Demerits of planned economy

 Merits & Demerits of planned economy

here is limited consumer choice (consumer sovereignty) since it is the state that determines what to produce.

Poor quality goods are produced because of absence of competition i.e. existence of state monopoly in production.

It leads to bureaucracy resulting into delays in decision making.

Innovation and invention are highly discouraged due to reduced or absence of incentives. People tend to have diminished effort and initiative due to lack of incentivises arising from government ownership of resources.

It is difficult to accurately estimate peoples wants, this results into shortages due to rationed supply and controlled prices.

It is difficult to co ordinate plans and resources since there are many planning committees where members are not necessarily qualified managers but instead politicians. This is likely to result into poor factor combination, wrong prioritisation and in some cases disorganised production.

High levels of corruption and embezzlement since a lot of power is in the hands of a few who eventually misuse such power and embezzle funds.

Dictatorship is very likely to result because the state in trying to restrict the freedom of choice finds it necessary to restrict freedom of action.

Merits of a command economy

Non-profit making enterprises that that are vital are provided to society.

There is relative economic stability as government fixes prices of goods and services making it easy to control inflation and price fluctuations.

There is more equitable distribution of income and wealth in society.

It ensures high levels of unemployment since people are kept at work even in cases where it is apparently unprofitable to keep them employed.

Customers are protected from private monopoly exploitation. In case of monopoly, the state uses the monopoly powers in the interest of the community instead of exploiting consumers.

It is easy to attain systematic development and cope with rapid structural changes.

It is also urged that in a command economy inefficiencies that arise out of competition are eliminated hence the resources that are wasted in duplication can be used for production of goods and services.

It reduces uncertainty in production by ensuring mobility of factors of production towards the production of goods and services needed by the people.