Examples

• The former USSR (or Soviet Union) is the typical example of a communistic, command economy. It was formed in 1922 by the Bolshevik party of the former Russian Empire. In 1928, Joseph Stalin achieved party leadership and introduced the first Five Year Plan, ending the limited level of capitalism that still existed. In 1991, under Mikhael Gorbachev, the Soviet Union was dissolved.
• A modern day example is China, particularly in the 70s, 80s and 90s. Today, China is seen to be more of an authoritarian capitalist rather than communistic command economy.

The Communist Economic System

A communist economic system is an economic system where, in theory, economic decisions are made by the community as a whole. In reality, however, attempts to establish communism have ended up creating state-driven authoritarian economies and regimes which benefit single party political élite who are not accountable to the people or community.

Communist theory was developed by a German philosopher in the 1800s named Karl Marx . He thought that the only way to have a harmonious society was to put workers in control. This idea was established during the Industrial Revolution when many workers were treated unfairly in France, Germany, and England.

Communist Ideology

Marx did not want there to be a difference in economic classes and he wanted class struggle to be eliminated. His main goal was to abolish capitalism (an economic system ruled by private ownership). Marx abhorred capitalism because the proletariat was exploited and unfairly represented in politics, and because capitalism allows the bourgeoisie to control a disproportionate amount of power. Therefore, he thought that if everything was shared and owned by everyone, a worker’s paradise or Utopia could be achieved.

Together with Friedrich Engel, a German economist, Marx wrote a pamphlet called the Communist Manifesto. This was published in 1848 and it expressed Marx’s ideas on communism. However, it was later realized that communism did not work. Most interpretations or attempts to establish communism have ended up creating state-driven authoritarian economies and regimes which benefit single party political élite who are not accountable to the people at all.

Command Planned Economy

An economy characterized by Command Planning is notable for several distinguishing features:

1. Collective or state ownership of capital: capital resources such as money, property and other physical assets are owned by the State. There is no (or very little) private ownership.
2. Inputs and outputs are determined by the State: the State has an elaborate planning mechanism in place that determines the level and proportions of inputs to be devoted to producing goods and services. Local planning authorities are handed 1 year, 5 year, 10 year or, in the case of China, up to 25-year plans. The local authorities then implement these plans by meeting with State Owned Enterprises, whereby further plans are developed specific to the business. Inputs are allocated according to the plans and output targets are set.
3. Labor is allocated according to state plans: in a command planning economy, there is no choice of profession; when a child is in school (from a very early age), a streaming system allocates people into designated industries.
4. Private ownership is not possible: under a command planning system an individual cannot own shares, real estate, or any other form of physical or non-physical asset. People are allocated residences by the State.
5. Prices and paying for goods and services: prices are regulated entirely by the State with little regard for the actual costs of production. Often a currencydoes not exist in a command planning economy and when it does, its main purpose is for accounting. Instead of paying for goods and services when you need to buy them, you are allocated goods and services. This is often also called rationing.

In western democratic and capitalist societies, the price mechanism is a fundamental operator in allocating resources. The laws of demand and supply interact, the price of goods (and services) send signals to producers and consumers alike to determine what goods and quantities are produced, and helps determine what the future demands and quantities will be.

The law of demand states that the higher the price of a good or service, the less the amount of that good or service will be consumed. In other words, the quantity of a good or service demanded, rises when the price falls and falls when the price increases.