What is a centralized economy? This, if someone does not know, is the second name of the planned economic system. What features are observed here? How is the interaction system built? These, as well as a number of other issues, we will consider in this article.
General information
The economy of central planning is the basis of any activity that is performed by a person or group and is aimed at achieving a specific goal. Due to a number of features, in this case, the micro-level and the macro-level are separated. In the first case, planning at the enterprise level is implied. At the macro level, this process is already taking place on the scale of the whole state. These two species can be found in one form or another in any economy. But the scale and significance fluctuates in a significant range. At this time, enterprise-level planning is popular. This is due to the fact that thanks to it, you can calculate future expenses and incomes, indicate the approximate cost of production, and also establish a balanced production cycle. But for us, within the framework of the article, it is the centralized economy that is of greater interest. It means,that the focus will be on countries.
Centralized economic system: theoretical foundations
The most famous here is the interaction mechanism that was in the Soviet Union. But how was it formed? The scientific foundations were laid by Wilfred Pareto, Friedrich von Wieser and Enrique Barone. They proved that a planned economy, in which there is a centralized management of production and prices, can take into account the various needs of the person and ultimately lead to an equilibrium between supply and demand. The works of the above scientists were used by Karl Marx and Friedrich Engels. They announced that the planned economy was the main achievement and, at the same time, a significant advantage of a socialist society. Vladimir Lenin echoed them. The practical implementation of theoretical developments began to occur immediately after the Bolsheviks came to power. But this process, before adopting its main features, dragged on for a decade.
The formation of a centralized economy on the example of the Soviet Union
The Supreme Council of the National Economy, established in December 1917, became the prototype of the entire system. It was the first coordinating and planning body. But the real breakthrough was the creation of GOELRO. If you get acquainted with the technical documentation, then for many it will be a discovery that this plan not only provided for the development of the electric power industry, but also the entire electricalindustry. In parallel, GOELRO, on the initiative of Vladimir Lenin, created the State General Planning Commission in 1921, which is known to the general public as the State Planning Committee. Its tasks included consideration and coordination of national plans for the development of the economy. Gradually, the grounds for the transition were formed. And in 1927, it was decided to develop the first five-year development plan, which was aimed at the national economy of the Soviet Union. The built model was mercilessly criticized due to the shortage in the late 80s and 90s. But let's put aside the political component and see what a state-centralized economy is from a practical point of view.
Benefits
They are very significant and worthy of attention:
- There is a high growth rate of the economy.
- Balanced and proportional development of the state.
- Citizens are provided with free education, medicine.
- Supply is brought into equilibrium with demand.
- Global economic tasks are optimally solved.
- Resources are used effectively, although they are limited.
- Some production and transaction costs are missing.
- Maintains the optimal range of products.
- Confidence of citizens in the future of their country.
- Economy can be quickly mobilized to perform certain tasks.
Flaws
It would be wrong if attention was paid toonly benefits. After all, humanity has not yet been able to avoid shortcomings:
- A rigid and highly centralized economic system.
- Clumsiness in dealing with suddenly arising issues, as well as slow response to changes in demand for a certain type of product in peacetime.
- With illiterate management of the system, large amounts of money remain in the hands of the population. This is accompanied by a lack of supply on the market for certain groups or types of goods.
- Having a significant bureaucracy.
- The concentration of power in the hands of one person or a small group.
- With illiterate management, conditions are not created for the formation of a personal interest in a person and an enterprise to act effectively and deliver quality products (or services).
Features
We have considered the main features that the central planning of the economy has. The market economy will now be considered for comparative purposes. So, first of all, it is necessary to notice the predominance of different types of property. Thus, a planned economy does not exclude that a person has the means of production. But they were previously understood as hammers, home-made machines and so on. Drawing parallels with modernity, 3D printers can also be added here. Whereas in a market economy the bulk of the means of production is in the hands of private capital. Of course, if necessaryto mobilize for a large-scale task is bad. Because while you collect resources, organize everything, precious time is wasted. During times of relative stability, the situation is quite different. But here, too, there are pitfalls. Thus, it is necessary to ensure that there are no monopolies that will squeeze all the juice out of buyers. That is, there is also significant regulation here, but for the most part it is not very noticeable and has the character of indirect interference. Can it be that a market economy is centralized? Yes, and how! France can be cited as an example. Here, although there is no planning in the style of the USSR, but their own five-year plans are being developed, which provide for a common development strategy.
Conclusion
As you can see, a centralized economy is a rather controversial point in economic sciences. In the presence of competent management and high-quality personnel, it can show good results. And the development of artificial intelligence, systems of mechanization and automation of production processes give reason to say that a centralized economy is the future of mankind. Only it will no longer be controlled by us, but by computers programmed to maximize the comfort of life.
