Free «The Comparative Characteristic of Different Market Systems» Essay
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The economic system is the aggregate of all business processes, which take place in the society and is based on the established property relations, and the economic mechanism. Whereas the productive resources are limited in comparison with demands of the society, it is necessary to distribute these resources between the various areas of human use. In other words, the economic system is the ordered set of relations between manufacturers and consumers. There are several types of economic systems and each of them has positive and negative sides, and performs different functions in the specific market situation.
Centrally planned system
The centrally planned system is the way of organizing an economic life, under which the land, capital and assets belong to the state. The distribution of limited resources is carried out by the state’s government and in compliance with the established plan, which is calculated for several years. The creation of the planned system was a consequence of the socialist revolutions. The centrally planned system involves the complete elimination of private property and its replacement by a government’s ownership. Based on the fact that key economic issues are resolved by state authorities while implementing following orders and plans, which are obligatory for execution, the state has to regulate all aspects of the economic life, including the establishment of prices and wages (Whitley, 2005).
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The mentioned system has several disadvantages. First, if to take into account the fact that the government manages all resources, which are declared as the public ownership, incomes of people and business entities cease to depend on the demand, and on how efficiently they use different resources. The performance evaluation is carried out according to the formal criteria, which do not match real needs of society. Consequently, it leads to the fact that people are not interested in good results of their work. Additional disadvantages are the lack of competition on the market, outdated technologies, and non-competitive products (Wilczynski, 2005).
As for advantages, the centrally planned system provides the full employment, thus regardless of demand for certain professions the state ensures the near-zero rate of unemployment. Additionally, the government establishes the effective system of social protection which includes: stable salaries and pensions, guaranteed unemployment compensations, etc (Ross & Scherer, 1990).
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The examples of countries, which are approximate to the command system: the former USSR, Albania, and China.
The market system
The market system is the social-economic system developed on the basis of the private property and market relations. A market economy is based on principles of freedom of the enterprise and the freedom to choose the business activity.
The market system has its own distinguishable features. First, the relations are based on the developed market competition. It means that there is the variety of producers, which try to offer a better product or service at the lowest price. Another peculiarity of this system is the diversity of ownership, for example, a private, collective, or public ownership. The manufacturer is also has the administrative independence, has the ability to make its own decisions and to choose voluntarily raw materials suppliers and customers (Murrell, 1999). All assets are concentrated in the hands of the specific group - the bourgeoisie. Additionally, the market is buyer-driven. It means that in order to get profit producers manufacture only those products, which are in demand. The system of benefits distribution is not equivalent to the physical and intellectual work (McMillan & Naughton, 2010).
There are several positive factors, which can be caused by using this system. First is the so-called economic democracy, which refers to the ability for producers and customers to choose its contractors voluntarily. Next is that economical resources are distributed more effectively; moreover, producers always keep on eye with the needs of customers and quickly adapt to the changing conditions of market. All these factors positively affect the quality of the products and services (William, 1997).
Nevertheless, this system is not perfect and has several disadvantages. The market tends to be monopolized by the large corporations. The antitrust legislation cannot prevent the small producers from the unfair competition, which can make its business uneconomic. The market is also not interested and also not able to produce public goods, because of the fact, that the production of this type of goods isn’t profitable (Lindblom, 1990). According to civil rights of separate groups, they are not obliged to pay for the exact products and services, thus, the manufacture of these products is inexpedient.
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Mixed economy is the system which includes private, corporate, public and state ownership of the capital goods. It allows entrepreneurs and private individuals to make independent financial decisions, but their autonomy is limited by the fact that the state or society has priority in all financial matters.
The features of this type of economic systems, basically, are similar to the market system. Despite this fact, the mixed economy has its own distinctive features. When the market system was established, the economic relations became uncontrollable and the government wasn’t able to carry out an effective control under the actions of market participants. Moreover, the market system could not resolve several social-economic problems regarding the system of national defense, law enforcement, unified energy system, public education and health. Problems related to environmental pollution, depletion of natural resources had also to be resolved by the state government (Yeha & Wub, 2007). Consequently, the mixed system doesn’t have these negative features. Thus, the government is the active participant of the market relations and has the significant influence on the entities and private persons. It carries out an effective management of the whole system and resolves those problems that classical market is unable to solve (Lindblom, 2008). These issues concern major investment projects that do not give the rapid income and involve risks, unevenness of the regional development, the necessity to fight inflation and monopoly, etc.
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The government’s regulating policy is carried out in three ways: by influencing enterprises, equal distribution of resources, and by stabilization of the economy. Government’s actions should be aimed at: establishing laws governing the business relationship between the parties, supporting of competition, and in some cases, protection of domestic markets, and promotion of new forms of business (Benatallah, 2002).
Consequently, the practice shows that in its original form the market system does not exist in any country.
The examples of countries, which are approximate to the mixed system: Russia, Sweden, Germany, Denmark, Japan, USA, etc.
Both the command system and the market system have several advantages and disadvantages. The history of counties with the planned system shows that this type of economy cannot resolve all the significant problems, such as the inability to produce the good quality and competitive products, misallocation of the natural and human resources, and the incapability to maintain the development of advanced technologies. The market system, in its turn, was found inequitable to some its participants and cannot resolve important social-economic problems. Thus, all developed countries created a mixed system, which has all positive features of the market system, but gives the opportunity to the government to provide its regulation and solve the most significant issues.