Q.
b) Explain the advantages and disadvantages of the following economic systems:-
i) Central command system. (5 marks)
ii) Free market system. (5 marks)
iii) Regulated or mixed market system. (5 marks)
(15 marks, 2013 Q1b)
A.
i) Central command system is an economic system originated from 'a planned economy'.
A planned economy is the economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a public body such as a government agency.[1][2] Thus it may be termed a "command economy". Although a planned economy may be based on either centralized or decentralized forms of economic planning, it usually refers to a centrally planned economy. Central planning aims to improve productivity and coordination by enabling planners to take advantage of better information achieved through the consolidation of economic resources when making decisions regarding investment and the allocation of economic inputs.
Planned economies are usually categorized as a particular variant of socialism, and have historically been supported by and implemented by Marxist-Leninist socialist states. Analysts argue that Soviet-type central planning did not actually constitute a planned economy in that a comprehensive and binding plan did not guide production and investment; therefore the term administrative command economy emerged as a more accurate designation for the economic system that existed in the former Soviet Union and Eastern bloc, highlighting the role of centralized hierarchical administrative decision-making in the absence of popular and democratic local market-based oversight as the essential coordinating feature of these economies.[3]
A planned economy may consist of state-owned enterprises, private enterprises directed by the state, or a combination of both. Though "planned economy" and "command economy" are often used as synonyms, some make the distinction that under a command economy, the means of production are publicly owned. That is, a planned economy is "an economic system in which the government controls and regulates production, distribution, prices, etc."[4] but a command economy, while also having this type of regulation, necessarily has substantial public ownership of industry.[5] Therefore, command economies are planned economies, but not necessarily the reverse.
Planned economies are held in contrast to unplanned economies, such as the market economy and proposed self-managed economy, where production, distribution, pricing, and investment decisions are made by autonomous firms based upon their individual interests rather than upon a macroeconomic plan. Less extensive forms of planned economies include those that use indicative planning as components of a market-based or mixed economy, in which the state employs "influence, subsidies, grants, and taxes, but does not compel."[6] This latter is sometimes referred to as a "planned market economy".[7] In some instances, the term planned economy has been used to refer to national economic development plans and state-directed investment in market economies.
Beginning in the 1980s and 1990s, many governments presiding over planned economies began a process of marketization, moving toward market-based economies by allowing individual enterprises to make the decisions regarding management and pricing, granting autonomy to state enterprises, and ultimately expanding the scope of theprivate sector through privatization. Limited free market activity gradually entered the Eastern Bloc during the 1980s. on January 1, 1992 the newly independent Russian Federation abolished the Soviet price controls.
Although most economies today are market-based mixed economies (which are partially planned), fully planned economies of the Soviet-type continue to exist (as of 2013) in Cuba, North Korea and Laos.[8]