at the trend of the countries that used/uses this type of economic practice, most of them have/ had a communist type of government where a nation’s power is centered around its government. Although some of the countries, like Cuba, gained success using this type of system, others like Vietnam and China shifted to a more suitable type of planning system. Nonetheless, the main goal of this type of planned economy is to boost the economic growth of a country. Although some countries faced failure, they can still gain a valuable lesson from this experience and use them later to aid the country’s development.