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Central Planning is practiced in most of the famous Communist or Socialistic governments in the world. It is an antithesis to the capitalistic economy. In Central Planning the planning for all the economic processes for the entire nation is done centrally by the government.
Generally, capitalism is considered to be a purely economic thing, with no political system attached to it. But in the case of central planning, there are strong associations with the political system of the country. They are prevalent in the case of socialistic and communist government scenarios.
Example from China
The health care system of China was totally based on the central planning. The central government was the one which used to take all the necessary steps for China’s Healthcare market. But now the scenario has totally changed. It is now getting dissolved, leading it to form smaller sectors that are taking care. This is because of the health insurances that are coming up in a great way.
Soviet Union’s Case
In the case of the Soviet Union, one has to know that it was the one which started this central planning in the year 1917. There were two things started by Vladimir Lenin that was called as the War Communism and the New Economic Policy.
The former was to eradicate all the money and stop the production and take control of the peasant crops, but it could not sustain due to Gosplan. It was Gosplan that started off with forecasts for five years. It became a centrally planned scheme to overcome the issues faced. It was a good way for them to maintain the balance.
Reasons for failure of central planning
There are a number of reasons due to which the central planning failed. It can be due to inefficient resources, the present prices not considering the supply and demand of the product, improper execution and inefficient administration of the plans laid down.
Secondary economies make important aspects of the central planning. This is applicable in the case of lesser choice available and also the quality issues. This is when the consumers are forced to get into things like black market, corruption or moonlighting.
This is in order to get what they were in need of. Secondary economies do the job of deviating from the normal of the central planning. The government is not bothered by the demand and supply in case of central planning. Hence, it would be very much easy for the black market to function in case of the centrally planned system economy.