1) Discuss the three major economic systems of the world, giving examples with the countries where the system is being practiced.An economic system entails how a country’s economy is structured and organized. It touches on the processes involved in the production and distribution of goods and services, and resource allocation in the society. The economic system seeks to answer three core queries: what, how and for whom to produce? The economic system determines what goods and services should be produced in the country’s economy. It also determines which systems and productive resources are vital in the production of goods and services. Lastly, it identifies the target of the production processes in a company (Britton, 2013, p.41).
There are three basic types of economic systems namely: traditional, command, and market economic system. The first economic system, traditional economy, is defined as an economic system in which key economic decisions and recommendations are founded on customs and beliefs of a society. The countries that often use this type of economic system are farm and rural-based. This type of economic system is better known as subsistence economy. This economic system is characterized by barter trade with little surplus produced. This economic system is stagnated and undeveloped as it fails to incorporate any modern techniques or tools essential in the processes of production and distribution of goods and services. This economic system is practiced in the rural South India, the Aborigines in Australia and African villages (McCorkle, & National Council on Economic Education, 2001, p.33).
The command economy or planned economy is defined as an economic system in which the central authority stipulates the key decisions regarding investment and production. The central authority also owns most of the property in the economy under this system making it have a rather great stake in the economy. Under this economic system, the government, further, determines various factors such as the wage levels, interest rates, and prices of goods and services. This system was prevalent in the Eastern and the former Soviet Union during the cold war era (Rosefielde, 2008, p.15). Many countries that practice communism have planned economies. Currently, there are no countries that practice the authentic planned economic system. North Korea, Cuba, and former Soviet Union are the only countries that have systems that are close to the command economy.
The market economy (Laissez-fare economy) is the third economic system practiced globally. Under this system, key economic decisions touching on distribution, investment, and production are based on the forces of demand and supply. The prices of goods and services in this system are also established via a free price system. This economic system is mostly hypothetical and not viable in most cases (Rosefielde, 2008, p.15). This economic system is self-regulatory with the central authority having no stake in the economy’s running. There are no pure market economies globally but the United States is deemed to have a system that is deemed close. Many countries have a blend of the market and command economies. This economic system is known as mixed economy. Under this system, the central authority and businesses share in the key economic decisions (McCorkle, & National Council on Economic Education, 2001, p.35). The businesses determine what and how to produce goods and services but under the careful regulation by the central authority. This system is practiced by many modern democratic states such as Germany, United Kingdom, Brazil, Canada, and Mexico.
2) Discuss at least five various ways in which the UK Government may have moved the economy away from a free market situation to a mixed economy , giving specific examples for each situation.The United Kingdom shifted from the free market system to a mixed economy from 1945 to 1979. This was characterized by increase in the central authority’s intervention, which saw many industries being nationalized (e.g. coal, rail, and steel). There was, however, a reversal of this policy in 1980’s with many industries being returned to the private sector. Despite these mishaps in the implementation of a mixed economy system in the United Kingdom, there was the need for continued government intervention (Young, & Lowe, 2003, p.76). There were five ways identified to shift the country fully from the free market situation to a mixed economy.
Provision of public goods and services by the government was the first way the shift was facilitated by the United Kingdom government. The authorities understood that there were many goods and services that the private sector could not provide effectively or provide at all to the citizens. These goods and services are education, healthcare, roads et cetera. The government undertook this initiative because many businesses in a
Free market system only existed with the aim of maximizing profits rather than public welfare.
Controlling and regulating the private sector is the next tool that the UK government used in the shift from free market situation to a mixed economy. This is effectively carried out through the protection of workers and consumers through health and safety regulations. The government reviews the various firms’ health and safety measures put in place to protect workers such as mandatory worker insurance policies, use of protective gear by the workers. The government, further, assesses goods and services through its quality control department to ensure they are fit for the public. The government also protects the workers through the minimum wage laws ensure that these workers are properly remunerated. The minimum wage rate is established through careful consideration of international competitiveness and the minimization of unemployment (Powell, 2007, p.91). The UK government also ensures that employers provide proper employment conditions through employment laws that protect workers from exploitation or discrimination of any nature.
The management and prevention of market failure are other ways that the UK government has effected to move the economy from a free market to a mixed one. Market failure describes how allocation of goods and services in a free market is inefficient. It occurs when firms fail to consider equity or public interest in their allocation of resources, goods, and services. Information asymmetry, non-competitive markets, time-inconsistent preferences, and principal agent problems bring about market failure. The government can remedy this situation through licensing, subsidies, taxes and tradable permits (Crawford, 2005, p.21)
The government additionally controls overall economic performance in various economic spheres such as unemployment and inflation, balance of payments and economic growth. Unemployment for instance was managed through demand side and supply side solutions. The government has managed to control the economic performance through monetary and fiscal policies. The UK central bank through its monetary policy controls the availability, supply, and interest rates in order to stabilize the economy (Crawford, 2005, p.21). The fiscal policy, on the other hand, focuses on how the government uses its expenditure and revenue collection to stabilize the economy.
The UK government effects the redistribution of incomes as a means of shifting the economy from a free-market to a mixed one. This is effected via tax and benefits. The UK government imposes a progressive income tax that ensures higher-wage earners contribute more to the national kitty as compared to the low-wage earners (Powell, 2007, p.93). This revenue is used in the equitable provision of public goods and services. The government also manages the welfare of its populace through social security programs, unemployment insurance, and health cover. The UK government is renowned for its social safety net that puts social welfare first.
Reference List
Britton, T. L. 2013. Economic systems. Minneapolis, MN: ABDO Pub. Co.
Crawford, A. 2005. Plural policing: The mixed economy of visible patrols in England and Wales. Bristol: Policy Press.
McCorkle, S., & National Council on Economic Education 2001. Focus: Economic systems. New York, NY: National Council on Economic Education.
Powell, M. A. 2007. Understanding the mixed economy of welfare. Bristol: Policy.
Rosefielde, S. 2008. Comparative Economic Systems: Culture, Wealth, and Power in the 21st Century. Chichester: John Wiley & Sons.
Young, S. C., & Lowe, A. V. 2003. Intervention in the mixed economy: The evolution of British industrial policy. London: Croom Helm.
