What are the pros of having a state directed economy?

Answer 1

A state directed economy only occurs in poorer countries, who tend to realise that state directing doesn't work once an economy becomes 'developed' look at Russia for an example. A lot of bad press has been around leading to the conclusion that state directed economy leads to corruption and a stagnant growth - in recent years this is true, but without some sort of state intervention, developing economies will never become developed. PROS OF A STATE DIRECTED ECONOMY. - Market Failure 1. Externalities. When Joe Bloggs buys a cigarette he pays for his personal consumption (assume no tax). However, smoking in public may be problematic for people around him as they suffer from decreased health. As such Joe has paid for his enjoyment and not for the costs that other people around him incur in terms of health. The govt has intervened by taxing cigarettes in order to 'internalize' the costs associated with smoking. This form of government intervention increases efficiency 2. Missing markets Some markets are beneficial for the economy but have HIGH startup costs and because of the lack of economies of scale may prove to be unprofitable for the locals. EG Oil and energy. If the government uses its financial clout to create these markets, the products they sell may benefit the economy in many other ways. 3.Free rider problem. For goods such as defence and policing, everyone benefits - but no one pays directly. These goods are non excludable in that if someone pays for state defence, everyone benefits. If left to the private market, these goods will never be produced. The government will undertake these projects