A command economy is an economic system in which the government has central authority over investments, production, distribution, and allocation of resources. It is somewhat similar to a planned economy and the specific centrally planned economic system. However, public ownership of major industries and sectors is also central to a command economic system.
It is also important to note that this economic system is in stark contrast with market economic systems. Nevertheless, those who promote its advantages have argued that giving the government full control can ensure the fair distribution of goods and services. What exactly are the specific characteristics of a command economy?
The Key Characteristics of a Command Economy
• Rigid Leadership: The dominant leadership principles and overall governance philosophy under this economic system are similar to the major characteristics of transactional leadership and authoritarian leadership. The power to determine and implement the direction of the economy is concentrated in the central government with minimal room for participation and feedback.
• Top-Down Structure: Another key characteristic of a command economy is that it is organized in a top-down administrative model in which macroeconomic and even microeconomic decisions take place at the top with little to zero inputs from lower levels. True to the transactional and authoritarian leadership in this economic system, the structure follows a classic chain of command linear hierarchy.
• Government Control: Furthermore, considering the prevailing rigid leadership principles and the top-down structure, it is also important to note that in this economic system, the government specifically controls production goals and levels, distribution quotas, prices and wages, resource utilization and allocation, trends or patterns in consumption, and the capabilities of the labor force.
• Central Economic Plan: Similar to a planned economy, this economic system is characterized by a government developing and implementing a central economic-wide plan that includes macroeconomic and microeconomic goals and objectives, specific investment directions, production and distribution targets based on output requirements, and allocation and utilization of economic resources.
• Public Ownership: Remember that public ownership is a defining characteristic of a command economy. The public, which is represented by the government, owns the means of production such as natural resources and raw materials, the capital, tools and machinery, as well as major industries and sectors or the firms under these major industries and sectors. Private property rights are limited.