The Implications of a Centrally Planned Economy. (Essay Sample)

The Implications of a Centrally Planned Economy. A centrally planned economy is one where the means of production are controlled by the government, with the economy typically being run in the interest of the workers. It encompasses a wide array of strict bureaucratic leve3ls, prices being controlled rather than set naturally by market forces. Moreover, in theory it can overcome market failure and ensure a fair distribution of resources and capital (Pettinger, 2018). However, several economists, such as Friedrich Hayek, argue that decentralisation, which allows for the knowledge of a particular circumstance to be applied at a given time and place, is the key for free fluctuating prices that in turn result in a prospering, stable economy (Hayek, 1945). The following essay will discuss whether a centralised or decentralised planning system is more beneficial for the economy, when taking into consideration modern technology. A centrally planned economy may be viable now, due to the ability that the government has to predict future consumer purchases based on previous spending patterns. Paypal actively discloses that it shares consumer data with hundreds of companies such as Apple, Google and Deloitte, allowing personalised ads to be tailored for individuals (Your Data, 2018). Therefore, not only does that mean that producers can adjust their levels of supply accordingly to prevent any surpluses or deficits, but it also results in less resources being wasted producing goods that were not going to be used. This partially disproves Hayek’s arguments, as all the knowledge that is held by the ‘central board’ has the ability to solve our economic problem and still results in fluctuating prices to an extent (Hayek,1945). Another reason for why a centrally planned economy may be superior, is that the price control implemented by the government has the potential to result in far greater equality than free fluctuating prices ever would. Hayek argued that discussions between individuals with specific knowledge on particular topics would lead to objective conclusions that would allow for an equilibrium to arise (Hayek, 1945). However, what he did not realise, is that individuals may choose to pick decisions that would benefit themselves, and not others. With the government controlling prices, they may set price ceilings and price floors in the market that would prevent inequality and would allow individuals, no matter their socioeconomic background, to have access to all resources. A ‘command economy’ gives little incentive to be efficient and profitable, thereby letting organisations produce lower quality goods that hinder the satisfaction of consumers and prevent the development of technology and equipment. On the contrary, a decentralised economy with a healthy division of labour not only promotes the evolution of civilisation and lets individuals to freely develop their personal skills (Hayek,1945), but also increases the quality of consumer goods due to competition, which further motivates the government to play a limited role in overseeing the economy. The second reason for why a decentralised, free market economy proves to be a better option is due to what history has demonstrated to our society. As we saw in both Cuba and the USSR respectively , Karl Marx’s theory only works to a certain extent (Pettinger, 2018), but eventually in both cases its application led to revolutions and many hardships. Conversely, for decades now economies in countries such as Hong Kong and Singapore have been thriving and enjoying a high quality of life thanks to minimal regulations on businesses and a capitalist system of economics (Depersio, 2021). These countries provide the best examples of the marvel that is the ‘price system’ that Hayek mentioned when discussing w...