Centrally Planned Economy

Centrally planned economies place economic decisions with the government. Instead of a bunch of individual actors (people, companies, non-profits, etc.), one authority makes all the decisions. This concept is opposed to market economies, with consumers and businesses determining prices and making decisions on an open market.

In a centrally planned economy, the government decides prices. It decides how much is produced and when, sometimes up to several years in advance (depending on the product). It decides who gets what and where any investments go.

Proponents of centrally planned economies argue that the system protects people against the vagaries of a market economy (sudden layoffs, the impact of economic downturns, etc.). Also, these economies are theoretically better at large-scale programs.

However, centrally planned economies tend to be slow to respond to economic forces. Also, the lack of an entrepreneurial structure and an overreliance on bureaucracy stifles innovation. And, historically at least, the evidence that centrally planned economies are kinder to workers than market economies is a mixed bag at best (see: the Soviet Union's forced industrialization; China's "Great Leap Forward").