What Is an Example of a Command Economy Today?

A command economy represents an economic system where a central authority, typically the government, makes all significant decisions regarding production and distribution. This framework contrasts sharply with market economies where supply and demand primarily determine economic activity. In a command economy, the government controls the means of production and allocates resources according to its established plans. This centralized approach aims to achieve specific societal goals rather than individual profit maximization.

Defining a Command Economy

A command economy, also known as a planned economy, is characterized by governmental control over economic activity. The central government owns and controls the means of production, including land and factories. Private ownership of productive assets is either severely limited or nonexistent. These assets are publicly owned to serve collective objectives.

Central planners within the government set production levels, determine prices, and dictate the distribution of goods and services. Comprehensive planning, often through multi-year plans, allocates resources and guides economic development. The government decides what goods are produced, how much, and for whom, aiming to meet national economic goals.

Market forces, such as supply and demand, play a minimal role in a command economy. Prices are set by central planners, primarily to reconcile demand with available supply, rather than to signal production adjustments to independent producers. Competition among businesses is absent or highly restricted, as the state operates monopolies in major industries. This system aims to ensure the availability of essential goods and services to all citizens, emphasizing social welfare over individual economic freedom.

Current Global Examples

While pure command economies are rare today, several countries exhibit significant characteristics of this economic model. These nations maintain strong central governmental control over their economies, even if they have introduced some market elements. The degree of state intervention and control over production and distribution varies among them.

North Korea stands as perhaps the most extreme example of a command economy in operation today. Its economic system is centrally planned, with the state controlling virtually all means of production and distribution. The government sets economic priorities and dictates the output of industries.

Cuba also operates as a planned economy, with state-run enterprises dominating its economic landscape. The Communist Party maintains substantial control over economic decisions, reflecting a strong adherence to central planning. While some limited private sector activity has emerged, the government retains significant influence.

Venezuela represents another country exhibiting strong command economy characteristics, particularly through extensive state intervention and nationalization of key industries. The government has significantly increased its control over various sectors, influencing production and distribution. This approach has led to a highly centralized economic structure, though it faces severe economic challenges.

Characteristics in Practice

In North Korea, the government’s State Planning Commission outlines economic development plans. Economic policy, implemented through national economic plans, consistently prioritizes heavy industries and national defense. The state determines production levels and prices for goods, ensuring centralized control over the entire economic cycle. The North Korean won serves as the official currency, and the Central Bank manages national revenues.

The government largely uses a public distribution system to provide food and basic necessities to its population. Despite rigid control, informal market activities, known as “Jangmadang,” have grown in North Korea, especially since the 1990s when the public distribution system struggled. These informal markets have become a reality for citizens seeking to supplement their needs. However, the government has recently reasserted tighter control, particularly over food sales, shifting back towards a state-run monopoly. Despite some minor reforms, the overall economic framework remains highly centralized.

Cuba’s economy is dominated by state-run enterprises, with the government owning nearly all businesses and land across the island. The Communist Party of Cuba exerts significant influence, making all major decisions regarding what is produced and how it is distributed. Central planning is considered a key element of the economy, dictating production targets and resource allocation to achieve national objectives. The state budget plays an important role in maintaining this system, often providing subsidies to state-owned enterprises that might otherwise be unprofitable, ensuring goods are available at prices the population can afford. This centralized decision-making influences consumer choices and investment opportunities.

While the public sector remains the primary employer, Cuba has seen some limited economic liberalization. Worker cooperatives and self-employment have been encouraged, and limited private property rights legalized. However, the government retains the power to control prices even within this nascent private sector, demonstrating its continued oversight. Essential goods and services, including healthcare and education, are subsidized, and a significant portion of the food supply is rationed, highlighting the government’s direct role in distribution.

Venezuela’s economic model has shifted towards state control, largely through nationalization of private industries. Key sectors such as oil, agriculture, electricity, water, and even banks and supermarkets have been brought under government ownership or strong influence. The state oil company, Petróleos de Venezuela, S.A. (PDVSA), oversees the vast energy sector, which historically accounts for the majority of the nation’s export earnings and government revenue.

The government has implemented price controls and foreign currency control schemes. These policies dictate exchange rates and limit access to foreign currency, affecting imports and business operations. However, state intervention, coupled with mismanagement, has contributed to severe economic contraction, hyperinflation, and widespread shortages of basic goods. While the current regime has recently explored selective privatization of state-owned enterprises to attract much-needed private capital, the elements of state control over major industries and economic decision-making remain prominent.