Advantages and Disadvantages of Planned Economy

Planned economy is a economy where all the decisions relating to production and investment which are to done by various sections of society like individuals, companies etc…, are taken by the government and therefore citizens of the country do not have a choice, they have to do what government decides for them.

To understand planned economy better you have to go back in your past when you were a kid, all the decisions with regards to you were taken by your parents, in the same way in planned economy government takes the role of a parent and all citizens of a country become their kid. Given below are some of the advantages and disadvantages of planned economy –


  1. Since government has control over all factors of production the chances of monopoly happening are next to nil under planned economy.
  2. It may help in reducing the gap between poor and rich because all government policies are designed to bring social equality which may sometimes lead to dictatorship sort of environment.


  1. It leads to destruction of entrepreneurs and innovators which in turn leads to lower productivity and also lower growth for a country.
  2. This system leads to dissent among the citizens as the basic right of human being which free will is challenged under this system and therefore eventually this system may lead to revolution by the citizens of the country against the government.
  3. This system suffers from government bureaucracy, delay in decision making on the part of government officials bottlenecks in production and inefficient use of resources.


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