ECONOMIC SYSTEMS: PRINCIPLES OF ECONOMICS

Economic Systems
INTRO: There is more than one way for a society to organize its economy. Maybe everyone simply follows tradition, following the same economic pursuits as their parents and grandparents before them. Or maybe the government decides what’s best, or perhaps the government stays out of it, leaving the economic system to be determined by the combined decisions of millions of individual people.
            In modern practice, most large industrial economies offer some balance between the last two approaches, with individuals, mostly left to do their own thing but with the government still intervening in economic affairs in important ways.

            There are four economic systems and they each have their strength, weaknesses, sub-economies, tendencies and sometimes troubled history.
            Each of the four will be thoroughly examined to give ample attention to its attributes and to help in the understanding of how they each affect different parts of the world, as economy is one of the strongest forces when it comes to balancing political power, instigating war and delivering a high or low quality of life to the people it serve.

DEFINITION:
It can be defined as the medium or organized way by which the means of production in a state are utilized in order to satisfy human wants.
            It can also be defined as the ways in which available productive resources in a nation are owned, managed or utilized for the satisfaction of human wants.
            Scarcity is the fundamental challenge confronting all individuals and nations alike. How we deal with these limitations, that is how we prioritize and allocate income, time and resources is the basic economic challenge that confronts individuals and nations throughout history.
            But not all nations nor individuals have addressed this challenge in the same way. Societies have developed different broad economic approaches to manage their resources. Economist generally recognizes four basic types of economic systems.
           
TYPES:
The types of economics systems are divided into four major groups namely;
·        Traditional Economic system
·        Command or Planned Economy.
·        Market Economy.
·        Mixed Economy.


Traditional Economy
            Traditional economy is quite literally the most traditional and ancient type of economic system in the world.
            This is a system shaped by tradition. The work that people do, the goods and service they produce, how they are used, how they use and exchange resources, all tend to follow a long established pattern.
            These economic systems are not very dynamic, things do not change very much, standard of living is static; individuals don’t enjoy much financial or occupational mobility. But economic behavior are predictable, you know what you are supposed to do, whom to trade with and what to expect in exchange from others.
            In many traditional economies, community interest takes precedence over the individual interest. Individuals may be expected to combine their efforts and share equally in the proceeds of their labour. In other traditional economies private property is respected, but it is restrained by a strong set of obligations that individuals owe to the community.
            Australian aborigines are the modern day traditional economic system practitioners.
            Some features of Traditional economy include:
·        Traditional economy is mostly found in rural underdeveloped countries.
·        Customs and tradition govern economic activities.
·        Over time there are no significant changes in their method of production or economic activities, such as farming, hunting etc.
·        Economic activities are centered on the family, ethnic unit or community.
·        There is no equality of gender as men and women are given specific roles or tasks to perform.
Advantages of traditional economy are:
·        Tradition and customs are preserved.
·        Traditional economy usually consists of a close knit and socially satisfied people.
·         Specialization occurs over time as people are given specific tasks to perform.
·        It centers on the development of the community or country as a whole.
·        There are no wastages recorded in the process of experimenting new methods of production as theirs is already set.
Some disadvantages of the Traditional economic system are:
·        There is difficulty in improvement as technology is not used.
·        Changes are difficult to make as the economic system is related to tradition, and tradition is not so easily changed.
·        There is inequality.
·        The practice of traditional economic system truncates the development of said country as change is not easily accomplished and new technologies are not being used.

Command Economy
            In this type of economic system the government controls the economy, it decides how to use and distribute its resources. The government regulates prices and wages; it may even determine job specification for individuals. Socialism is a form of command economy

Socialism.
            This is a form of Command Economic System, in this system the means of production and distribution are collectively/centrally owned and controlled by the government.
            Socialism can also be defined as an economic system which aims to invest in the society as a whole rather than in individuals, giving the government ownership, control and management of all means of production and distribution without destroying individual’s economic motivation or freedom of occupation or choice.
            Furthermore it can be defined as a system where citizens work collectively for the advancement of the country, and they can also privately produce under supervision, whereas the government caters for their welfare.
            Examples of countries that practice socialism include Poland, Angola, China, Ethiopia etc. Some of the features of Socialism  are as follows:
·        Enterprises in a socialist economy are not profit motivated.
·        Income is equally distributed among citizens in a socialist economy.
·        There is little or no competition as all resources are owned by the government.
·        There is a wide range of goods for consumers to choose from.
·        Decisions like what to produce, for whom and how are taken by majority of the citizens.
·        All factors of production are optimally utilized in a socialist economy.
·        Welfare of the citizens is key as it is the primary aim of any socialist economy.
Advantages of Socialist style of economic system include:
·        Resources of the state are equitably distributed among the citizens.
·        Employment opportunities are readily available.
·        There is economic security in form of guaranteed or secure jobs.
·        Unhealthy rivalry among individuals is absent.
·        There is no exploitation as the government provides all goods and services.
·        Goods and services are produced in large quantities to satisfy all citizens.
Disadvantages of Socialism include:                                                     
·        Reduction of individual initiative as citizens depends solely on the government.
·        Economic development advances slowly in a socialist state.
·        It leads to a form a monopoly as the government produces all the essential goods and services.
·        There is no creativity or innovative spirit present in a socialist economy.
·        As individuals do no produce there is no specialization.
·        Citizens in an socialist economy are said to be lazy as they produce nothing but depend on the government
·        The consumers do not have alternative choices as it is only what the government produces that is available.

