In order to understand how we can change the format of the type of economy we use, we all first need to understand what forms most modern economies take.
The three most common forms of economies include: planned, mixed and free market. Each of these forms has their benefits and drawbacks. I believe that none of these main forms are ideal. Each have their flaws; each create non-ideal circumstances for our society.
A planned market economy is commonly found in socialist or communist states, such as China and Vietnam. In the planned economy, the state controls all business forms. there is no profit in the common sense. All land is commonly shared and none is owned by the private individual. There are no private enterprises as the state organises all production and consumption.
In the planned economy, the benefit is that no difference is made between the population. Everyone is equal in purchasing power and there is no 'one percent'. It is true, however, that within the political form of this system, party officials often spread the wealth disproportionately and inequality can exist.
As an economist, I can point out a number of flaws with this system. These include corruption, public sector inefficiency and limited choice. Ignoring the political angle of the debate, as in whether the people was centralisation, there is evidence of corruption in every known planned system. This means that the system may favour some over others, which creates further inequality.
Furthermore, as there is no profit motive, within business and for differentiated labourers, effort decreases as motivation drops. This results in less output, less quality and higher prices. Along with inefficiency, output becomes limited as the range of choices decreases. A centralised system can only produce a specific number of goods or services which means that consumer choice decreases and ultimately, welfare decreases.
However, with a centralised system, the government would have more funds for education, health and the welfare system which may in turn create a better society. Furthermore, consumers are not exploited through artificially high prices and low quantities as the state only wishes to break even.
The free market economy is an engine for growth. The government takes little to do with the affairs of the market and individual enterprise ensues. This is found in libertarian states such as the USA, to an extent. A free market economy allows anyone with start up capital and a good idea start a business.
In this case, the consumer gains from a larger range of choice. Provided the good specific market is competitive, prices will be lower and quality will be higher. In this respect, the free market generates wealth through good ownership and control.
However, this is an idealised viewpoint. This case assumes that there is perfect competition in the market, that there is no collusion or corruption. In reality, large firms take up market share in the market, work together and exploit the consumer. Those who have wealth keep wealth through unfair welfare systems and those who begin poor rarely have the opportunity to change their life.
Capitalism is good for a developing economy. It allows for economic growth and more opportunities. However, after a mature stage in growth, corporations that have established themselves in the market are rarely kicked out of the market. Instead, they form deals and relationships in order to reaffirm their place.
From this, it is clean that in an unregulated free market where large corporations have the majority of control, consumers are exploited as their casting vote has a minimalist role. Indeed, it is also clear that in maturing economies such as in Europe and North America, markets are moving towards a mixed market economy with more regulation and controls, but that still have private enterprise.
Mixed market economies have both private enterprise and public ownership, it is a genuine mix of the two above systems. It is capitalism with regulation. Often viewed as the answer to a Utopian system, a mixed market is by far the most effective of the three discussed.
Any large corporations that are exploiting the consumer can be dismantled or regulated and goods and services, such as health care, can be provided for free at the point of use. Indeed, a mixed market is a great solution for many current problems. For example, regulations can be put in place where firms that pollute too much can be fined, lessening our impact on global warming.
However great regulation may be for a free market, however, it is evident in most modern economies that the views of firms are over-represented in government, whereas the population is under-represented. The will of firms pushed through legislation that promotes the income and living equality gap.
Each of these systems has large flaws. Although the mixed market is a short time solution, our society must move forward together. We need to create and inspire change. We need real and genuine systems that will create a platform and opportunity for equality for all. A system that allows all equal chances in life and promotes a high, yet ecologically sustainable standard of living for the entire population.
This blog and soon our YouTube channel will aim to provide both education of current systems and news, along with genuine alternatives. Thank you for reading, please share these articles and feel free to comment.