Examples of countries that operated under a centrally planned economic system during the 20th century include the Soviet Union, East Germany, and various other nations in eastern Europe. These systems were prominent in these regions until the collapse of Communist Party rule around the early 1990s.

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A centrally planned economic system is one where private firms and markets play a minor role. In this system, the government is the main institution that owns the capital goods, controls the production process, and makes decisions on how goods are to be distributed and to whom.

Planned Economy

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

Examples of Planned Economies

Examples of Centrally Planned Economies in the 20th Century

Following World War II, under Soviet occupation, East Germany transitioned to a centrally planned economy, replacing the previous war economy. This system involved the elimination of pre-war capitalist structures like private property, markets, and private firms. All economic decision-making, such as what and how to produce, was transferred from private individuals to government officials. Consequently, state-managed enterprises were no longer driven by the capitalist principle of generating profit by satisfying consumer demand.

Implementation of Central Planning in East Germany

A primary reason for the abandonment of central planning as an economic system was its demonstrated failure to match the improvements in living standards delivered by some capitalist economies. The case of East Germany, which lagged significantly behind its capitalist counterpart, West Germany, serves as a key illustration of this inability.

Failure of Central Planning to Improve Living Standards

During the Second World War, central planning was an economic strategy adopted by a wide array of governments. This included its implementation by the fascist governments in Germany and Japan, the communist authorities in the Soviet Union, and the governments in Great Britain and the United States.

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