Market Economy   
            In this form of economic system, economic decisions are made by individuals. The interactions of individuals and companies in the market place determine, how resources are allocated and how goods and services are distributed.
            Individuals reserve the right to choose how to invest their personal resources, what training to pursue, what jobs to undertake, what goods and services to produce, and what to consume. Within a pure market economy the government is entirely absent from economic affairs.
            Capitalism is a form of market economy.
Capitalism
            This is an economic system where the means of production are owned, controlled and managed by private individuals.
            It is characterized by private ownership of the means of production, therefor private individuals play greater roles than the government in decision making pertaining towhat to produce, how to produce and for whom.
            Capitalism gives incentive or freedom to private individuals to invest their capital and maximize profit. Countries that practice capitalism include the likes of Japan, France, Italy, U.S.A etc.
            Some of the features of Capitalism include:
·        High degree of private ownership of means of production with minimal participation from the state,
·        There is healthy competition as individuals and firms strive to acquire wealth or control of the means of production.
·        It is characterized by a high level of profit maximization by individuals or firms.
·        It brings about satisfaction to individual as they pursue endeavors that will bring them the highest satisfaction with the least sacrifice
·        In a capitalist state individuals choose their occupations based on their capabilities.
·        The price system decides what to produce in a capitalist state.
·        In a capitalist state consumers have a wide range of products to choose from as many commodities are available
·        All activities in a capitalist economy are aimed at maximizing profit
·        Individual accumulation of wealth occurs as means of production are privately owner.
Advantages of the practice of a Capitalist style of Economic system include:
·        It encourages individuals to own their own business or enterprise.
·        Hard work is encouraged as enterprises are privately owned.
·        It leads to specialization.
·        Provision of alternative choice of goods for consumers
·        Hard work is encouraged as enterprises are privately owned.
·        It promotes or raises the standard of living of the populace.
·        It brings about different types or forms of production.
·        Utilization of all individual talents during the production process.
·        It brings about self-regulation and self-reliance.
Some of the disadvantages of the capitalist form of Economic system are:
·        Monopoly is easily crated.
·        Economic inequality, as only a select few are in charge of the various means of production.
·        Wastage and inefficiency are recorded in an effort to produce goods and services.
·        There is an increase in the crime rate in a capitalist economy as everybody wants to own means of production.
·        There is exploitation of the minority by the rich majority.
·        Unhealthy rivalry or competition arises.

Mixed Economy.
            This is an economic system where both private and public ownership of means of production exist.
            In a mixed economy means of production are jointly owned and managed by both the private individual and the government.
            Mixed economy has been defined as a mixture/combination of both the socialist and capitalist form of economic system.
            Some features of mixed economy are as follows:
·        Freedom of choice for the consumers.
·        There is fair competition between the private and government owned enterprises.
·        Major decisions are jointly taken by the private and public sectors in a mixed economy.
·        A mixed economy has the participation of both the private and public sector.
·        Effective checks and balances are put in place with the combination of the public and private sector.
Advantages of Mixed Economy include:
·        It prevents monopoly as neither the public or private sector solely owns the means of production.
·        Income is equitably distributed among citizens in a mixed economy
·        Mixed economy encourages individual initiative.
·        Consumers in a mixed economy have a wide range of goods and services to choose from.
·        Mixed economy combines the good qualities of capitalist and socialist economies.
·        Mixed economy promotes various economic activities leading to steady and progressive economic growth.
Some disadvantages of mixed economy are:
·        Excessive exploitation of labour.
·        Lack of efficiency
·        Enterprises are more profit motivated as opposed to citizen welfare
·        The Wealth of the nation is not equitably distributed.
·        Corruption and mismanagement are more pronounced in a mixed economy.
·        With the combination of the capitalist and socialist economics systems, a lot of problems arise.

Overview:     
In a nutshell what role should the government play in the economy? None? Lots? Something in the middle?
            Different people will have different answers, but that the key question in shaping the worlds different economic systems. Economists generally recognize four types, the critical factor separating these four types is the degree of government involvement in the economy.
            Most economic decisions are made in the market place by individuals who exercise a great deal of control over their economic lives. But the government also plays a large role in the economy, acting as a referee for market activity and influencing the allocation and distribution of resources. How big that role should be is something of a war between the political and economic aspects of the said country and it can be quite a controversial topic.

Reference
Ewa Udu – West African economics (1978)                                                                                 Evans Brothers
Alfred Marshall – Principles of Economics (2000) 8th Edition. Macmillian and co. Ltd
Ken Cole – Understanding Economics (1995)    Pluto Press                

A. C. Pigou – The Economics of Welfare (2013) 4th Edition Palgrave macmillian
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