Planned Economy

A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency. A planned economy may be based on either centralized or decentralized forms of economic planning, but usually refers to a centrally-planned economy. The goal of central planning is to enable planners to take advantage of more perfect information through a consolidation of economic resources when making decisions regarding investment and the allocation of economic inputs within production.

In an entirely centrally-planned economy, a universal survey of human needs and consumer wants is required before a comprehensive plan for production can be formulated. The public body responsible for production and resource allocation would require the power to allocate factors of production in order to fulfill the plan, and for overseeing the distribution system of the economy. The most extensive form of a planned economy is referred to as a command economy, centrally planned economy, or command and control economy. In such economies, central economic planning by the state or government directs all major sectors of the economy and formulates decisions about the use of economic inputs and the means of production. Planners would decide what would be produced and would direct lower-level enterprises and ministries to produce those goods in accordance with national and social objectives. Implementation of this form of economy is sometimes called planification.

Planned economies are held in contrast to unplanned economies, such as the market economy and proposed self-managed economy, where production, distribution, pricing, and investment decisions are made by autonomous firms based upon their individual interests rather than upon a macroeconomic plan. Less extensive forms of planned economies include those that use indicative planning as components of a market-based or mixed economy, in which the state employs "influence, subsidies, grants, and taxes, but does not compel." This latter is sometimes referred to as a "planned market economy".

A planned economy may consist of state-owned enterprises, cooperative enterprises, private enterprises directed by the state, or a combination of different enterprise types. Though "planned economy" and "command economy" are often used as synonyms, some make the distinction that under a command economy, enterprises need not follow a comprehensive plan of production. That is, a planned economy is "an economic system in which the government controls and regulates production, distribution, prices, etc." but a command economy, while also having this type of regulation, necessarily has substantial public ownership of industry. Therefore, command economies are planned economies, but not necessarily the reverse.

Beginning in the 1980s and 1990s, many governments presiding over planned economies began marketization (or as in the Soviet Union, the system collapsed) and moving toward market-based economies by allowing individual enterprises to make the pricing, production, and distribution decisions, granting autonomy to state enterprises and ultimately expanding the scope of the private sector through privatization. Although most economies today are market economies or mixed economies (which are partially planned), fully planned economies exist in the remaining few countries of Cuba, Libya, North Korea, Saudi Arabia, Belarus, and Burma.