Pure Market and Planned Economic Systems; Comparative Analysis

Comparative Analysis of Economic Systems

Ownership Rights of the means of Production

Economic systems define the approaches that a country or government institutions apply in the distribution of resources and commerce. They influence trading activities of goods and services within country forming by controlling the five fundamental factors of production, namely; labor, natural resources, capital investments, market information systems, and entrepreneurship.  On this note, there exist different economic market systems which define the approach that a country uses. Pure market economic systems represent a free enterprise system where the trade activities of the market are purely unplanned but use the demand and supply of goods and services in the market (Pryor, n.d., p. 183). On the other, planned or command economic systems where the government takes a leading role in the economic factors through direct control through public ownership policies. As such, the significant differences between the two systems is the control parameters of factors of production and ownership rights.

The two occupies polar extremes regarding the ownership of the means of production.  Examples of pure market economies include countries such as the United States of America and the United Kingdom. In these countries, the ownership of the means of production is predominantly private with the only controlling forces being demand and supply in the market (Polishchuk & Syunyaev, 2015, p. 168). Socialist and Communist countries such as former USSR, China, and Northern Korea are examples of planned economies or Marxist economy. Private ownership of means of production is important because it serves both the owners and the non-owners. The capitalist benefits from the profits generated while the non-owners derive gains through wages and salaries. Primarily, it stimulates growth and development. Implicitly, private ownership is vital to creating a prosperous society that maximizes the potential of its resources because profits is a huge incentive for growth.

Role of Marker Forces in Allocation of Resources and Distribution of Goods and Services

Market forces refer the different economic factors with significant control power over prices and the availability of goods with limited interference from government. They play the role of resource allocation and distribution of goods and services through causing shifts in the supply and demand in the market. According to Adam Smith, the ‘Invisible Forces that drive goods and services distribution require that the control of government remain relatively low (Chakravarty, 1990, p. 233). The influence of the forces follows a natural phenomenon which drives the market through competition and the resource scarcity. In pure market economic system the force are flexible and highly effective in stimulating growth because they rely on the consumer behavioral patterns. Therefore, when the demand for good and service is higher, there an increased distribution and when the demand declines, it causes a proportionate decline. These forces help to provide the essential information used in price determination of goods and services (Mason & Wilmot, 2016, p. 87). The global Oil market prices best illustrate a good example of the effect of the market force. In the USA, a free market economy, when the Middle East wars break out, the supply of oil declines. Therefore, the demand rise causing an upsurge of the pump prices. Thus, determine the allocation of the oil with the highest demands. In this case, Texas, one of the leading consumers of oil in the USA is allocated more because prices there are high. Subsequently, car manufacturers of gas guzzlers are forced to reduce the costs of their cars.

In the market economic system, market forces influence the production of goods and their market prices.  Government intervention is absent a market-based economy, allowing the market to allocate the resources based on the demand and supply. Prices help to create a state of balance between supply and demand thereby informing the decisions of both producers and consumers. The decision made regarding the purchase of goods and services determine how they are distributed in the markets. However the role of market forces in command economy systems such as North Korea and other former Communist nations like The Soviet Union, the government sets the market for the goods. The role becomes reversed with market forces being limited, and the Government replaces them, determining the allocation and distribution of its terms. The comparative analysis indicates that the market force is active in free enterprise economies. The fiscal policies account for the difference in economic growth of capitalist and Communist systems because while market economies allow the market to stimulate growth, Command systems limit the role of the forces. In essence, they increase the efficiency of allocation and distribution of good and service in a country thereby boosting commerce (Marangos, 2013, p. 53). Increased trade and effective distribution mechanisms are critical catalysts of economic growth.

Role of Government in National Economies

The role of government in the two markets systems are remarkably reversed on various economic aspects including the provision of goods and services, wealth redistribution, and economic cycle management. The government in Market economic systems only provide those goods and service that cannot be privately owned such as the police or the military. Primarily, the service focus on security and policy regulation to ensure fair completion. Command market system provides the goods and services to the society. It dictates the quantity, price, and distribution, therefore, controlling the rate of economic growth. Indirectly, the government in a market-based economy controls the redistribution of wealth through policy regulations and laws. Free market Economic principles stipulate that government role in the redistribution of wealth is through actions such the setting of minimum wage income for the employee (Zhang, 2014, p. 37). Similarly, the command economy controls the redistribution of wealth through minimum wage control limits. However, the control of the planned economies is higher because the government owns both the production and distribution mechanisms.

The government in pure market economies manage the economic cycle using fiscal and monetary policy (Gilauri, 2016, p. 51). Fiscal policy, the government uses its taxation and appropriation power. Through monetary policy, it exerts by regulating the money supply and equity interest rates. The market passed economies only uses the intervention of the government when there is a need to either increase economic growth or control inflation. Money is used as the control instrument that the government uses in its effort to manage economic cycle. In essence, the supply of money in the economy helps regulate the cycles.

Types of Political Systems in Different Economies

Pure market systems are mostly associated with capitalist systems of government. Most market systems have democratic governments because it advocates for the political and socio-economic liberty of society. It allows people to own property and offers protection from any threats that may affect the efficiency of the market. On the other hand, command market structures are mostly associated with communist political systems where the ownership rights to property are public, and the forms of production remain in total control of the government. The different political systems are because the ideological perspective of the two economic systems is entirely different.

References

Chakravarty, S. (1990). Market Forces and Planning. Market Forces in Planned Economies, 229-239. doi:10.1007/978-1-349-11559-4_11

Gilauri, N. (2016). Rightsizing Fiscal and Monetary Policies. Practical Economics, 43-74. doi:10.1007/978-3-319-45769-7_3

Marangos, J. (2013). Consistency and Viability of Market Capitalism. Consistency and Viability of Capitalist Economic Systems, 49-76. doi:10.1057/9781137080875_3

Mason, C. F., & Wilmot, N. A. (2016). Price discontinuities in the market for RINs. Journal of Economic Behavior & Organization132, 79-97. doi:10.1016/j.jebo.2016.04.003

Polishchuk, L., & Syunyaev, G. (2015). Property Rights without Democracy: The Role of Elites’ Rotation and Asset Ownership. Elites, Institutions and the Quality of Government, 167-186. doi:10.1057/9781137556288_10

Pryor, F. L. (n.d.). Advanced Market Economic Systems. Economic Systems of Foraging, Agricultural, and Industrial Societies, 159-191. doi:10.1017/cbo9780511754302.007

Zhang, W. (2014). A Study of the Role of Government in Income and Wealth Distribution by Integrating the Walrasian General Equilibrium and Neoclassical Growth Theories. Interdisciplinary Description of Complex Systems12(1), 28-45. doi:10.7906/indecs.12.1.2

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