All this limits innovation and reduces productivity. They also do not typically work toward productivity and improving technology as the government controls them. There is almost zero competition, so businesses may become inefficient. So, there is no external incentive to do better work. Similarly, there can be a shortage if it produces little of something that is in demand.Įven if people work hard, their income stays the same. If the government created an excess of something that is not needed, there will be wastage. But it may not accurately understand what people want. The government decides what should be made and what quantities are produced. For example, the North Korean government does not allow its citizens to move from city to city, even within the country. Even if you are allowed to do non-government work, this right may be withdrawn at any moment. The government decides your income and the type of job you do. That’s why countries like Russia and China have moved away from a command economic system. But in reality, inefficiencies generally pile up in the system. The government’s central plan usually has a low unemployment target.Ī command economy works in theory. So the unemployment levels can be close to zero, in theory, even if many jobs create no economic value. The government can provide jobs to all citizens because it controls all businesses. In theory, the government does not look to make a profit, so, everything is usually affordable - though low-quality goods (think East German tenements) and persistent shortages (think bread lines) tend to be the results. They are not influenced by demand, supply, or any other factors. The government decides prices in a command economy. In theory, the government can use all its resources to provide people with most necessities quickly during emergencies like natural disasters or wars. Command economies - in theory - usually aim to redistribute wealth more equally. Countries like Russia and China had command economies at one point in time for several different reasons.
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