Planned economy

Planned economies are sometimes called "command economies" because the state commands the use of resources (such as labour and fac­tories) that are used to produce goods and services as it owns factories, land and natural resources. Planned economies are economies with a large amount of central planning and direction, when the government takes all the decisions, the government decides production and consumption. Plan­ning of this kind is obviously very difficult, very complicated to do, and the result is that there is no society, which is completely a command economy. The actual system employed varies from state to state, but command or planned economies have a number of common features.

Firstly, the state decides precisely what the nation is to produce. It usually plans five years ahead. It is the intention of the planners that there should be enough goods and services for all.

Secondly, industries are asked to comply with these plans and each industry and factory is set a production target to meet. If each factory and farm meets its target, then the state will meet its targets as set out in the five-year plans. You could think of the factory and farm targets to be objectives which, if met, allow the nation's overall aim to be reached.

A planned economy is simple to understand but not simple to operate. It does, however, have a number of advantages:

• Everyone in society receives enough goods and services to enjoy a basic standard of living.

• Nations do not waste resources duplicating production.

UNIT 4. TYPES OF ECONOMIC SYSTEMS

• The state can use its control of the economy to divert resources to
wherever it wants. As a result, it can ensure that everyone receives a
good education, proper health care or that transport is available.

Several disadvantages also exist. It is these disadvantages that have led to many nations abandoning planned economies over recent years:

• There is no incentive for individuals to work hard in planned econo­mies.

• Any profits that are made are paid to the government.

• Citizens cannot start their own businesses and so new ideas rarely come forward.

• As a result, industries in planned economies can be very inefficient.

A major problem faced by command or planned economies is that of deciding what to produce. Command economies tend to be slow when responding to changes in people's tastes and fashions. Planners are likely to under-produce some items as they cannot predict changes in demand. Equally, some products, which consumers regard as obsolete and unattrac­tive, may be overproduced. Planners are afraid to produce goods and serv­ices unless they are sure substantial amounts will be purchased. This leads to delays and queues for some products.

VOCABULARY to own - володіти

NOTES natural resources - природні ресурси

direction - керівництво to comply with - підкорятися production target - виробниче завдання objective - мета, завдання an overall aim - загальна мета basic standard of living - основний рівень життя

to duplicate production - дублювати

виробництво

to divert - відволікати

to abandon - відмовлятися

to under-produce - недовиробляти

obsolete (syn. out of date) - застарілий,

той, що вийшов із вжитку

to overproduce - перевиробляти

delays - перебої (з товарами)

queue- черга

EXERCISES I. Answer the following questions:

1. What's an economic system?

2. What does a standard of living depend on?

3. What's a planned economy? What are its main features?

4. Give the advantages of a planned economy.

5. Give the disadvantages of a planned economy.

6. What causes delays and queues for some products?

7. What can you add to the list of advantages and disadvantages of a planned economy?

II. Suggest Ukrainian equivalents:

• each factory is set a production target to meet

• to divert resources to wherever it wants

• new ideas rarely come forward

• tend to be slow when responding to changes

III. Replace the parts in italics by synonyms: obsolete products it can ensure that... it can be very inefficient

There is no incentive for individuals to work hard in planned economies. It led to many nations abandoning planned economies over recent years.

PART I. ECONOMICS

IV Fill in the gaps with the words and expression from the text.

1. The type of system chosen is____ in____, in which businesses operate.

2. An economic system is the way in which a country uses its_____ to satisfy the demands

of___ for goods and services.

3. The more goods and services that can be produced, the higher the standard of living by the country's citizens.

4. The state___ factories, land and____.

5. Planned economies are economies with_____ of___, when the government____ all___,

decides___ and___.

6. The actual system employed____ from state to state, but command or planned

economies have___.

7. It is that there should be enough goods and services for all.

8. Industries arc asked____ these plans and each industry and factory is set_____.

9. The factory and farm targets are____ which, if met, allow the nation's_____ to be

reached.

10. Nations do not waste resources____.

11. The state can use its control of the economy_____ to wherever it wants.

12. It is___ that have led to many nations____ planned economies over recent years.

13. There is no____ for individuals to work hard in planned economies.

14. Industries in planned economies can be very_____.

15. Command economies tend to____ when____ to changes in people's tastes and

fashions.

16. Planners are likely____ some items as they cannot____ changes in demand.

17 Some___ and unattractive products may be____.

18. This leads to___ for some products.

V Translate the following sentences into English.

1. При плановій економіці промисловість працює згідно з планом, в якому держава визначає виробничі завдання та планує розвиток на 5 років наперед.

2. При плановій економіці покупці не можуть впливати на виробництво товарів.

