In a socialist or planned economy, the government regulates and controls all areas of production and investment. There are many different types of socialist systems but a planned economy embodies the dominant qualities of socialism. The state government makes the authoritative decisions regarding the allocation of resources and revenue, production, and the utilization of natural resources. Government-certified planners are next in command, who monitor the labour class. A planned economy can be either decentralized or centralized but in most cases, it refers to a centrally planned economy.
The objective of centrally planned economies (or command economies) is to utilize economic resources in order to obtain more information and make better decisions about the economy. With socialism, laws are implemented to benefit the economy as a whole, which limits the power of the individual.
In socialist economies, equal opportunity is emphasized in order to promote social welfare, which is seen one of the main motives in socialist or planned economies. An individual has limited ownership over private property so that no individual can own a larger amount of property compared to others. The objective of central planning is to make decisions about production, factor prices, distribution, and consumption based on how it will be most beneficial to social welfare.
This type of economic system creates the threat of limited technological advancement. Since production processes have to be regulated and kept at an equal level, it would be difficult to implement a new innovation because training for all the workers would be required.
Socialism/planned economies are opposite to capitalist societies because the economy is controlled entirely by the government/state authority and the amount of capital an individual has is restricted.
1. Encyclopedia of Marxism. Retrieved from www.marxists.org/glossary/terms/c/o.htm