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Centrally Planned Economy

  A centrally planned economy is one in which basic economic decisions are made by public authorities rather than by private persons. The key decisions involve investment in plant and equipment; this determines what will be produced. Other decisions usually include how to combine resources and how to distribute the product to households. The productive facilities (natural resources and capital) are held and controlled by the state rather than owned and controlled by private persons.

Central planning is a characteristic of socialist and communist economies. In theory, it could be more rational and equitable than the marketplace, but in practice it has always yielded inefficiency, a slothful bureaucracy and little incentive to work hard or innovate. In the People\'s Republic of China, for example, drawbacks in central planning have led the authorities to experiment with a compromise of free market dilutions, which have created specific geographic regions where free markets are allowed to operate and flourish.

The former USSR and the eastern European countries once under its influence operated under centrally planned economies. They began to introduce market direction of production in the 1970s on a very small scale, to try to overcome inefficiencies in their central planning. The struggle for change intensified in 1989 and 1990 with the peaceable overthrow of Communist governments in eastern Europe. This is the first time in history that there has been a shift from a centrally planned economy to that of a market economy. There are competing schools of thought of what is the best route to achieve this transition. Current results have been shaky at best and at a high political cost. TF

See also capitalism; mixed economy.



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