Command Economy

Definition

A command economy is an economic system where the government makes all decisions regarding the production and distribution of goods and services. In this system, central planning dictates what, how much, and how goods are produced, often prioritizing collective needs over individual preferences. This approach was a hallmark of Soviet economic policy, particularly during the Five-Year Plans and significantly influenced living standards throughout the Soviet Union.

5 Must Know Facts For Your Next Test

1. The Soviet Union implemented a command economy following the 1917 Revolution, aiming to transition from capitalism to socialism.
2. The Five-Year Plans, initiated in 1928, were ambitious state-led initiatives designed to rapidly industrialize the Soviet economy through centralized control.
3. While the command economy achieved notable industrial growth, it often resulted in inefficiencies, shortages, and surpluses due to poor planning.
4. By the 1970s and 1980s, the limitations of a command economy led to stagnation, as bureaucratic inefficiencies prevented innovation and responsiveness to consumer needs.
5. The decline of living standards in the late Soviet period can be traced back to systemic issues within the command economy, including low-quality goods and limited availability.

Review Questions

• How did the principles of a command economy influence the goals and outcomes of the Five-Year Plans in the Soviet Union?
  • The principles of a command economy shaped the Five-Year Plans by placing central authorities in charge of setting ambitious industrialization targets. The government directed resources towards heavy industry while often neglecting consumer goods. This focus on rapid industrial growth led to impressive output in sectors like steel and coal but resulted in shortages of everyday products for citizens. The centralized control aimed at transforming the Soviet Union into a major industrial power but ultimately revealed significant inefficiencies.
• Discuss how the characteristics of a command economy contributed to economic stagnation and declining living standards in the later years of the Soviet Union.
  • The characteristics of a command economy, such as central planning and state ownership, contributed to economic stagnation by stifling competition and innovation. As bureaucratic processes grew increasingly cumbersome, industries struggled to adapt to changing consumer needs. This lack of responsiveness led to persistent shortages of essential goods and poor-quality products. Over time, these issues became apparent to citizens, resulting in dissatisfaction with living standards as they faced daily challenges in accessing basic necessities.
• Evaluate the long-term implications of maintaining a command economy on the socio-economic fabric of the Soviet Union leading up to its collapse.
  • The long-term implications of maintaining a command economy on Soviet society were profound and multifaceted. The rigid economic structure fostered dependency on state-run systems that were unable to meet citizens' evolving needs, leading to widespread discontent and loss of faith in government institutions. Moreover, economic stagnation exacerbated social inequalities and eroded trust within communities. As citizens became increasingly aware of global economic models that emphasized market-based principles, calls for reform intensified. This disconnect ultimately played a significant role in the collapse of the Soviet Union in 1991.

Related terms

Central Planning:

A method where the government controls and regulates the economy by making decisions about production, investment, and distribution.

State Ownership: A system in which the government owns and manages all means of production, such as factories and resources, rather than private individuals or companies.

Supply and Demand: An economic model that describes how the price of a good or service is determined by its availability and consumer desire for it, contrasting with a command economy.