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What Are the Advantages of a Command Economy?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 06 August 2014
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A command economy is a situation in which some sort of central authority makes the major decisions regarding what type of goods and services are produced and made available to consumers within a given geographical location. Sometimes known as a centrally-planned economy, this approach is considered to be an alternative to a free enterprise market, in which private and public companies can be formed and launched at any time, and compete freely in the marketplace. While there are critics of this particular type of approach, there are some advantages of a command economy that make the strategy a viable option.

One of the main advantages of a command economy is that it is possible to adjust the rate of production and the availability of finished goods to meet the demands of the populace. While the selection may not be as varied as in other types of economies, this means that the chance for shortages that result in the accumulation of unwanted goods in warehouses is kept to a minimum. Assuming that the government entity that oversees the production and distribution of the goods involved is accurately predicting the rise and fall of demand, this means raw materials are used more efficiently and that the cost of production can also be kept within reason.

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Another of the several benefits of a command economy is the ability to use production to control the course of the nation’s economy in general. Production can be increased or decreased in certain regions as the need arises to stabilize economic situations in those areas. When used to best advantage, this also means that the standard of living for various communities can be maintained.

The main advantages of a command economy also include the ability to respond very quickly to some sort of internal disaster or other type of emergency. The central authority can quickly increase production in facilities not affected by the disaster as a means of maintaining the flow of goods to the marketplace. At the same time, it is also possible to increase production of certain goods that will help communities overcome the disasters more efficiently.

While those who hold that a free enterprise system is inherently superior debate all the usual advantages of a command economy, this type of planned economy remains a viable model in a number of nations around the world. Allowing for the possibility of abuse by those who control the economy, the model can be very effective when the central authority is well informed on the needs of the populace and is able to arrange production efforts to meet those needs, while also keeping costs at a minimum. It is not unusual for nations that make use of a command economy model to put at least a few measures in place that help to reduce some of the potential for abuse and allow both the government and the citizens in general to benefit from the arrangement.

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stoneMason
Post 3

It is believed that an open, free economy is better for prosperity, but I think that this is possible within a command economy as well.

For example, if a particular geographic area in the country is suffering from poverty, low income and unemployment, the authority of a command economy can change that by setting up a factory and telling a manufacturer to produce goods there. So there is a great potential of improving local economies. This is not as easily done in a free market because the government can't tell firms to do anything.

literally45
Post 2

@fBoyle-- Yes, it is. Since the government authority sets prices, they will set it low enough for everyone to afford those goods. This is great for families with low income. It also acts as a stabilizer among society. I think society is positively influenced when consumers feel that they will always be able to afford their bread and butter.

fBoyle
Post 1

What about the price of goods? Are the price of goods more advantageous for consumers in a command economy?

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