CONCEPT OF MARKET, SOCIALIST & MIXED ECONOMY

An economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country’s citizens is called the market economy. In modern time, government plays significant role in guiding, controlling and regulating the economy. Based on the extent of government role, economies are generally classified as:

1.       Market economy

2.       Socialist economy

3.       Mixed economy

Market economy is also called open economy or free enterprise economy or capitalist economy. Under this system, all farms, factories and other means of production are the property of private individuals and firms. The economy of USA, UK, Australia, Japan, Germany, Italy, Korea, Singapore and many other nations are the example of market economy.

In market economy, individuals and firms are free to allocate sources of income into the production process as per their own decisions. They are free to use them with a view to making profit, or not to use them.

Market economy generally refers to economic system in which the means of production are entirely privately owned and operated for a profit. In general; investments, distribution, income and prices are determined by markets.

In the words of Prof. Locuks, “Market economy or capitalism is a system of economic organization featured by the private ownership and the use for private profit of man made and nature made capital.”

Main Features of Market Economy

1.     Freedom of Enterprise

In market economy, decisions regarding investment production and distribution are based on demand and supply. Prices of goods and services are determined in free price system. Everybody is free to take up any occupation and business. They can handle their enterprises freely and take decisions under the provision of laws.

2.     Market Mechanism

The major defining characteristics of a market economy is that decisions regarding investments and the allocation of producer good is accomplished primarily through markets. No one can intervene in this mechanism by any forceful power.

3.     Free Price System

A market economy can consists of various types of co-operatives, collectives or autonomous state agencies that buy and sell capital goods with each other in a free price system.

4.     Private Ownership

In market economy means of production and other resources are privately owned by the people with legal rights to acquire and possess them.

5.     Free Competition

The producers compete with one another in the factor and product market. There is competitive environment in the market among buyers and sellers.

6.     Profit Motive

All individuals and firms are motivated for earning profit. It induces people to undertake any productive activities. Individuals or firms produces those goods and services which yield them maximum profit. Thus, the main goal of the firm is profit maximization.

7.     Consumers Sovereignty

Consumers are sovereign to take any decisions regarding the consumption of goods and services in the market. There is no any intervention from government and enterprises to buy goods and services. This in-built mechanism of free market economy automatically regulates the system.

Socialist economy is also called command economy or planned economy or controlled economy. Under this system, ownership of the means of production rests on the government or cooperative. A socialist form of organization would eliminate controlling hierarchies so that only a hierarchy based on technical knowledge in the workplace remains. The economy of China, North Korea, Cuba and former USSR are the example of socialist economy.

Main Features of Socialist Economy

1.     Public Ownership

Socialists believe in the abolition of private ownership in the instrument of production. The ownership of factors of production rests in the state. Public ownership helps to equally distribute among people.

2.     Economic Planning

Economic planning is a mechanism for the allocation of economic inputs and decision making based on direct allocation. It is in contrast to market mechanism, which is based on indirect allocation. Government planning helps to control the economy and keeps under the government influence.

3.     Controlled Economic System

The goal of socialist economy is to neutralize capital, to co-ordinate the production of goods and services to directly satisfy demand, and to eliminate the business cycle and crisis of overproduction.

4.     Equality

Socialist economy aims to achieve greater equality in decision making and economic affairs. It grants workers greater control of the means of production and their workplace.

5.     Barrier to Private Enterprises

Generally, in socialist economy, there is barrier to private enterprises. Production is initiated and conducted by the state. It provides employment to the people. Private investment is controlled by the government.

In socialist economy, government plays a dominant role in the management of the economic system. The means of production are owned by the state. The decisions are taken by the central planning authorities.

In mixed economy, government and private sector work together. Government safeguards the economy by providing security, maintaining law and order developing infrastructures and so on. Private sector actively participates in business activities. The economy of Nepal, India, Bangladesh are the example of mixed economy.

Main Features of Mixed Economy

(1)    Co-Existence of Public and Private Sector

Both public and private sector function together in mixed economy. Some industries are owned and managed by the state. On the other hand, private sector is free to establish new enterprises. There is co-existence of public and private sector in operating business activities.

(2)    Government Regulation and Control of Private Sector

In mixed economy government takes necessary measures to maintain law and order, manage security and regulation for the smooth functioning of private sector. Government regulates and controls if necessary.

(3)    Reduction of Economic Inequalities

Government in mixed economy, involves to establish basic industries. It helps to fulfill the gap in business enterprise development. By reducing regional imbalances and providing opportunities to people, economic inequalities are reduced.

(4)    Labour Protection

In mixed economy, government protects weaker section of the society. Industrial labourer, small farmers, peasants are protected by necessary legal arrangements. Government initiates to protect them from the exploitation of capitalists.

(5)    Control of Monopoly

Monopoly market exploits people by charging high prices of goods and services. Due to the absence of competition, there is monopoly right of one firm. This type of market is controlled by the government to set fair and reasonable pricing in the market.

Mixed economy combines public sector and private sector in a single economic system. The private sector has the features of market economy and public sector has the features of socialist economy.