Central planning (Soviet-type command economy)

In a command economy the main decisions about what to produce, with which inputs, and for whom are made by a planning hierarchy, not by market prices. A central planning agency (in the USSR, Gosplan) drew up five-year and annual plans; ministries broke them down into targets for enterprises; inputs were allocated by "material balances" that matched planned supplies of each good to planned uses. Prices were set administratively and served mainly for accounting.

• State ownership of almost all industry, and collectivised or state farms.
• Quantity targets for enterprises, with bonuses for meeting the plan.
• Administrative allocation of materials, equipment, credit and labour quotas.
• Fixed prices and a passive monetary system in which credit followed the plan.
• Soft budget constraints: loss-making enterprises were covered rather than closed.
• A party-state that appointed managers (the nomenklatura) and suppressed independent unions and opposition.

Supporters from Marx onwards expected conscious planning to eliminate the waste and instability of markets. The socialist calculation debate (Mises, Hayek, Lange) questioned whether planners could obtain and process the information needed without market prices. Kornai argued that the system's typical features follow from its political and ownership structure: paternalistic soft budget constraints produce insatiable demand for inputs and chronic shortage. Archival research by Gregory and Harrison (2005) shows that Stalin's planners and dictator faced severe information problems and principal-agent conflicts, and that allocation was shaped by bargaining and political priorities rather than by an optimal plan.

• The USSR from the first Five-Year Plan (1928) to 1991.
• Eastern European states after 1945–48, with reforms in Hungary (1968 New Economic Mechanism) and elsewhere.
• China from the 1950s until reform began in 1978; North Korea; Cuba.
• Proposals to computerise planning: the Soviet OGAS network and Chile's Project Cybersyn.

Beyond inefficiency, central planning was implemented through coercion: Soviet collectivisation was accompanied by mass deportations and the famine of 1932–33, and forced labour in the Gulag supplied parts of the plan. Shortages, queues, low-quality goods and hidden inflation were chronic. Defenders point to rapid industrialisation, full employment, mass literacy and the wartime production of the USSR.

The Soviet economy grew fast in the 1930s and 1950s by mobilising labour and capital, then slowed from the 1970s. No country that used comprehensive central planning kept it after 1991; China, Vietnam and Laos moved to market coordination under one-party rule. Whether modern computing could overcome planning's information problems is a live hypothesis but untested at scale.