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7 Signs Your Country Is a Command Economy and Might Be Headed for Communism

Greg de la Cruz works at NCR Corp's R&D center in the Philippines and is the author of two published titles on Amazon.

Vladimir Putin's grandfather was a personal cook to Vladimir Lenin and Joseph Stalin, who were two early proponents of the command economy. While Russia has long embraced the free market, it has lingering symptoms of a command economy.

Vladimir Putin's grandfather was a personal cook to Vladimir Lenin and Joseph Stalin, who were two early proponents of the command economy. While Russia has long embraced the free market, it has lingering symptoms of a command economy.

What Is a Command Economy?

As early as 1917, Vladimir Lenin under the now defunct Union of Soviet Socialist Republics (USSR) created the first communist command economy. While command economies have been closely associated with communist governments, either one’s existence in a country is mutually exclusive. This means that a country with a command economy doesn’t have to be considered as communist. That said, command economy is “an umbrella term for any controlled economic system,” says a 2021 Robinhood article.

Strictly speaking, a command economy, according to Somer Anderson of Investopedia “is a key aspect of a political system in which a central government authority dictates the levels of production that are permissible and the prices that may be charged for goods and services.”

A command economy has many telltale symptoms, and it is perhaps both lazy and convenient to say that any country allied with Russia has some indication of being a command economy. This is untrue and falls in the realm of generalization, and probably discrimination; as it’s easy to label a country like China for having a command economy in spite of its great progress in embracing the free market.

But how would you know if your country is falling into, or borderline becoming a command economy? Are there signals pointing to an inevitable transformation of your own country from free market into controlled market? Here are seven signs your country might already be a command economy, and could be heading down the path to communism.

1. Restraint on Independent Media

We saw how Russia’s last independent TV channel was shut down by state authorities amidst an ongoing attack by Russian forces on Ukraine. TV Rain, which was often critical of the Kremlin aired its final broadcast as staffers were escaping their own studio after finding out that special forces were going to storm the building.

In a Wall Street Journal’s podcast episode entitled “Russia’s Media Crackdown: The Future is Pretty Dark,” Russian journalist Tikhon Dzyadko says, “I think now the future is pretty dark. Normal, independent journalism is almost dead. But I’m still hoping that one day it will survive.”

In a command economy, it’s key for the government to funnel news and information into one, or variants of the same source. In free markets, you would never see the degree to which independent journalism is restrained. In the Philippines, for example, during President Duterte’s term Filipinos have seen media companies Rappler and ABS-CBN shut down directly or indirectly (by non-renewal of franchise); and one can’t simply say that it was all a coincidence that these two media outlets were often critical of the administration.

The restraint that independent, or even seemingly anti-administration media experiences is an indicator that a country’s economy might be leaning away from free market ideologies.

2. Limited or Nonexistent Ownership of Private Land

While China has made strides in recent decades to empower citizens to own private property, its Constitution provides that land in cities is owned by the State—as well as land in rural and suburban areas. People in China cannot privately own land, however, they may obtain transferable and-use rights for a number of years under some sort of usufruct agreement.

A usufruct is the right of enjoying a thing, the property of which is vested in another, and to draw from the same all the profit, utility, and advantage which it may produce, provided it be without altering the substance of the thing (Black’s Law Dictionary).

Art. 117 of the Property Rights Law provides that the land-use right entitled to a person is a usufructuary right that allows him to legally possess, use, and benefit from the property owned by another.

By contrast, in free markets such as the United States and the Philippines, people are allowed more property rights than to simply use a property, the latter being just one component of the right ownership. Ownership includes the right of possession, control, exclusion, disposition, and to derive income from the owned property.

In a command economy, where economic planning is highly centralized, it would make total sense for the government to have the complete say on what to do with the property—whether it be used for industry, housing, etc.—and not have citizens decide; citizens who, if they owned the property, would have all the right not to be disturbed nor dictated upon.

3. Less Participation by Private Sector on Economic Planning

In contrast with the United States’ Department of Commerce, China’s CCP (Chinese Communist Party) has zero-to-nil participation of the private sector. Where I’m from, the Philippines, economic planning and strategy is mainly devolved into the National Economic Development Authority (NEDA). The latter’s membership consists of secretaries of various departments—the Department of Energy, Dept. of Finance, Transportation, the Central Bank, etc. You can glean from the Philippines’ economic planning agency that there isn’t much private sector participation/interference, but then the monetary board of central bank (BSP) is mainly composed of seasoned executives or experts coming from the private sector.

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What’s the big deal anyway, if a government doesn’t involve people from the private sector?

The government would be prone to an information vacuum, and this is when there isn’t a clear consensus around a certain issue. In a command economy, the government decides how much of which goods and services should be supplied; setting targets that public and private companies must get to. But if the inputs and feedback coming from private companies are either shut out or shoved aside, then the information vacuum could produce an outcome where there’s a huge gap between what’s planned versus what’s actually needed.

4. Ownership by Government of Many Monopolies

I was shocked to find out from a CGTN (China Global Television Network) video that there are more than 150,000 state-owned enterprises, or SOEs. Granted, not too many of these companies monopolize a certain industry, but you’d be surprised to see in any free-market country the existence of more than a hundred state-owned companies.

