Centrally-planned
Describing an economic system where key decisions about production, distribution, and pricing are made by a central authority, usually the government, rather than by market forces. This contrasts with a free market economy, where supply and demand primarily determine these factors. In a centrally-planned economy, the government often owns and controls the means of production, sets production targets, and allocates resources accordingly. This typically involves extensive bureaucracy and detailed economic planning.
Centrally-planned meaning with examples
- The Soviet Union's economy was a prime example of a centrally-planned system. The state controlled all industries and set production quotas, leading to inefficiencies and shortages of consumer goods. Citizens often had little say in what was produced or how it was distributed. Ultimately, this model proved unsustainable, contributing to the nation's economic collapse.
- North Korea's economy is heavily centrally-planned. The government dictates all aspects of economic activity, including agriculture, manufacturing, and distribution. This top-down approach has resulted in widespread poverty and food insecurity due to the limitations of central planning, corruption, and international sanctions.
- Critics argue that centrally-planned economies stifle innovation. Since there's limited competition and individual economic incentive, entrepreneurs lack the drive to develop new products or processes. This also removes the price signals that would encourage economic efficiency, which is determined by competition and supply-and-demand.
- During times of war, some nations temporarily adopt elements of centrally-planned economies. Rationing and price controls may be implemented to allocate scarce resources. This can increase the likelihood of the government reaching specific military and wartime-related goals. However, these measures often lead to black markets and other adverse consequences.
