Disadvantages of the planned economy, Managerial Economics

Disadvantages of the Planned System

The centrally planned economies suffer from the following limitations:

Lack of choice:  Consumers have little influence over what is produced and people may have little to say in what they do as a career.

Little incentive:  Since competition between different producers is not as important as in the market economy, there is no great incentive to improve existing systems of production or work.  Workers are given no real incentives to work harder and so production levels are not as high as they could be.

Centralised control:  Because the state makes all the decisions, there must be large influential government departments.  The existence of such a powerful and large bureaucracy can lead to inefficient planning and to problems of communication.  Furthermore, government officials can become over privileged and use their position for personal gain, rather than for the good of the rest of the society.

The task of assessing the available resources and deciding on what to produce, how much to produce and how to produce and distribute can be too much for the central planning committee.

Also the maintenance of such a committee can be quite costly.

Posted Date: 11/27/2012 4:34:36 AM | Location : United States

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