Failure of centrally planned economies

Experimental visualization of narrower problems

Centrally planned economies have failed. Centralized national economies structurally lead to shortages in every sector. The combination of detailed central production and resource allocation plans result in permanent and chronic imbalances between sectors. In fact, the task of detailed central planning is too large to do and results in no effective coordination between sectors or even products. This imbalance causes factories to produce inputs they cannot get from the outside making them less efficient. Massive numbers of personal are required to do repairs rather than production. In some cases managers are known to send perfectly good machines to be repaired because repairs are part of the central plan. Unneeded goods produced as a result of unrealistically high production goals pile up in warehouses. In retail shops inventories for one item may exceed quarterly turnover and for another item may always be short.

Problem Type:
C: Cross-sectoral problems
Related UN Sustainable Development Goals:
GOAL 8: Decent Work and Economic GrowthGOAL 16: Peace and Justice Strong Institutions
Date of last update
10.07.2019 – 17:38 CEST