A centrally-planned economy, also called a “command economy” is one in which the government controls prices and companies. These features are among the most common answers found when putting the question into a search engine:
Centrally-planned economies have less inequality because they typically ensure everyone has access to basic health care, food, and shelter.
The entire society’s resources can be focused on solving specified problems for the “common good,” even when doing so is not to the benefit of the individuals or groups who possess those resources (or when no single group controls enough resources to address the problem.)
I think the first item above is basically an aspect of the second, with the relationship being that “social welfare” is a common objective, and one that is not necessarily in the interests of those who command most of the resources. Both the above benefits also assume the government is willing to respond to the needs of the populace as a whole, knows what those needs are, and knows how to address them.
US Capital, photograph by Marin Falbisoner
Ensuring the government is responsive to the populace is no small task: Plato’s solution of “philosopher kings” who are selfless, educated, wise, and see themselves as part of the communities they serve. The founders of the U.S. Constitution, recognizing that ideal Platonic Form of Government was unrealistic, instead opted for a system of “checks & balances” balancing different branches against each other while making them all accountable to the people as a whole. Accountability is provided via robust, broad suffrage, as well as freedoms to openly question the government and debate both salient problems and their potential solutions. As the U.S. has grown, as the world has grown more complex, and as humanity’s technology extends our reach, governments around the world have incorporated large bureaucracies of experts and analysts in an attempt to make sure decision-makers are working with the best-possible information.
Collective action often allows better outcomes than individual actions. Government serves as a framework for dividing labor. Note this division of labor is one of the main economic benefits Adam Smith cites in Wealth of Nations.
Treatment of societal problems in which morality outweighs profitability. The supremacy of human life, policing, and ensuring our successors inhabit a livable world are all cases where a majority of people feel that principles of justice and fairness trump every-man-for-himself mentalities.
If the leaders are skilled, centrally-managed organizations (including governments) can be very effective. On the other hand, those who seek to head such large organizations can prove detrimental to them if they don’t live up to the necessary standards and if they don’t try for self-improvement and support of their subordinates. Ensuring the leaders’ legitimacy and skill is thus an important precondition for effective governments, but if it is satisfied, the government can be beneficial in a very broad context.
The competition between long-term and short-term objectives often causes organizations to sacrifice long-term and large-scale organizational success. Because they are insulated from short-term concerns and often work with budgets and employees that are planned on multi-year timescales, many large, impressive government projects have produced net benefits that are out of reach for individuals
Much like large corporations, governments can reap the benefits of economies of scale in understanding problems that face the nation as a whole, formulating solutions, and requisitioning the goods and services necessary to implement those solutions. Although it’s ridiculous to expect every individual to safety-check their own food & medicine, or to forecast extreme weather events, national services efficiently provide those benefits to the public.
In many of these points, I’ve likened governments and centralized planning to exceptionally large and powerful corporations. This is because I view them as functionally the same, with one important difference: Governments are, at least in theory, accountable to their citizens in ways that corporations are rarely accountable to either the customers, or their employees, or even their shareholders.
This concludes my examination of the benefits of a centrally-planned economy. My previous post in this “Governing the Economy” series was “What are the major benefits of laissez-faire capitalism?” In the next post, I plan to explicitly address the weaknesses of laissez-faire capitalism.