What Are Characteristics of a Planned Economy?

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A planned or command economy is one in which major functions, such as production and distribution of goods, are controlled by the government. In a planned economy, the government owns some or all production facilities and decides what to produce and how goods are priced. This is in contrast to a market economy, where production and distribution are decided by market forces with little or no government intervention.

The advantages of a planned economy include the ability to set goals, such as full employment. Proponents of this type of system argue that a command economy benefits the entire society rather than a fortunate minority. Disadvantages include a disconnect between which goods are produced and what is needed. Command economies tend to have decisions made by bureaucrats who are out of touch with the market. This type of government tends to dismiss individual rights in order to achieve societal goals. Some countries, such as the former Soviet Union and China, which formerly had planned economies, have transitioned to a mixed economy.

In a hybrid or mixed system, the government allows some privatization of the means of production and deregulates pricing so that market forces play a role. In reality, most economic systems are mixed, with varying degrees of government intervention.