Essay
The free market system (capitalism) and a command system (communism/socialism)
The economy of any country functions as an independent, a large system, which includes many different activities. Different economic systems of the world differ in their ideologies, as well as in their approach to solving the problems of the economy. The main elements of the economic system are the socio-economic relations, organizational forms of economic activity, the economic mechanism and specific economic relations between economic actors. In the past two centuries diverse economic systems acted in the world. Among them are clearly distinguished the two market system - free market system (capitalism) and a command system (communism/socialism).
Administrative-command system (centralized, planned, communist). This system prevailed earlier in the USSR, Eastern Europe and some Asian countries. Characteristic features of the administrative-command system are:
- public (and in reality the state) ownership of almost all economic resources;
- strong monopolization and bureaucratization of the economy;
- centralized economic planning as a basis for the economic mechanism;
- hierarchy;
- imbalance in supply and demand, which is increasing every year;
- flourishing shadow economy;
- excessive rise in prices, uncontrolled inflation - monetary disorder, the budget deficit, etc.;
- deformation of the economic interests of all market entities, lack of motivation to work effectively, the risk in economic activity; etc.
All major decisions concerning the use of resources, structure and distribution of products, the organization of production are made by central planning body. Enterprises are state-owned and carry out production based on state guidelines. In other words, production plans are established by planning body for every enterprise, and the plan controls the amount of resources that should be allocated to each enterprise so that it can fulfill its production targets, thus the government decides on how to produce. Each company is provided of what and how much to produce; not only suppliers but also customers are specified i.e. it solves the problem for whom to produce. The means of production are distributed among industries on the basis of long-term priorities determined by planning body.
Disadvantages of this system are: inability to increase the efficiency of economic activity; generated by the state monopoly the scarcity of economy; the destruction of any economic incentives for economic actors; the highest degree of ideologization of the economy, expansion of the bureaucracy.
Free market system. Main features of the capitalist economy are private property, freedom of entrepreneurial choice, competition, a personal interest as the main motive of conduct, the reliance on market-based system and the limited role of the state. One of the main preconditions of capitalism is the personal freedom of economic actors, i.e. not only of the capitalist entrepreneur, but also of the employee. The decisive condition for economic progress is the freedom of entrepreneurship of those who have capital, and the freedom of the employee to sell his labor. The market economy is characterized by private ownership of resources and the use of market systems and prices for the coordination and management of economic activities. What, how and for whom to produce are defined by the market through the mechanism of supply and demand. In the capitalist system material resources are owned by the private individuals. The right to make obligatory for execution legal contracts enables individuals at their own discretion to dispose of their material resources. Manufacturer aims to produce those products that meet the needs of the buyer and bring him the greatest profit. The consumer decides which product to buy and how much to pay for it. Under the conditions of free competition economic entity strives to produce products at a lower cost than its competitor, in order to sell more because of lower prices. This is facilitated by the use of technical progress and the different methods of management. The question "for whom to produce?" is resolved in favor of consumers with the highest income. In such economic system the government does not intervene in the economy. Its role is to protect private property, the establishment of laws that facilitate the functioning of free markets.
Disadvantages of free market system:
1. market reacts badly to the nationwide and state needs, such as culture, education, the environment, the development of science;
2. market competition is accompanied by the phenomena of mass bankruptcy, unemployment, social stratification of society;
3. there are many monopolies, etc.;
4. the mechanism of free competition does not provide the economy of necessary amount of money for the development of production.
5. the market implements already existing scientific and technical achievements, but does not allocate funds for basic research in science and technology, and they are essential to the development of society.
The free market system is the most flexible and effective of all existing systems; now the vast majority of developed countries have a system of modern capitalism. I think that it became dominant because of its strengths such as provision of efficient allocation of resources among industries and regions; stimulation of manufacturer to higher productivity and product quality, the market reacts flexibly to demand, it provides freedom to economic activity, etc. Such market is also a precondition for the development of democracy in the country, which ensures personal freedom.
“Mixed economy”. Today it is impossible to speak about the presence in a particular state of one of the two models in its pure form. In most modern developed countries there is a mixed economy, combining elements of capitalism and communism. Mixed economy involves the use of the regulatory role of the state and economic freedom of manufacturers. Entrepreneurs and workers move from industry to industry at their own discretion, not by government guidelines. The state in its turn conducts the antimonopoly, social, fiscal (tax) and other economic policies. In my opinion, this economy is the best one because it contributes to the economic growth of the country and to higher living standards.
Works cited
Shmoop Editorial Team. "Types of Economic Systems." Shmoop.com. Shmoop University, Inc., 11 Nov. 2008. Web. 25 Jan. 2014.
Free Market v. Command Economies. http://www.s-cool.co.uk/category/subjects/a-level/economics/free-market-v-command-economies
Eckstein A. Comparison of Economic Systems: Theoretical and Methodological Approaches. Berkeley, CA: University of California Press. Ed. 1971.
A. Downs. “An Economic Theory of Democracy”. Harper & Row. New York. 1957.
Jim Cox. Market vs. Command Economy. The Concise Guide to Economics. 2012.
