List of the Disadvantages of a Centrally Planned Economy

1. There are high levels of inefficiency in a centrally planned economy.
Because there is no motive for profit thanks to the price-setting schemes of the state in a centrally planned economy, there is no reason for the companies that produce goods to become more efficient in their processes. That means it typically costs more to create inferior items compared to privately-owned companies in a free market system or one that is mixed. This disadvantage results in a lower quality of life for the average household since they have no choice in what they can purchase. There is almost always one item, supplied by the government, and that is what you use – whether you like it or not.

2. You will still find a lot of waste in this system.
Although a centrally planned economy does work hard to eliminate financial waste and duplication from their system, it does not do a good job of reducing the amount of productivity waste that occurs. There is a lot of time that could be used more efficiently in this type of economy because government officials must always stay in communication with each business to ensure that all instructions are accurately followed. There is a labor and monetary concern with this disadvantage as well, since people relaying state-based orders are not actually creating something with that activity.

3. Consumers receive a complete lack of choice throughout their society.
There is virtually zero entrepreneurialism to find in a centrally planned economy because everything is run by the state. Even if you have a fantastic idea to improve a product or service, the government will control the business you might want to start. You aren’t even guaranteed a position in your company if the state allows you to pursue the idea that you have. Consumers in this system can only choose the goods and services that the government decides is appropriate for society. Anything that falls outside of that perspective could even be illegal.

4. Most centrally planned economies restrict individual rights.
The goal of a centrally planned economy is to have everyone working toward a common goal and vision that the government decides. People are not usually free to pursue their own interests in this structure. Even when the state gives its permission to engage in non-traditional activities, that right can be revoked at any time. You are given employment in the sector where the state-owned businesses require the most help. If there is a shortage of farmers in a region, then that is what your career will be until another decision is made about the employment options which benefit the state.

5. You cannot oppose the decisions made by a centrally planned economy.
Because the government is in charge of the decisions in a centrally planned economy, there is rarely any permission to offer opposition to an idea. Only when the state authorizes such an activity will a dissenting idea be entertained. Even when it is, the results are intended to provide a benefit to the government in some way, such as letting the rest of the world see that their society can be tolerant of differing ideas.

It is not an understatement to say that the government in a centrally planned economy has absolute rule over society. Anything can be outlawed at a moment’s notice. The value of the currency is dictated by the policies set at the legislative level. If you step outside of this structure (even if your idea has merit), then there is a chance that you could face house arrest, jail time, or worse.

6. The government does not openly communicate with its people.
When a centrally planned economy is the structure of a country, then the state controls the message that receives distribution to reach the people. No one accesses the information provided by the outside world unless there is permission from the government to do so. The only data that families receive comes straight from those who manufacture it. That is why populations in this system often feel like they are better off than those who live in a mixed or free market economy. They are so used to being told what to do, say, or think that there is no recognition that the government could be wrong.

7. It is a structure that can encourage violence in society.
Because a centrally planned economy authorizes whatever opposition receives publicity, the only way the people feel like they can make their opinions count is to resort to violent conduct. It is not unusual to see actions that the rest of the world would classify as terrorism in this system. Even the rhetoric offered in this economy becomes a tool that is useful in the destabilization efforts of the people.

The response to this violent conduct is to institute secret police agencies and other law enforcement tools that criminalize political dissent. This structure helps to maintain control within the government, but it also locks down society to the point where the people feel like they can barely breathe.

8. There are earning caps in place for workers.
When you live in a centrally planned economy, then there is an excellent chance that you may not receive any income at all. Instead of earning a paycheck each month, your labor provides you with the provisions needed for yourself and your household until the next distribution period occurs. If you do receive currency in exchange for your work, then there is usually an income cap placed on what you can earn. Should you miss your production quota for the period, the state often reserves the right to restrict how many supplies you receive. That makes it easier for the government to keep asking more of its people while providing them with only the bare essentials to squeak by each day.

9. Poverty levels typically rise in a centrally planned economy.
The goal of a centrally planned economy might be to lift up everyone equally throughout the nation, but it is typically a reverse outcome which occurs. The structures of this system drive down the value of one’s work to the point where most households live in poverty. Because there is only one level of supervision with 100% authority to make decisions on a whim, there is no way to change this spiral unless those in oversight have the compassion to do so. That is why this system looks great on paper with regards to the equality it can provide, but everyone living in poverty is hardly the same as allowing each person to stand on their merit, talents, and work ethic.

10. A centrally planned economy may not let you save any money.
The idea behind a centrally planned economy is that all wealth belongs to the government. If you are given permission to be responsible for it, then you might see an improvement in your living conditions. If not, then you won’t. The issue here is that everything that you “own” in this system actually belongs to the government in the first place. You are not given permission to inherit anything because there is nothing available for you to give. Even your family is technically the property of the state since it can tell you where to work or live. It is a system that isn’t classified as slavery, but it is one that could be based on how the implementation of the economy occurs.

11. Employment is not meaningful in this system.
When you are working in a centrally planned economy, then you are essentially a laborer who earns a paycheck that you will never get to invest. Most systems will give you enough currency to provide for yourself and maybe a couple of luxuries. The rest goes toward the inefficient systems that are producing the goods and services that you are required to use. Because every position is based on community need, most individuals are following a career path that is not reflective of who they are as a person. It is not unusual for households to give up working since the benefits of receiving a basic stipend are only slightly worse than the small extras you can earn by being a productive member of society.

Conclusion of the Advantages and Disadvantages of a Centrally Planned Economy

What sets a centrally planned economy apart from the other options that are available for production and distribution is that the government needs to make all of the decisions. It is a system which makes the assumption that the needs of the nation are not being met by market forces. The state then takes over all areas of decision-making within the economy to provide what it feels are the essential products and services that make life possible.

The pros and cons of a centrally planned economy show us that even though the government makes the economic decisions, it may not be a positive choice. You have no choice in what goods are produced, or how the production process will occur. There are more employment options, but there are also fewer choices available for individual careers. It is a system which promotes equality by providing the lowest-quality items to everyone while hoarding resources for itself.