3. В умовах планової економіки стимули для ефективної роботи є незначними.

4. Промисловість часто випускає непривабливі та старомодні товари.

5. В умовах планової економіки держава може гарантувати своїм громадянам освіту та медичне обслуговування.

VI. Discussion. Express your attitude towards the following proverbs and sayings.

• A great fortune is a great slavery.

• A bargain is a bargain.

• Business before pleasure.

• Everybody's business is nobody's business.

SECTION B. Market Economy

reading MARKET ECONOMY

The best examples of this type of economy are to be found in small South-East Asian states like Hong Kong and Singapore, though even they are not pure examples of market economies. Even they contain some busi­nesses owned and run by the state.

In a true market economy the government plays no role in the manage­ment of the economy, the government does not intervene in it. The system is based on private enterprise with private ownership of the means of pro­duction and private supplies of capital, which can be defined as surplus

JNTT 4. TYPES OF ECONOMIC SYSTEMS

J- - 4-789

income available for investment in new business activities. Workers are paid wages by employers according to how skilled they are and how many firms wish to employ them. They spend their wages on the products and services they need. Consumers are willing to spend more on products and services, which are favoured. Firms producing these goods will make more profits and this will persuade more firms to produce these particular goods rather than less favoured ones.

Thus, we can see that in a market economy it is consumers who decide what is to be produced. Consumers will be willing to pay high prices for products they particularly desire. Firms, which are privately owned, see the opportunity of increased profits and produce the new fashionable and favoured products.

Such a system is, at first view, very attractive. The economy adjusts auto­matically to meet changing demands. No planners have to be employed, which allows more resources to be available for production. Firms tend to be highly competitive in such an environment. New advanced products and low prices are good ways to increase sales and profits. Since all firms are privately owned they try to make the largest profits possible. In a free market individual people are free to pursue their own interests. They can become millionaires, for example. Suppose you invent a new kind of car. You want to make money out of it in your own interests. But when you have that car produced, you are in fact moving the production possibility frontier outwards. You actually make the society better-off by creating new jobs and opportunities, even though you become a millionaire in the proc­ess, and you do it without any government help or intervention.

Not surprisingly there are also problems. Some goods would be under-purchased if the government did not provide free or subsidized supplies. Examples of this type of good and service are health and education. There are other goods and services, such as defence and policing, that are impos­sible to supply individually in response to consumer spending. Once defence or a police force is supplied to a country then everyone in this country benefits.

A cornerstone of the market system is that production alters swiftly to meet changing demands. These swift changes can, however, have serious consequences. Imagine a firm, which switches from labour-intensive pro­duction to one where new technology is employed in the factory. The resulting unemployment could lead to social as well as economic problems.

In a market economy there might be minimal control on working condi­tions and safety standards concerning products and services. It is necessary to have large-scale government intervention to pass laws to protect con­sumers and workers.

Some firms produce goods and then advertise heavily to gain sufficient sales. Besides wasting resources on advertising, firms may also duplicate one another's services. Rival firms, providing rail services, for example, could mean that two or more systems of rail are laid.

Finally, firms have to have confidence in future sales if they are to pro­duce new goods and services. At certain times they tend to lack confidence and cut back on production and the development of new ideas. This deci­sion, when taken by many firms, can lead to a recession. A recession

PART I. ECONOMICS

means less spending, fewer jobs and a decline in the prosperity of the nation.

to make the society better-off-робити суспільство заможнішим to create new jobs- створювати нові робочі місця to underpurchase (ant. to overpurchase)- недостатньо розкуповувати free or subsidized supplies- безкоштовне або субсидоване надання (товарів, послуг) cornerstone- наріжний камінь to alter swiftly- швидко змінюватися consequences- наслідки labour-intensive production- трудомістке виробництво working conditions- умови праці safety standards- норми техніки безпеки large-scale intervention- широкомасштабне втручання to pass laws- приймати закони to gain sufficient sales- домагатися достатнього обсягу продажу rival firms- фірми-конкуренти, суперники

VOCABULARY to run (syn. to manage, to operate) busi-

NOTES nesses - керувати бізнесом

to intervene - втручатися

private enterprise (syn. entrepreneurship)

- приватне підприємництво

private ownership (syn. property) -

приватна власність

public property, common ownership -

громадська власність

personal property - особиста власність

state-owned property, state ownership -

державна власність

private supplies of capital - приватний

капітал

surplus income - додатковий дохід

to persuade - переконувати

to adjust - пристосовувати, приводити у

відповідність

competitive - конкурентоздатний

to pursue one's own interests - дбати про

свої інтереси

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