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Kinds Of Economic Systems-Business And Its Environment

   Posted On :  04.05.2018 04:11 am

This economic system works on the principle of laissez faire system, i.E., The least interference by the government or any external force.

Kinds Of Economic Systems

Free Enterprise Economy

This economic system works on the principle of laissez faire system, i.E., The least interference by the government or any external force. The primary role of the government, if any, is to ensure free working of the economy by removing obstacles to free competition.
A free enterprise economy is characterized as follows:
  •             Means of production are privately owned by the people who acquire and posses them
  •             Private gains are the main motivating and guiding force for carrying out economic activities
  •             Both consumers and firms enjoy the freedom of choice; consumers have the freedom to consume what they want to and firms have the choice to produce what they want to
  •             The factory owners enjoy the freedom of occupational choice, i.E., They are free to use their resources in any legal business or occupation;
  •             There exists a high degree of competition in both commodity and factor markets and
  •             There is least interference by the government in the economic activities of the people; the government is in fact supposed to
limit its traditional functions viz, to defence, police, justice, some financial organizations and public utility services.

Government-Controlled Economy

The government-controlled economies are also called as ‘command, centrally planned or socialist economies’. Such economies are, in contradiction to the free enterprise economies, controlled, regulated and managed by the government agencies.
The other features of a pure socialist economy are:
  •             Means of production are owned by the society or by the state in the name of the community – private ownership of factors and property is abolished;
  •             Social welfare is the guiding factor for economic activities – private gains, motivations and initiatives are absent,
  •             Freedom of choice for the consumers is curbed to what society can afford for all, and
  •             The role of market forces and competition is eliminated by law.

Mixed Economy

A mixed economy is one in which there exist both government and private economic systems. It is supposed to combine good elements of both free enterprise and socialist economies. A mixed economy is widely known as one, which had both “Public Sector” (the government economy) and “Private Sector” (the private economy). The private sector has features of a free enterprise economy and the public sector has features of socialist economy. It is important to note here that most economies in the world today are mixed economies.
There are two different forms of the mixed economies.

Mixed Capitalist Economies

A mixed capitalist economy is a variant of the free enterprise economic system. To this category fall the highly developed nations like the united states, u.K., France, japan etc. Though these economies have a very large government sector, their private sectors will work on the principles of the free enterprise system. The government plays a significant role in preserving capitalist mode of production, ensuring a workable competition in factor and product markets, providing infrastructure for promotion of private sector’s economic activities.

Mixed Socialist Economies

To the category of the mixed socialist economies belong the countries which have adopted “socialist pattern of society and economic planning as he means of growth and social justice (e.G. India) and the former communist countries (e.G. Russia and china) have of late carried out drastic economic reforms and liberalized their economies for private entrepreneurship. The government of these countries takes upon themselves to control and regulate the private sector activities in accordance with the plan objectives.


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