Chapter 2 Section 3: Central Planning

Objectives:

• We will examine how a centrally planned economy is organized.

• We will distinguish between socialism and communism.

• We will analyze the use of central planning and its disadvantages by examining its history in the Soviet Union and China.

• (Act 20:35) I have shewed you

all things, how that so labouring

ye ought to support the weak,

and to remember the words of

the Lord Jesus, how he said, It is

more blessed to give than to

receive.

How Central Planning Works: • In a centrally planned economy, the government

rather than individual producers and consumers, answer key economic questions.

• A central bureaucracy decides what items to produce, how to produce them, and who gets them.

• The government directs workers to produce a certain number of trucks, so many yards of cotton fabric, and so on.

• Farmers are told what to plant and where to send their crops.

How Central Planning Works:

• Command economies oppose

private property, free market

pricing, competition, and

consumer choice.

• Free market forces of self-interest

and competition are absent..

Socialism and Communism. • Socialism is not a single economic system.

• Rather, the term describes a range of economic and political systems based on the belief that wealth should be evenly distributed throughout society.

• Economic equity can exist only if the centers of economic power are controlled by the government, or by the public as a whole, rather than by individuals or corporations.

Socialism and Communism.

• In some places like Sweden,

socialism coexists with free

market practices.

• Under this market socialism,

government uses its power of

taxation to redistribute wealth

and provide extensive services.

Communism.

• Socialism gave rise to Communism. Communism is where the central government owns and controls all resources and means of production and makes all economic decisions.

• The belief is based on Karl Marx who thought under capitalism, profit created by the labor of workers would always end up to the Capitalists such as factory owners.

Communism.

• Communist governments have always been authoritarian.

• Governments limit individual freedoms and require strict obedience from their citizens.

• Every Communist nation had been dominated by a single dictator or political party.

Discussion Question

• What is Communism? Activity.

• Need Six volunteers as (Workers)

• Need one person to distribute the wealth.

Two Communist Economies:

• The Soviet Union.

• It formed in 1917 after the overthrow of the Russian government.

• It was the world’s first communist state.

• Soviet Economic planners sought to build national power and prestige and diverted the best land, labor and capital to the armed forces and heavy industry.

Two Communist Economies: • Heavy industry requires large capital

investment and produces goods and such as chemicals or steel used in other industries.

• The decision to favor heavy industry had a harsh effect on factories that made consumer goods.

• They were stuck with leftover lower-quality resources.

• As a result, the goods available to consumers were few in number and poorly made, shortages were common.

Two Communist Economies: • China: China also adopted central

planning as result of Communist revolution.

• At first the Communist government allowed some farmland to remain in private hands while it focused on building industry.

• The government tried to build small factories to produce goods to be sold in nearby areas.

• But these goods were expensive to make and of very poor quality.

Two Communist Economies: • In the 1950s, the government forced many

peasants onto farming communes.

• Within a few years, farm production dropped sharply.

• Facing shortages, the government eased its control over decisions made by workers on the communes.

• They also sent many factory workers to work on farms.

• The food crisis was solved, but China’s economy continued to stumble.

Two Communist Economies: • Chinese leaders in the 1970s gave

farmers a chance to own more land and offered bonuses to factory managers for making better quality products.

• As a result China’s economy began to grow.

• The Chinese government still owns firms in major industries.

• Government planners control many key economic decisions.

• Still, China allows entrepreneurs far more economic freedoms than in the past and China is an economic power.

Disadvantages of Centrally Planned Economies:

o (1) Economic Efficiency:

o Centrally planned economy, the government owns all production factors.

o Since the government fix wages, workers lack the incentive to work faster or produce more.

o Also is inflexible to consumer demands and changing economic conditions.

Disadvantages of Centrally Planned Economies:

• (2) Economic Freedom:

• Sacrifice individual freedoms to

pursue the goals of society.

• Discourages competition and

takes most of all economic

choices away from producers and

consumers.

Disadvantages of Centrally Planned Economies:

• (3) Economic Growth:

• Command economies do not

reward innovation, in fact they

discourage change.

Disadvantages of Centrally Planned Economies:

• (4) Economic Equity.

• In theory Communism seeks to redistribute equity to the population however in practice the government and government officials enjoy higher incomes rather than the people.

• (5) Additional Goals.

• It has successfully met some goals.

• It can guarantee jobs and income.

• (Act 2:4) And they were all filled with the Holy Ghost, and began to speak with other tongues, as the Spirit gave them utterance.

• “And all that believed were together, and had all things common; And sold their possessions and goods, and parted them to all men, as every man had need. And they, continuing daily with one accord in the temple, and breaking bread from house to house, did eat their meat with gladness and singleness of heart,” Acts 2:44-46.

Discussion Question

• Do you think Communism can work today?