An economic system in which the government makes all decisions is known as a command economy or a planned economy. In this type of system, the government has complete control over the production, distribution, and pricing of goods and services.
The rationale behind a command economy is that the government aims to achieve certain social or economic objectives, such as reducing inequality or providing essential services to the population. By making all economic decisions, the government can theoretically direct resources towards these goals more effectively than through a market-driven approach.
However, while a command economy can lead to certain advantages, such as guaranteed employment and a focus on large-scale projects, it also has significant drawbacks. One major issue is the lack of market signals, which can lead to inefficiencies, shortages, or surpluses of goods. Moreover, the absence of competition can stifle innovation and limit consumer choices.
Examples of command economies in history include the former Soviet Union and North Korea, where the government centralizes economic decision-making to control their nations’ resources and industries.