A centralized economy is what?

What is a centralized economy?This, if someone does not know, is the second name of the planned management system. What features are observed here? How is the interaction system itself built? These, as well as a number of other issues, we will consider in this article.

general information

The economy of central planning isthe basis of any activity that is performed by a person or group and is aimed at achieving a specific goal. Due to a number of features in this case, the micro level and macro level are divided. In the first case, enterprise planning is implied. At the macro level, this process is already occurring on a nationwide scale. These two species in one form or another can be found in any economy. But the magnitude and significance varies in a significant range. At this time, planning at the enterprise level is popular. This is due to the fact that thanks to it, you can calculate future costs and revenues, designate approximate cost of production, as well as establish a balanced production cycle. But for us, within the framework of this article, it is the centralized economy that is of greater interest. This means that the focus will be on countries.

Centralized system of economics: theoretical foundations

The most famous here is the mechanisminteraction, which was in the Soviet Union. But how was it formed? The scientific foundations were laid by Wilfred Pareto, Friedrich von Weather and Enrique Barone. They proved that a planned economy, in which there is a centralized management of production and prices, can take into account various human needs and ultimately lead to a balance between supply and demand. Works of the above scientists took advantage of Karl Marx and Friedrich Engels. They declared that a planned economy is the main achievement and at the same time a significant advantage of socialist society. Vladimir Lenin echoed them. The practical implementation of theoretical developments began to occur immediately after the Bolsheviks came to power. But the process before taking its main features was stretched for a decade.

The formation of a centralized economy on the example of the Soviet Union

The prototype of the entire system was created in December.1917 Supreme Council of National Economy. He was the first coordinating and planning authority. But a truly major breakthrough was the creation of GOELRO. If you read the technical documentation, for many it will be a discovery that this plan not only provided for the development of the electric power industry, but also for the entire electrical industry. At the same time, at the initiative of Vladimir Lenin, GOELRO in 1921 created the State General Planning Commission, which is widely known as Gosplan. Her task was to review and agree on national economic development plans. Gradually formed the basis for the transition. And in 1927, it was decided to develop the first five-year development plan, which was aimed at the national economy of the Soviet Union. The model was mercilessly criticized because of a shortage in the late 80s and 90s. But let's discard the political component and see what constitutes a state-centralized economy from a practical point of view.

Benefits

They are very significant and worthy of attention:

1. There is a high growth rate of the economy.
2. The balance and proportionality of the development of the state.
3. Citizens are provided with free education, medicine.
4. The proposal is given in the equilibrium point with demand.
5. Optimally solved global economic problems.
6. Efficient use of resources, although they are limited.
7. There are no certain types of production and transaction costs.
8. Supports the availability of an optimal range of products.
9. The confidence of citizens in the future of their country.
10. The economy can be quickly mobilized to perform certain tasks.

disadvantages

It would be wrong if attention was paid only to the benefits. After all, mankind has not yet been able to avoid shortcomings:

1. Tough and extremely centralized economic system.
2. The sluggishness in dealing with suddenly arising issues, as well as the slowness of the reaction when the demand for a certain type of product changes in peacetime.
3. With illiterate management of the system, the population has large amounts of cash on hand. This is accompanied by the lack of supply in the market of certain groups or types of goods.
4. The presence of a significant bureaucracy.
5. Concentration of power in the hands of one person or small group.
6. When illiterate management does not create the conditions for the formation of personal interest in the person and the company to act effectively and deliver quality products (or services).

Features

We have reviewed the main featureswhich has a centralized economy planning. The market economy will now be considered for comparison purposes. So, first of all it is necessary to notice the predominance of different types of property. Thus, a planned economy does not exclude that a person has the means of production. But earlier they were understood as hammers, home-made machines and so on. Drawing parallels with modernity, here you can add more and 3D-printers. Whereas in a market economy, the bulk of the means of production is in the hands of private capital. Of course, if you need to mobilize to perform a large-scale task, this is bad. Because while you collect resources, you organize everything, precious time is lost. During relative stability, the situation is quite different. But even here there are pitfalls. So, it is necessary to ensure that there are no monopolies that will squeeze out all the juice from customers. That is, there is also considerable regulation here, but for the most part it is not very noticeable and has the nature of indirect intervention. Could it be that the market economy is centralized? Yes, and how! As an example, France. Here, although there is no planning in the style of the USSR, they are developing their own five-year plans, which provide for a common development strategy.

Conclusion

As you can see, the centralized economy isquite controversial moment in economic sciences. With competent management and high-quality personnel, it can show a good result. And the development of artificial intelligence, systems of mechanization and automation of production processes gives reason to say that a centralized economy is the future of humanity. Only we will no longer manage it, but computers, programmed to maximize the improvement of life comfort.