Civil Engineering Reference
In-Depth Information
the 'visible hand' - as Rod Sweet (2002) refers to the planners and tweakers of a
command economy - leads to the need to interpret the signals of the 'invisible hand'
of the free market. In terms of the construction sector, this involves acquiring new
skills to manage time, cost and quality.
Summary: What? How? For Whom?
What
In a centrally planned economy, the collective preference and wisdom
of the central planners ultimately determines what is produced.
How
The central planners decide on the methods of production. This
means that they need to know how many resources to allocate to each
industry, many of which interrelate.
For whom
The relative rewards that people get are set by the central planners
rather than the market. Thus market forces are not all important in
determining factor rewards. There may be more opportunity to achieve
some kinds of equality.
Key Points 2.2
❍
The centrally planned (model) economy relies on government commands
rather than decentralised markets. It is also referred to as a command
economy.
❍
The key attributes of a centrally planned (model) economy are (a) the
government owns and controls most of the resources, (b) a planning
committee identifies production targets, (c) the rewards for producing are
usually set by the state rather than the market, and (d) there is a desire to
achieve the 'right' mix of output.
❍
In any centrally planned system there are problems co-ordinating the
different sectors.
❍
The difficulties of formulating and implementing the central plans have
caused many command economies to introduce the market mechanism.
THE MIXED ECONOMY
The two economic systems introduced in this chapter do not exist in a pure form.
The economic models used are simplified representations of the real world. In
practice, most economic systems are far more complex; countries are neither purely
free market nor purely planned. In the complex setting of everyday life, all nations
have a
mixed economy
. Economists do not, therefore, study systems in which the
activities of consumers and producers interact freely through a market or simply
according to government plans. Economists study systems that contain mixtures
of private decision-making and central organisation; the private decisions (being
made in response to market forces) exist alongside the centralised controls of state
legislation and economic plans.
