What is a Centrally Planned Economy?

When you talk about a planned economy, socialism is usually the first thing that comes up, and with good reason. It’s both the most disliked and most controversial economic system out there.

Socialism is referred to as a centrally planned economy. In short, the government runs every aspect of the economy, from the stock market to the poor man’s paycheck. Now, don’t make a mistake here: A planned market economy differs from a command planned economy. Most people will throw the historical economy of the Soviet Union in the same category as present-day China, and they are slightly different.

The Soviet Union, until its collapse in the 1980’s, had what is referred to as a command planned economy. It was exactly what it sounds like: the state controlled absolutely everything, from who could sell what to who could buy what and for how much and how many of said item they could purchase. Now, another thing you can’t screw up: Most people mistakenly believe that Communism and Socialism are the same thing; they aren’t. Communism is the governmental system, Socialism is the economical system. Many times Communist governments will have socialist economies, but they aren’t the same.

On the other hand, countries like China have a socialist market economy. Basically, the socialist market economy is an attempt at a cross between a market economy (like we have in the US) and a planned economy. On a macro (large-scale) level, everything is government controlled: Lending, the opening of businesses, and a handful of industries stay under state control (in China, it’s aviation, electric and oil power, telecommunications, shipping, and weaponry). Then, everything else is in the private sector. You have to jump through all kinds of state regulations and hoops in this economy, and it’s very difficult to run something in the private sector, but a private sector exists, unlike in a command economy.