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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