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What is COMMAND ECONOMY ?
• Economy directed by the government. • All means of production (land, labor, capital) are state owned and controlled. • The government makes all economic choices of what to produce, how to produce, how to distribute.
Rise of the Command Economy
• People believed that other economic systems were exploiting the working class. • Came as a response to the industrial revolution. • Some people believed that if the government controlled the economy and chose what should be produced, how and for whom; there would be greater economic equality.
Problems Created by the Industrial Revolution • Low wages • Long hours • Urbanization – – – – Crime Poverty Disease Pollution • Unfair labor practices • Unsafe working conditions .
Elements Of Command Economy • • • • Cooperation Public ownership Equality as incentive Central planning .
COMMAND ECONOMY .
.Advantages of the Command Economy • Income & wealth more evenly distributed • Little unemployment • Experiences fewer booms and busts in economy • Profits used to expand production • Production of goods and services is planned to meet society’s needs • Consumers receive basic necessities.
.Disadvantages of the Command Economy • Lack of incentive • Lack of technological progress • Bureaucracies (planning creates inflexibility) • Black markets • Loss of individuality • Inefficient and widespread waste of resources.
Typically begin with revolutions.Command Economy. .
He claimed that as long as there existed a business owning class oppression would continue. .Karl Marx was the founder of the communist/ command economy ideology.
to each according to his needs. • Capitalism would bring itself to ruin – – – – Economic depression Imperialism Wars Revolution by the proletariat. • Production would be distributed by the motto… “from each according to his abilities.Marx’s Beliefs • The bourgeoisie exploited the workers by forcing them to create goods and services with a greater value than the wages received. • After a series of revolutions capitalism would be eliminated and people would live in a cooperative and voluntary society.” .
• Common Good .The Ideal Marxist Society • Individual differences would still exist but no one could amass enormous wealth while others lived in poverty. • Equal opportunity (classless society) • Abolish private property and profit motive (public ownership) • With the existence of surplus goods crime and greed would not exist.
Lenin’s Additions To Marxism • Adapted Marx’s ideas to conditions in Russia. . • Views referred to “Marxist-Leninist” Marx • revolution could only occur in a capitalist and industrialized country Lenin • organized a dedicated group of professional revolutionaries (who sought support from peasants and workers) to overthrow Russian autocratic government.
CASE STUDY Central Planning in the Former USSR FIVE KEY ELEMENTS OF CENTRAL PLANNING IN THE FORMER SOVIET UNION .
• No one can make a profit from the nation’s resources. .1. mills. • No individual owns capital (mines. railways). • Government controls them and appoints managers to manage them. machines. NATIONALIZATION Nationalization – The taking over of ownership of a company by the government.
• During the 1920’s & 30’s privately owned farms were seized by the government and made into large state owned farms. COLLECTIVIZATION OF AGRICULTURE Collectivization – The practice of working together in groups supposedly for the good of all. .2. • Workers worked on immense government owned farms. (Kulaks) • 97% of farmland was government owned. (operated by government but workers were paid on a wage basis. (500-700 workers) • State farms also set up to test new agricultural methods.
high prices on vodka) • Standard of living in the USSR lagged behind other major countries because… – Planners believed in economic equality.3.) • Soviet Union used price controls to influence buying practices based on what was in the best interest of the country.(i. . low prices on school books. those who were efficient producers had their efforts used to provide income for others.e. CONTROLLED DISTRIBUTION OF WEALTH • Controlled planners decide how to distribute the goods produced. – Planners concentrated on needs for the future rather than wants for the present. (Gossnab determined how commodities were distributed.
• With the best experts. COMPREHENSIVE PLANNING Gosplan – The economic planning commission for the former USSR. to determine which goods the country needed/equality in distribution. . advisors.4. computers available it was Gosplan’s task to decide… – What to produce? – How to produce? – For whom to distribute to? • Major advantage of central planning was it allowed the govt.
Disadvantages to Central Planning –Slow to respond to changes –Shortages –Absence of initiative/incentive –One bad decision was effected the whole nation .
• The Communist Party established the national goals and it was Gosplan’s task to achieve these goals.5. . CONTROL BY THE COMMUNIST PARTY • Gosplan was the economic planning committee for the former Soviet Union. • Gosplan took orders from the Communist Party.
A Little More On… War Communism: Lenin introduced this right after the Communist Revolution to bring about the perfect Communist Society – occurred during the civil war Involved nationalization and was a failure Actually resulted in DECREASED agricultural and industrial output. .
allowed farmers to sell surplus for profit • Obviously this is a step away from “pure” communism. but Lenin saw it as “one step backwards to take two steps forward” • Only intended to be a temporary policy • Had limited success .A Little More On… The New Economic Policy • Introduced by Lenin to try and kick-start the economy • Re-introduced some limited prive ownership of land and business.
• Transformed the economy and society of the USSR into the form it would remain until 1991 • Known for his FIVE YEAR PLANS • This involved setting goals and “quotas” for every industry in the Soviet economy in 5 year chunks of time JOSEPH STALIN .
construction.The Five Year Plans The First Plan (1928-32) • Concentrated on heavy industry (oil. steel. etc) • Citizens asked to make sacrifices in their standard of living because production was not concentrated on consumer goods • Stalin promised to concentrate on consumer goods during the second plan .
Knew war with Fascist Germany was inevitable • In order to encourage production. planners used incentives such as bonuses (for meeting quotas) or harsh punishments (for failing to meet quotas) • For the most part.The Five Year Plans • Stalin concentrated on heavy industry for two reasons: 1. Fear of capitalist democracies attacking 2. it was a success in helping the USSR “catch up” with the rest of the world .
The Five Year Plans The Second Plan (1933-38) • Heavy industry (especially communications) • Huge rise in steel production The Third Plan (1938-42) • Mechanization for the war The Fourth Plan + Fifth Plan (1946-55) • Reconstruction .
not by consumers and producers. not private individuals.Traits of a Command Economy • The government controls all aspects of the economy • Private property is illegal • Supply and demand are determined by the government. • Industry and businesses are owned and controlled by the government. . • Everyone is paid equally no matter what job they do.
• In Cuba all residents are given rations of foods. .Examples of a command economy • In the former Soviet Union the government killed small property owners and redistributed their land to workers. Instead of purchasing food in a market Cubans go to government food supply centers.
Many of those who lost their business now live in Miami. .Example of Command EconomyCuba’s Fidel Castro and Che Guevarra established a command economy by expelling Cuba’s small business and land owners.
. Because the government controls the distribution of goods. rather than consumers and producers individuals begin to sell things illegally. • Command economies cease to stay competitive in the world because competition and entrepreneurship is discouraged. Critics claim that since workers are awarded the same amount of money for doing every job workers aren’t productive. • Command economies result in shadow/ illegal markets.Criticism of Command Economies • Command economies are inefficient and reward unproductive workers.
.In North Korea the former dictator Kim Il Sung controlled the economy with an iron hand and had statues of himself built to show his people who was in charge of the government and the economy.Examples of a Command Economy.
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