Advantages and Disadvantages of a Command Economy
With the government controlling the production system, a Command economy has certain benefits and drawbacks. Eliminating the private players from the production system benefits everyone as there is no inequality. But in countries like North Korea and Cuba, the Command Economy is often criticized. Since the government controls it, unfavourable situations may occur. Furthermore, is discussed in the Advantages and Disadvantages of a Command Economy below.
What are the advantages of a Command Economy?
Unlike a Market Economy, the Command Economy system is in which the centralized government determines the production system. That means the government decides what to produce, how to produce, and how much to produce. There are certain advantages of a command economy which are also explained below.
1. Social Equality is one of the main advantages of a command economy
There is nothing under the private sector's control, which means the government decides how much to pay the workers and where they need to work. A government undertaking means the employees and workers get similar equal benefits such as insurance and pension.
Whereas in the market economy, the law of demand and supply dictates workers' wages, i.e. highly skilled workers receive higher wages; on the other hand, unskilled workers are paid relatively low.
2. High Employment Rate
Government serves every community the same, which means a public enterprise cannot manipulate the job sector. A government organization releases official job notifications hence giving everyone the same opportunity to create employment everywhere. The wages distribution is also set so that no skilled worker remains away from employment benefits.
3. Government Focuses on Social welfare
Social welfare is one of the major advantages of a command economy where income equality also helps individuals maintain their living standards. People in society can fulfil their living objectives by affording essential commodities, better education, and enhancing their quality of life.
4. Harmonized Production
There are fewer or no private businesses involved in a command economy. This means the government is rarely dependent on businesses. The government adheres to what the population needs and communicates to producers.
Then the producers manufacture the required product, and distributors ensure every consumer in need can receive the product.
5. Business Consistency
Since the government directly influences each business within a command economy, the business tends to achieve greater business consistency and opportunity. These are considered the biggest advantages of a command economy for business companies operating as per the government’s directions. Each business operates in a way that best represents the needs of the government at that time.
With the government already owning a considerable market share, these business companies can work according to what the government dictates in successful operations.
What are the Disadvantages of a Command Economy?
Although there are benefits of command economy structures for some nations, some developed countries such as the US, UK, and Canada have either mixed or market economic structures. The most concerning disadvantages of a Command economy include lack of and efficiency.
1. Shortage or Surplus of production
The command economy is centred on creating goods and services at a large scale to provide everyone with the basic requirements. In reality, there are few sections of the society which are fully satisfied with the products.
Because there is no updated consumer feedback or survey taken by the government, finding the exact societal needs is difficult. Such a situation leads to either surplus of goods or a shortage of production and supply. These disadvantages of the command economy can only be overcome by introducing private businesses into the market through a market economy.
2. Control Issues are major disadvantages of a command economy
In a command economy, the government holds power to control economic activities. This may lead to less profit generation since the right needs of the consumers are not met. Eventually, a business may fail or dissolve. The fear of failure often pulls investors back from a business, even if it’s a fruitful one.
3. Lack of innovation
The role of government is integral in a command economy; the same play a disadvantageous role for this economic structure. As the government controls the production and sale of goods, manufacturers have the least say in an innovative approach to their products.
When there is no creative approach, the quality of goods will remain as it is. But, on the other hand, in a market economy, entrepreneurs have the freedom to follow innovative approach to boost sales and attract more consumers.
4. No Personal Freedom
The authority dictates the market and economic structure in a command economy where people have fewer options to choose what they want to do. Citizens cannot choose their career paths based on their skills and interests, except for doing what the government tells them.
A management professional is forced to work at a manufacturing unit established under a command economy to make a living. All the work is aligned with needs at a time, and the public does not have the full freedom of choice.
5. Few incentives for workers
The wages and incentives for a postgraduate are the same as that of a less educated employee. This makes the highly educated and skilled workers feel demotivated as there is no recognition for skills in a command economy.
In a command economy, workers are told to perform certain tasks and to behave in certain ways while they are at work. It doesn’t matter how well-versed they are in their fields. There are no monthly incentives or appreciation, which are also major disadvantages of a command economy.
6. Command Economy leads to Black marketing
Not every country may have a structure based on a command economy. Because a government puts restrictions on many products and services, such offerings may not be available.
When people within a command economy see others enjoying a variety of good products, they tend to want it by hook or crook. People are even willing to pay higher prices to enjoy the goods and services through the black market. Smuggling is the best example of black marketing.
7. Lack of Coordination
There is direct government dominance, which leaves no space for planners who coordinate economic decisions on production, consumption and trade for the entire country. Lack of coordination is what causes the disadvantages of a command economy mostly.
Lack of coordination can disturb the Demand and Supply graph, and products can even fall on a shortage. Other issues are an imbalance of edible commodities, transportation facilities, and electronic consumables.
Conclusion on Advantages and Disadvantages of a Command Economy
Before understanding a command economy, it’s better to know the Advantages and Disadvantages of a Command Economy first. By speculating the real-time examples and related factors that affect society, it’s somewhat easy to figure out which type of economic structure is most beneficial.