What are some of the benefits and pitfalls of China’s planned economy
What are some of the benefits and pitfalls of China’s planned economy?
The “Two Sessions” — National People’s Congress (NPC) & Chinese People’s Political Consultative Conference (CPPCC) National Committee annual sessions — were recently concluded. The 14th Five-Year Plan was established during the sessions, which include the topics of ending poverty and developing China’s economic leadership on a global scale.
Based on what we’ve learned recently in class about command economy and Chinese leadership, what are some of the pros and cons of employing this kind of plan? With some brief research on the Five-Year Plan, which period do you think China’s economy was the most fostered by the plan? What about the least fostered period?
Advantages and Disadvantages
Benefits of the command economy
- Reduce inequality
The government controls the means of production in the planned economy, so it determines who works where and at what wages.
- Low unemployment
Unlike a planned economy in which the invisible hands of the free market cannot be manipulated by a single company or individual, a planned economy government can set wages and jobs to create a seemingly appropriate unemployment rate and wage distribution.
- Common interest first
Profit incentives promote most business decisions in a free market economy, but this is not a factor in a planned economy. Therefore, the planned economy government can adjust its products and services to benefit the public, regardless of its profit or loss.
Disadvantages of the planned economy
- Lack of competition hinders innovation
Critics argue that the fundamental lack of competition in a planned economy will hinder innovation and keep consumer prices at the best level. Those profit-oriented private companies have been criticized by those who support government control, but it is undeniable that profit is the motivation and promotes innovation. For this reason, at least in part, many advances in medicine and technology have come from countries with free-market economies, such as the United States and Japan.
- Low efficiency
If the government monopolizes and controls all aspects of the country’s economy, efficiency will also decrease. Due to the nature of competition, private companies in a free market economy need to minimize bureaucratic formalism and minimize operating and management costs.
