Advantages Supporters of a planned economy argue that the government can harness
land,
labor, and
capital to serve the economic objectives of the state. Consumer demand can be restrained in favor of greater capital investment for economic development in a desired pattern. In international comparisons, supporters of a planned economy have said that state-socialist nations have compared favorably with capitalist nations in health indicators such as infant mortality and life expectancy. However, according to
Michael Ellman, the reality of this, at least regarding infant mortality, varies depending on whether official Soviet or
WHO definitions are used. The state can begin building massive heavy industries at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry and without reliance on external financing. This is what happened in the Soviet Union during the 1930s when the government forced the share of
gross national income dedicated to private consumption down from 80% to 50%. As a result of this development, the Soviet Union experienced massive growth in heavy industry, with a concurrent massive contraction of its agricultural sector due to the labor shortage.
Disadvantages Economic instability Studies of command economies of the
Eastern Bloc in the 1950s and 1960s by both American and Eastern European economists found that contrary to the expectations of both groups they showed greater fluctuations in
output than market economies during the same period.
Inefficient resource distribution Critics of planned economies argue that planners cannot detect consumer preferences, shortages and surpluses with sufficient accuracy and therefore cannot efficiently co-ordinate production (in a
market economy, a
free price system is intended to serve this purpose). This difficulty was notably written about by economists
Ludwig von Mises and
Friedrich Hayek, who referred to subtly distinct aspects of the problem as the
economic calculation problem and
local knowledge problem, respectively. These distinct aspects were also present in the economic thought of
Michael Polanyi. Whereas the former stressed the theoretical underpinnings of a market economy to
subjective value theory while attacking the
labor theory of value, the latter argued that the only way to satisfy individuals who have a constantly changing hierarchy of needs and are the only ones to possess their particular individual's circumstances is by allowing those with the most knowledge of their needs to have it in their power to use their resources in a competing marketplace to meet the needs of the most consumers most efficiently. This phenomenon is recognized as
spontaneous order. Additionally, misallocation of resources would naturally ensue by redirecting capital away from individuals with direct knowledge and circumventing it into markets where a coercive monopoly influences behavior, ignoring market signals. According to
Tibor Machan, "[w]ithout a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals". Historian
Robert Vincent Daniels regarded the
Stalinist period to represent an abrupt break with Lenin's government in terms of economic planning in which an deliberated,
scientific system of planning that featured former
Menshevik economists at
Gosplan had been replaced with a hasty version of planning with unrealistic targets, bureaucratic waste,
bottlenecks and
shortages. Stalin's formulations of national plans in terms of physical quantity of output was also attributed by Daniels as a source for the stagnant levels of efficiency and quality.
Suppression of economic democracy and self-management Economist
Robin Hahnel, who supports
participatory economics, a form of
socialist decentralized planned economy, notes that even if central planning overcame its inherent inhibitions of incentives and innovation, it would nevertheless be unable to maximize economic democracy and self-management, which he believes are concepts that are more intellectually coherent, consistent and just than mainstream notions of economic freedom. Furthermore, Hahnel states: Combined with a more democratic political system, and redone to closer approximate a best case version, centrally planned economies no doubt would have performed better. But they could never have delivered economic self-management, they would always have been slow to innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible to growing inequities and inefficiencies as the effects of differential
economic power grew. Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impeding markets for final goods to the planning system enfranchise consumers in meaningful ways. But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it did only because it was propped up by unprecedented totalitarian political power. whereas a command economy necessarily has substantial public ownership of industry while also having this type of regulation. In command economies, important allocation decisions are made by government authorities and are imposed by law. This is contested by some
Marxists.
Decentralized planning has been proposed as a basis for
socialism and has been variously advocated by
anarchists,
council communists,
libertarian Marxists and other
democratic and
libertarian socialists who advocate a non-market form of socialism, in total rejection of the type of planning adopted in the
economy of the Soviet Union. Most of a command economy is organized in a top-down administrative model by a central authority, where decisions regarding investment and production output requirements are decided upon at the top in the
chain of command, with little input from lower levels. Advocates of economic planning have sometimes been staunch critics of these command economies.
Leon Trotsky believed that those at the top of the chain of command, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and who understand/respond to local conditions and changes in the economy. Therefore, they would be unable to effectively coordinate all economic activity. Historians have associated planned economies with
Marxist–Leninist states and the
Soviet economic model. Since the 1980s, it has been contested that the Soviet economic model did not actually constitute a planned economy in that a comprehensive and binding plan did not guide production and investment. The further distinction of an
administrative-command system emerged as a new designation in some academic circles for the economic system that existed in the former
Soviet Union and
Eastern Bloc, highlighting the role of centralized hierarchical decision-making in the absence of popular control over the economy. The possibility of a digital planned economy was explored in Chile between 1971 and 1973 with the development of
Project Cybersyn and by
Aleksandr Aleksandrovich Kharkevich, head of the Department of Technical Physics in Kiev in 1962. While both economic planning and a planned economy can be either authoritarian or
democratic and
participatory,
democratic socialist critics argue that command economies under modern-day communism is highly undemocratic and totalitarian in practice.
Indicative planning is a form of economic planning in market economies that directs the economy through incentive-based methods. Economic planning can be practiced in a decentralized manner through different government authorities. In some predominantly market-oriented and Western mixed economies, the state utilizes economic planning in strategic industries such as the aerospace industry. Mixed economies usually employ
macroeconomic planning while micro-economic affairs are left to the market and price system. == Decentralized planning ==