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What Are the Advantages of a Planned Economy?

The Soviet Union was the first country to adopt a planned economy.
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  • Written By: Gregory Hanson
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  • Last Modified Date: 05 October 2014
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A planned economy allows a society to directly focus its efforts on achieving specific goals and can also limit or prevent some of the common problems associated with market economies. One of the key advantages of a planned economy is the ability to rapidly and completely mobilize economic power to fight wars or complete major projects. A planned economy allows social values to shape economic life in ways that a particular society may find to be culturally appropriate, but which would not naturally emerge in an unplanned system. Planned economies are also immune to certain key problems of market economies.

In a planned economy some central agency, usually the state, directs all activity, or at least all production. The most extreme version of a planned economy, sometimes called a command economy, maximizes the advantages of a planned economy as well as the disadvantages. Command economies feature complete state direction of production and may include control of consumption as well, through mechanisms such as rationing. Historically, planned economies are products of the modern era as they were first widely introduced during the First World War, although elements of economic planning were common in Europe from the time of Colbert’s French mercantilism onward.

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One of the most important advantages of a planned economy is the ability to focus all of a nation’s productive power on one crucial objective. Economic planning was used to industrialize the Soviet Union during the 1930s. Planning was also used by every nation in both world wars. Many nations included some managed role for corporations, but overall economic direction came from centralized authorities. This type of planning ensured that the majority of each nation’s effort was directed toward war production.

Some national goals are less concrete than victory over fascism but can still be achieved more easily when resources and actions are coordinated on a national level. For example, the populace of the Soviet Union was largely illiterate in 1917 but was on par with other developed nations, in terms of literacy, at the time of its collapse. This example highlights another of the advantages of a planned economy: the ability to pursue social goals through economic means. Market forces can lead to increased literacy, but planning and direction greatly expedited the rise of literacy rates in the Soviet Union.

Market economies, while capable of tremendous productivity, are subject to bouts of volatility. One of the significant advantages of a planned economy is the ability to escape from the volatility of market economics and the business cycle. This process has historically led to lower rates of productivity, but often produced greater satisfaction among citizens, who have historically been willing to trade a certain amount of productivity for the promise of economic security.

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bluedolphin
Post 3

I think the other good aspect of a planned economy is that some services can remain public and free for all. In capitalist, open economies, there is a strong push for privatization, even for things like libraries and post services. But this advantage also exists in mixed economies, like the US.

candyquilt
Post 2

@fify-- Prices did sky-rocket in those countries after they switched to a capitalist economy. That's because prices are intentionally kept low by the government in a planned economy. The goal is to make basic goods and amenities affordable for everyone, so the authority sets a low price. Since income is also more or less equal and fixed in a planned economy, everyone has access to the same goods and the same amount of goods.

So the standard of living for everyone is mostly the same in planned economies. In free economies, that's not the case. Some people are rich and others are poor. The rich buys a lot and the poor, very little.

fify
Post 1

I'm not an economist, but I vividly remember the situation that Russia and the old Soviet countries were in when the Soviet Union fell in the early 90s. People experienced tough times. They lost their jobs, they couldn't access basic goods and had to stand in lines for hours to get bread. Prices were too high and most things were no longer affordable. They all talked about how well off they were before, when there was a planned economy. So clearly, a planned economy has its advantages.

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