A command economy is simply a form of economic economy in which the distribution of investment, production, and capital resources are coordinated by central economic policies and decisions. A centralized command economy can use centralized, decentralized, participatory, or Stalinist forms of management.
For a centralized command economy, central economic policy is used to determine both the distribution of income and wealth among all citizens and economic activities are determined primarily by economic policies. The distribution of income, however, is highly regressive.
In a decentralized command economy, there are no central economic policies; instead, different economic policies are applied at the local level to determine various aspects of social life. For example, in such a system, income may be distributed on the basis of education, employment, or skills; or it may be distributed according to need. Local economic policies may also vary depending on regional differences in property ownership, government ownership, and ownership of land.
Participatory, centralized and centrally planned economies are characterized by strong economic and political institutions. In a participatory, centralized, and centrally planned economy, decisions are made by elected leaders who are answerable to their constituents. Their decisions must be supported by public opinion and the support of other citizens in their area.
A centrally planned, centrally controlled and centrally administered command economy is known as a planned economy. This is because the central economic decision makers in this system have access to all of the resources, including human and material, to meet their objectives and provide services to citizens. They must also create and implement an administrative structure that is accountable to them and that ensures that the resources they acquire are used for meeting their goals.
If the resources are not being used to their productive means, this means that the resources are not being efficiently allocated, and resources are wasted, or misused. The goal of such an economy should be to maximize the wealth of citizens in the sense that it should enable them to meet their needs and to provide the services that citizens deserve without the need for excessive taxation.
In a participatory, decentralized command economy, the resources are distributed according to the central economic plan, but the distribution of resources is not predetermined by the central economic plan. However, the resources are distributed based on the needs and preferences of the individuals living in the community. A decentralized, participatory, or decentralized economy is characterized by a democratic control over the distribution of the resources by its inhabitants.
In a centralized or a centrally administered control economy, decisions regarding the distribution of the resources are usually made by a group of decision makers with access to all the resources and with a similar viewpoint on the use of the resources. This structure gives rise to a situation in which the citizens’ wishes, needs, and desires may not coincide and that is in contradiction with the central economic planners’ views. In these circumstances, the decisions made regarding the distribution of resources may not be in conformity with the needs of the citizens. Thus, the central economic planners often become frustrated with such situations and make decisions on behalf of the residents that may not benefit the citizens.
In a participatory, or a decentralized, control economy, there is no need for such democratic control. The residents can directly determine how much money they want to spend, what they want to purchase, how much of a given resource they wish to use, and how they want their decisions regarding the allocation of resources to be implemented. In a democratic control economy, the people who live in a community have control of their resources, but in a participatory or a decentralized control economy, they have more control than they have in a centrally administered control economy.
Although a command economy might appear to be a very idealistic view of how an economy would work, this type of economy has its merits. It is based upon the notion that it is possible to maximize the wealth of the citizens in the sense that a citizen can earn more through the use of his or her own resources and that the citizens may also benefit from the use of their resources by providing services to their communities.
Economic planning has been one of the most important functions of government in the United States for many decades. With the passage of time and the growth of technology, economic planning in many countries has evolved in order to provide citizens with better quality of life. Economic planning is often done by experts who are answerable to their elected representatives and the elected leaders of their communities, but in a command economy there are no such constraints.