Why od centrally planned economies have difficulty meeting consumer needs?

Question

also :

which of these goals would be harder for a centrally planned economy?

1. economic efficency

2. economic security and predictability

3. economic equity

4. economic growth/ innovation

Answer 1

For the record, I assume when you say "centrally planned economy" that you mean a command economy, or one where the government is in near complete control.

The problem with centrally planned (i.e. government-controlled) economies is that governments have historically been bad at determining the true needs of their citizens.  Theoretically it's possible for a government to accurately predict and act on correct consumer needs, but it is extremely difficult, given how different citizens can be.  Capitalism solves this problem by giving each citizen the power to determine their own needs in the form of individual purchasing power... as economists say, implied preferences based on purchases are some of the most important pieces of information in economics.  A centrally planned economy eliminates those implied preferences, so even if it was capable of meeting the consumer needs of its citizens, how would it go about learning what those needs actually were, especially considering the substantial incentive for an individual to lie in his own favor.

1.

Economic efficiency is, once again, possible in theory under a centrally planned economy, but highly unlikely.  For economic efficiency to occur, production must be efficient, and without individual profit incentives for producers, it can be difficult to convince them to seek out cost-cutting solutions and to be improving quality.  Sorry, but people just don't operate like that: when all of your hard work will reap you only an extremely small fraction of benefit, why would it be worth it to you?  This is just one reason of many on how economic efficiency is dubious under a central planner.

2.

Here is where a centrally planned economy can be better: with one entity in control of everything, predictability is much easier to attain (for better or for worse) and security as a result can at least be measured much more accurately.  Security is, of course, dependent on who is in control exactly, but at least with only one entity in control, one can gauge security better.

3.

Traditionally, centrally planned economies (see: Communism) have been in favor of a more equitable income distribution, but by definition centrally planned economies have no additional tendencies toward or against economic equity when compared to market economies... it depends on the objectives of the central planner.

4.

As I mentioned in the answer for (1), the incentives for economic growth and innovation are much smaller when the benefits of such innovation are shared by everyone, while the costs are usually shouldered by one group or individual.

Hope that helps.