Is there any benefit to a centrally planned government?

Cassie Parkinson Honorbound, Aparicio AM

Imagine walking into a store, looking at the prices, and deciding to look somewhere else for the goods that you want. Now imagine that the second store you go in has all the same prices as the first. You run into this same problem with the third, fourth, and fifth store. This is how a centrally planned economy works.

A centrally planned economy is based on the decisions of the state or government rather than the consumers and businesses. [1] In some countries, an economy that is centrally planned can make the citizens better off; however, this type of economy can lead to unaligned incentives, or a lack thereof. Why should I have to work if I will get paid the same amount regardless? The income is guaranteed so no one feels like they need to work. Market economies are driven by self-interest and personal incentives, so if no one has a reason to work, then nothing will be done. Centrally planned economies can also limit innovation because of the lack of incentives. If no one wants to work, and no one is working, then there will be no new technology or innovations.

Another problem that countries commonly run into with centrally planned economies is their inefficiency in distributing goods to the citizens. Take for example, North Korea: a large percentage of the country is malnourished or starving because they lack basic consumer goods. The government is more worried about making new nuclear weapons, than they are about feeding the children. According to Charles Wheelan, famine in North Korea has lead to over one million deaths, and malnourishment in 60 percent of the youth population. [2] The citizens are restricted from selling goods privately because everything goes back to the government who redistributes the wealth. [3]

Now, imagine walking into a store, looking at the prices, and deciding to look somewhere else for the goods. The second store you go in has different prices than the first. The third, fourth, fifth, and even sixth store all have different prices as well. The reason for these changing prices is the free market economy. A free market economy grants freedom to consumers and producers, with little government regulation. No country has an entirely free market because there are some restrictions made by a central body. [4] Most free market economies are actually economies that are mixed between free market and centrally planned, and they are related to a democracy, where elected officials pass the restrictions that are imposed on the citizens. [5] Even in a mixed market economy, the government collects money to redistribute it to citizens through necessities such as parks, law enforcement, and basic research. [6] All of these are things that Americans have, but would be impossible in a completely free market economy.

Most countries lean toward free market economies rather than centrally planned because they lead to better incentives in the workers, and allow for more innovation. Centrally planned economies can lead to a poor distribution of goods to citizens, which, in turn, can cause starvation and extreme poverty. A free market system can allow for consumers to have all of the resources necessary, while also maintaining healthy incentives.

1 Staff, Investopedia. “Centrally Planned Economy.” Investopedia. August 01, 2015. Accessed June 19, 2017. http://www.investopedia.com/terms/c/centrally-planned-economy.asp.

2 Wheelan, Charles. Naked economics: undressing the dismal science. New York: W.W. Norton & Company, 2010. p. 35

3 Demick, Barbara. “Shopping in Cuba.” The New Yorker. January 10, 2016. Accessed June 19, 2017. http://www.newyorker.com/news/news-desk/shopping-in-cuba.

4 Investopedia. “What are Free Market Economies?” Investopedia. November 12, 2015. Accessed June 19, 2017. http://www.investopedia.com/video/play/free-market-economy/.

5 Investopedia. “What are Free Market Economies?” Investopedia. November 12, 2015. Accessed June 19, 2017. http://www.investopedia.com/video/play/free-market-economy/.

6 Wheelan, Charles. Naked economics: undressing the dismal science. New York: W.W. Norton & Company, 2010. p. 73-74

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