The ownership by the government of certain businesses, especially monopolies (usually energy, water, and transportation) allow it to have so much control over particular industries, and helps prevent the interference of foreign powers. Imagine if the United States had favorable ownership of big banks in China, or even a chunk of its energy sector? The U.S. could leverage its ownership and demand almost anything.

In free markets, there is a tendency for the government to privatize what it can, offloading liability when needed, and foster more competition. Monopolies are generally not good for citizens because the lack of competition can lead these companies who own an entire industry to set very high prices, just because they can. Market competition almost automatically means lower prices, hence is more consumer-friendly (except when there’s collusion).

In China, SOEs account for 25% of the entire economy, and they “occupy many of the commanding heights of the economy,” writes Nicholas Borst for The Interpreter, and are “dominant in key industries, including aviation, finance, telecoms and transportation.”

5. Authoritarian Leadership and Culture

Just because your President or Prime Minister fosters an authoritarian culture, doesn’t mean he’s driving your country into a command economy. Donald Trump, for example, was highly marketable as a candidate for his authoritarian tone, and it did show in his presidency that he cared less for the way he spoke to the press, even if it was at times perceived as being authoritarian. But during his tenure, the Tax Cuts and Jobs Act (TCJA) simplified the tax levied to corporations, from being a tiered 15-39 percent to a flat 21 percent, at the same time reducing or eliminating deductions and credits. Allowing enterprises more freedom and lessening burden is akin to a free market economy, where governments want businesses to thrive on their own.

But when it comes to looking at examples around the world with command economies and the leaders representing each, it’s fairly easy to spot authoritarians at one glance. North Korea would be the most obvious example, with the authoritarian regimes of Kim Il-Sung, Kim Jong-Il, and Kim Jong-Un being a command economy on its face. While North Korea has exerted some efforts in being more of a mixed economy, it has long way to go due to its socialist roots.

In 2000, Samsung invested $730,000 in Pyongyang’s top computer lab, but only for the former to quit its business after finding out that the lab contributed to North Korea’s weapons program. By 2010, Samsung completely cut ties with North Korea, following the sinking of a South Korean warship.

The war between the North and South Koreas may be a novel issue on their own, but other examples of authoritarian leadership within a command economy are Vladimir Putin for Russia, and in some ways Xi Jinping for China who holds a delicate balance of pleasing foreign investors and appeasing the CCP.

Authoritarian leadership is almost a given in any command economy, and it could be a very scary sign when a highly democratic country elects an authoritarian president, that the country might veer away from being a free market.

6. Frequency of Shortages and Gluts

“Efficiency is also compromised when the government acts as a monolith,” writes Greg Depersio for Investopedia, “controlling every aspect of a country’s economy.” He adds that “production in command economies is notoriously inefficient as the government feels no pressure from competitors or price-conscious consumers to cut costs or streamline operations.”

Not only do command economies operate in an information vacuum, as mentioned earlier, but they’re also not incentivized to operate more efficiently.

You could argue that China’s transition in the 90’s to a mixed economy contributed greatly to it eventually becoming an economic powerhouse. Getting that accountability from free market competition and operating in a just-in-time­ fashion made it more efficient as an economy.

“Shortages are quite common in command economies,” writes James Chen for Investopedia, “this is where the government will not allow the free market to dictate the price of a commodity or service based on the forces of supply/demand. When this happens, an artificially high number of people may decide to purchase that item because of the low price.”

During the notorious Marcos regime of the Philippines, one of Marcos’ cronies in the Visayas region produced a shortage in a commodity due to hoarding. Anticipating that the price of sugar will increase, he created a massive surplus of the commodity, leading to widespread hunger in the local populace and a massive loss to the government because the sugar had to be sold at far lower price.

7. Overly Bureaucratic

A bureaucracy is a system of government in which the most important decisions are made by state officials rather than by elected representatives (Oxford Dictionary). Bureaucratic structures are fairly common in command economies, where the government needs a tight leash on how information flows across command lines, and how it wants this information to reach ordinary citizens.

The Nazi regime of Hitler was known to be overly bureaucratic. “The ministerial bureaucracy was considerably increased under Hitler,” writes Prof. Gerhard Rempel, and in a sense “you could say that the Nazi system was an intricate maze of competing, multiple bureaucracies, which had a tendency to overlap, conflict and occasionally cancel each other out.”

Do You Think Your Country Operates as a Command Economy?

It is reasonable for you as an ordinary citizen to be concerned where your own country is headed in terms of economic ideologies. As you can observe on the above list, command economies are often associated with lesser freedoms for ordinary people. To learn the basics of what a command economy is, I highly recommend the short video by Khan Academy on YouTube, “Command and market economies.” I am by no means an expert on economics or even politics, but I’m empowered to share with you that you can learn these concepts and know more about the country you live in by simply being curious.

In reality, no country is an absolute free market, and even command economies today have hints of being a free market. As I write this, the country I live in, the Philippines, constantly blurs the lines between being a command economy versus being a free market. The telco industry here, which has been horrible for a long time, is run by a monopoly bearing the façade of healthy competition. Commercial real estate is run by two or three big conglomerates. The oligarchies alleged to have been “dismantled” were simply displaced by more favored oligarchies. Perhaps some countries can just get by with illusions and managed perceptions.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Greg de la Cruz

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