Planned Economy (chapter 8)

Centrally Planned Economy – is an economic system in which the central government makes
all the major economic decisions for the country.
Known also as – Public Enterprise, Public Ownership, Socialist, Communist or Command
Economy.

– Concept of a Planned Society and Public ownership has been around for more than 4000
years. Many cultures used planned economies in some form (eg. Romans controlled labour
and production on controlled land).

The Industrial Revolution of the 18th and 19th century strengthened the idea of planned
economies.

∗ Utopian Socialism: a peaceful and democratic method to achieve more IDEAL societies,
based on cooperation, planning and communal approaches.
∗ Utopian Socialists: Robert Owen, Charles Fourier, Charles Saint-Simon, Horace Greeley
– Thought that if the environment was improved, an ideal society could be abolished in which
all people would be happy and prosperous. They did not want to destroy capitalism, merely to
rid it of its evils.

Louis Blanc – France – popularized the idea of large-scale PUBLIC OWNERSHIP. Combined
with labourers’ control over workplace, and the distribution of government’s according to
individuals needs. This method failed.

Karl Marx – Prussia – wrote Communist Manifesto with Frederick Engels and Das Kapital. Ideas
synonymous with Socialism and his theories became known as MARXISM.

Marxism
– both political and economic system
– philosophy to provide an overall good life
– believed “The Ruling Class must be replaced by the Working Class”.
– All aspects of a person’s life determined by individual’s relationship to the ***Means of
Production – the hand, tools, and factories required by people to engage in industry and
agriculture
– Class conflict – Marx maintained that throughout history a struggle has always existed
between those who owned the means of production and the workers.

Bourgeoisie – those holding a commanding position of economic power in a capitalist society,

the owners of the means of production. They rose from the traders and industrialists who came to
power after the agricultural revolution.

Proletariat – the class of industrial wage earners whose only resource is their labour.

– Marx believed that the inevitable end to the class conflict would be a Revolution by the
Proletariat and a classless society would be created with only one class remaining –– “The
Workers”.

Dictatorship of the Proletariat

 A central planned economy
 Increasing economic production
 Distribution of income according to work performed
 Increasing economic quality
 A gradual disappearance of classes
 Increasing desire to work for the good of society rather than for personal profit
 Distribution of goods based on the motto “From each according to his abilities, to each
according to his work”.

Withering Away of State –– Government would wither away as would poverty and crime. The
need for control would be gone, as greed would be removed.

– Ideal society would be classless, egalitarian society where there would be no need to force
people to do anything against their will.

Marxism–Leninism
– Lenin believed that strong leadership was necessary to bring about a revolution
– Lenin suggested that the “Communist Party” should lead in the cultivating of class-
consciousness among the proletariat
– Lenin sought popular support from peasants as well as industrialists
– Lenin used communism to create an industrial state where one had not existed before.

Centrally Planned Economy Answers to the Economic Questions

What to produce? – USSR – GOSPLAN
Selected committee must decide on the policy of the government weapons or consumer
goods? What then does not get produced?
How should these goods be produced?
Selected committee to look at resources (Human, capital and natural)
Who will receive the goods? –– GOSSNAB
Prices set by government rather than the forces of supply and demand
Advantages and Disadvantages (pg. 327)

Cuba
– Fidel Castro came to power in Cuba in 1959 and introduced a communist government
– Cuba experienced economic problems
 Soviet Union withdrew some of its economic support
 sugar prices fell
 worker productivity declined
 American Boycott continued to cripple the Cuban economy
– Castro changed by introducing some features of Private Enterprise
 Decentralized the economy
 Used profit incentives to encourage greater productivity
 Manufactured more consumer goods
– Until the 1980’s 1/3 of world population lived under communism. In the 1990’s many of those
countries have moved toward free enterprise systems.