Centrally Planned Economies

Centrally Planned Economies

In centrally planned economies, the government tries to coordinate the activ-
ities of the different economic sectors. In the extreme form of central com-
mand,  goals are set for every  enterprise in the country; the government
determines how much is produced, by whom, and for whom. The assumption
is that the government is a better judge of how resources should be allocated
than is the economy in general or the consumer in particular.
    At the heart of a centrally planned economy is its blueprint, generally a
five-year plan. Based on this overall plan, specific targets are set each year for
each sector of the economy. The governmental plan attempts to coordinate
all sectors, since the output of one firm becomes the input of another. A cen-
trally planned economy must rely on the accuracy  of government targets in-
stead of on market prices to allocate resources properly. The Soviet Union
was the foremost example of a planned economy.

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