Topic Two, Lesson Three: Centrally Planned Economy-Economics

Why is economic growth harder to achieve in a command economy than in a free market economy?

Innovation is a key to growth, and command economies tend to discourage innovation and change; there is also no profit incentive to encourage entrepreneurship.

Explain why each of the following goals is difficult to achieve in a centrally planned economy: (a) Economic Freedom, (b) Economic Growth.

Economic Freedom-Government control of decisions. Economic Growth-Inefficiency of system, lack of incentives.

How is economic freedom undermined in centrally planned economies?

Economic freedom is sacrificed to societal goals; central planning places controls on workers and citizens to achieve its ends; it discourages competition and takes economic choices away from producers and consumers.

What are Stalin's goals for the Soviet economy, and how did he try to achieve them?

He wanted to boost industrial and agricultural production; to do this, he imposed a series of five year plans that emphasized the growth of heavy industry and formation of large, state-run farms.

What makes Sweden an example of "market socialism"?

In Sweden, free market practices exist alongside government controls that redistribute wealth and provide extensive services.

Distinguished between Socialism and Communism.

Socialism-Range of economic and political systems based on the belief that wealth should be evenly distributed throughout society. Communism-Central government owns and controls all resources and means of production and makes all economic decisions.

Analyze the use of central planning in the Soviet Union and China.

Soviet Union-Series of five year plans to boost industrial and agriculture production; sought to build national power and prestige; allocated best land, labor, and capital to the armed forces and heavy industry; farmers worked on state farms. China-Built small factories to produce goods to be sold in nearby dreads, forced peasants onto farming communes where production dropped.

What strong evidence exists that centrally planned economies have not generally served the needs of countries?

The fact that many for most countries that adopted central planning have moved toward mixed or capitalist systems.

Describe how a planned economy is organized.

The government answers the three basic questions; government owns both land and capital; government controls where people work and what they are paid; government directs workers' production numbers and tells farmers what to plant and where to send it; oppose private property, competition.

What method do centrally planned economies generally rely upon to control labor?

The government controls where people work and what the are paid.

(a) What was the benefit of the Soviet decision to concentrate on heavy industry? (b) What was the opportunity cost of this decision? Who paid it?

(a) The Soviet Union modernized and became a superpower. (b) The production of consumer goods lagged, shortages developed and citizens suffered the effects.

Features of centrally planned economies.

1. Government owns all factors of production. 2. Government makes all decisions. 3. Bureaucrats make detailed plans. 4. No consumer sovereignty.

Identify the disadvantages of a centrally planned economy.

1. Government owns all factors of production. 2. Sacrifice individual freedoms to pursue societal goals. 3. Do not reward innovation. 4. Increase equity by distribution of goods and services fairly.

Disadvantages of centrally planned economies.

1. Results on poor quality goods, shortages, and failing production. 2. Does not achieve equity 3. Efficiency suffers. 4. Allows no freedom of choice.

Read the quotation from Marx taken from The Communist Manifesto and the description of Marx's basic beliefs. Then explain why Marx believed that labor was more important than capital.

Because goods can be produced, and wealth generated, through labor, even if capital is lacking.

Why do you think all communist government have been authoritarian in nature?

Because they require strict obedience to enforce the principles of a centrally planned economy.

Central planning is supposed to help achieve economic equity in society. Do you think this argument has merit, based on results?

Central planning has achieved some positive results through the guarantee of jobs and income; it has also produced economic output and helped some economies develop, as it did in the Soviet Union; but the benefits are not uniform or consistent.

Why did the Chinese government institute new economic policies in the 1970s? What was the result?

China's economy suffered under command policies; the reforms were designed to boost the economy, and they worked; the economy began to grow.