Advantages and Disadvantages of Command Economy

Command economy is the economy where all economic decisions and details are planned by an authority assigned by the central government. This is the opposite of free market economy. Just like with free market economy, there are advantages and disadvantages of command economy. These decisions are implemented through directives, laws and regulations. Supply and demand no longer dictate the production and hiring of businesses and entrepreneurship is discouraged. The advantages and disadvantages of command economy are listed below. You can also read our article on market economy here.


Advantages of Command Economy

Command economy does have several advantages including getting resources quickly and execute massive projects. The command economy is centered on the government regulating the economy through laws and regulations and this helps regulate the frenzy around supply and demand. Advantages of command economy include:

  1. Resources are quickly and effectively mobilized on a large scale.
  2. Industrial power is created and massive projects completed while attaining imperative social goals.
  3. Individual self-gain is no longer the driving force of success among businesses. The greater good of the society is the focus of the economy. The society as a whole benefit from the success and not just a select few individuals.
  4. This type of economy is able to transform the society to conform to the government’s vision for the country or society.
command economy structure

command economy structure


Disadvantages of Command Economy

While command economy has many advantages, there are also several disadvantages to discourage societies from adopting this form of economy. This form of economy discourages entrepreneurs from pursuing business ventures. The government holds a monopoly over the economy and keeps individuals from becoming overly successful. Other disadvantages of command economy include:

  1. The needs of the society are often ignored for the betterment of the economy. Workers are not given options on where they can be employed or where they can move.
  2. The black market explodes in a command economy. Due to the governmental restrictions, good and services that are not offered in the command economy begin being offered on the black market.
  3. The amounts of goods being produced are not balanced. One item will be mass produced whereas another will not have enough to support the economic needs. The government entity that controls the economy has difficulty obtaining up-to-date information about the needs of the consumers. Many times rationing becomes a way of life within a command economy.
  4. Exporting goods becomes problematic because it is difficult for the controlling entity to determine which products and prices will be most successful within the global market.


Five Characteristics of Command Economy

    1. The central plan is closely adhered to and is created by a central government through rules, regulations and laws.
    2. The government is responsible for creating a central economic plan for the country. To implement a command economy, short-term goals are set in order to quickly mobilize and shape the economy.
    3. All goods and services production is set through the central plan. The main goal is to ensure employment and see that all basic needs are met for every person within the society.
    4. There is a monopoly owned by the government in industries that are the most important in meeting the needs of the society.
    5. The regulations and laws created are for the good of the economy and regulate wage and price controls.
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Comments (11)

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  1. paige says:

    this was very helpful to my class and me

  2. Shaun says:

    People are not allowed to have the right to vote and the right of free speech and it will not let you go to vote and there is only one person in charge

  3. mohamet aadan says:

    thank u very much as you will help the economic reseachers

  4. jmad says:

    can please help with citations…..u know how college essays are

  5. Ikechukwu benjamin says:

    this is very useful but a bit lengthy for me

  6. Tits McGee says:

    This was very helpful to me whilst completing my economics homework.

  7. Kipchumba enock says:

    The use of command economic system discourage investors due to harsh government policies creating unemployment and low growth rate which increases poverty thus must be discouraged mostly in developing countries whom are in urgent need of investors in their country

  8. Faith says:

    Thanks a lot.The info is very clear and easy to understand.

  9. Sublime Ndoro says:

    thanks a lot it helped me get a 96% in my assignment

  10. kiddo says:

    very helpful for my economics exam which i want to write after lunch and i know and believe that i have passed it already

  11. Apai Betty says:

    this was very helpful to my class and me

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