Download Economic systems overview

What are the main types of economic systems?
TRADITIONAL ECONOMY

PEOPLE PRODUCE THE SAME GOODS AND USE THE SAME METHODS AS THEY
ANCESTORS DID.
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JOBS AND PRODUCTIVE SKILLS ARE HANDED DOWN FROM PARENTS TO CHILDREN.
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PEOPLE SHARE EXPENSIVE / HARD TO GET TOOLS AND OTHER MEANS OF
PRODUCTION, WORK TOGETHER WHEN NEEDED, SHARE THE RISKS AS WELL AS THE
RESULTS OF THE PRODUCTIVE PROCESS.

KEY DECISIONS ARE MADE IN A COLLECTIVE WAY. THE ADVICE OF THE ELDERS IS
TAKEN IN CONSIDERATION.

CHANGES OCCUR SLOWLY AND MANY TIMES ARE OPPOSED AT THE BEGINNING.
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PEOPLE LIVE AND ACT LIKE FAMILY. HONOR, TRUST, RESPECT, AND MUTUAL HELP ARE
KEY ELEMENTS FOR THE SURVIVAL OF THE GROUP.

TAKING CARE OF THE ENVIRONMENT IS A VITAL ISSUE.
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ESKIMOS, NATIVE AMERICANS IN SOME RESERVATIONS, AMAZON’S TRIBES, SOME
AFRICAN GROUPS, NATIVE AUSTRALIAN TRIBES, ETC.
COMMAND ECONOMY

SLAVERY: EGYPT, ROME AND OTHER ANCIENT EMPIRES.
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COMMUNISM (1917-90): SOVIET UNION, CHINA, EASTERN EUROPEAN BLOC, VIETNAM, NORTH
KOREA, CUBA.
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DEMOCRACY (PARTIAL USE: TAXES, INTEREST RATES, MINIMUM WAGE, WELFARE POLICY,
ENVIRONMENTAL LAWS, INTERNATIONAL TRADE, ETC.)
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IN THIS SYSTEM, THE GOVERNMENT OR THE “SOCIETY AS A WHOLE” OWNS MOST OF THE
RESOURCES AND MEANS OF PRODUCTION.

THE GOVERNMENT ALSO DECIDES ON: WHO IS ASSIGNED TO DO EACH JOB, PRODUCTION
GOALS, DISTRIBUTION OF TOOLS AND MACHINERY TO THE FACTORIES, WAGES AND PRICES,
DISTRIBUTION OF GOODS AND SERVICES THAT RESULTED FROM THE PROCESS OF
PRODUCTION.

THE SYSTEM OF PUNISHMENT AND REWARDS TO ENCOURAGE THE FACTORIES AND
INDIVIDUALS TO COMPLY WITH THE RULES AND PLANS. LEADERS APPEAL TO MORAL /
COMMON WELFARE / POLITICAL / RELIGIOUS MOTIVATIONS TO PUT PRESSURE ON
PRODUCERS AND MAKE THEM OBEY THE ORDERS.
B=
A=
MARKET ECONOMY

ADAM SMITH, THE “FATHER OF CAPITALISM”. The Wealth of Nations (1774): THE
LAISSEZ-FAIRE DOCTRINE.

THE DESIRE FOR PROFIT IS THE “INVISIBLE HAND” THAT GUIDES THE SYSTEM OF
DEMAND AND SUPPLY. COMPETITION GUARANTEES QUALITY AND GOOD PRICES.

THE GUIDING PRINCIPLE IS THE SELF-INTEREST.

PRIVATE INDIVIDUALS AND BUSINESSMEN OWN MOST OF THE RESOURCES AND
MEANS OF PRODUCTION.

PRODUCERS COMPETE ONE TO EACH OTHER TO GAIN CONSUMERS’ PREFERENCE AND
MAKE A PROFIT.

CONSUMERS’ PURCHASES DECIDE WHAT SHOULD BE PRODUCED IN THE FUTURE.

PEOPLE SELL THEIR LABOR FOR THE HIGHEST WAGES THEY CAN OBTAIN. PRODUCERS
SEEK THE HIGHEST PRICES FOR THEIR PRODUCTS.

SUCCESSFUL WAYS FOR MAKING AND SELLING PRODUCTS SPREAD VERY QUICKLY
(INNOVATIONS & NEW TECHNOLOGIES OR REVOLUTIONARY IDEAS). THIS IS A VITAL
NEED FOR BUSINESSMEN TO STAY IN THE MARKET.
MAJOR COMPONENTS OF THE MARKET SYSTEM
1-PRIVATE PROPERTY
2-FREEDOM OF EXCHANGE
3-COMPETITION
4-PROFIT MOTIVE
DISADVANTAGES OR PROBLEMS
1-INCREASING ECONOMIC AND SOCIAL INEQUALITIES AMONG PEOPLE. THE GAP BETWEEN THE RICH
AND THE POOR IS EACH DAY LARGER.
2-HUGE ECONOMIC AND SOCIAL DIFFERENCES BETWEEN CORE AND PERIPHERAL COUNTRIES.
NEOCOLONIALISM AND IMPERIALISM.
3-CYCLICAL ECONOMIC DEPRESSIONS OR CRISES.
4-PEOPLE TEND TO BE MORE SELFISH, MONEY FOCUSED, AND AMBITIOUS THAN IN OTHER
ECONOMIC SYSTEMS. THE SURVIVAL OF THE FITTEST AND THE LAW OF THE JUNGLE. THESE
ELEMENTS PROMOTE MANY SOCIAL PROBLEMS.
5-CONSUMERISM.
FREQUENT PROBLEMS
SHORTAGES OR SURPLUSES OF GOODS BECAUSE OF THE CENTRAL PLANNING.
PRODUCTS AND SERVICES’ LACK OF QUALITY (ABSENCE OF REAL COMPETITION).
LACK OF INDIVIDUAL MOTIVATION TO DO A BETTER JOB, TO TAKE CARE OF THE “COLLECTIVE
PROPERTY”, TO CREATE AND INNOVATE, TO IMPROVE THE SYSTEM. BUREAUCRATIC BARRIERS SLOW
THE CHANGES.
MANY PRODUCTS ARE SUBSIDIZED BY THE GOVERNMENT AS WELL AS FACTORIES THAT ARE NOT
PROFITABLE.
POLITICS DECIDES OVER ECONOMICS. MANY TIMES, THE WHIMS AND NON-SCIENTIFIC THEORIES OF
THE INDIVIDUALS WHO LEAD THE GOVERNMENT CAUSE ECONOMIC DISASTERS.
ADVANTAGES
THE GOVERNMENT IS ABLE TO RESPOND FASTER THAN IN OTHER SYSTEMS TO SOLVE NATURAL
DISASTERS, EPIDEMICS, AND OTHER EMERGENCY SITUATIONS (IT CONTROLS ALL THE RESOURCES).
ONCE APPROVED BY THE CENTRAL POWER, CHANGES IN THE PRODUCTIVE PROCESS CAN BE DONE
IN LESS TIME AND WITHOUT LEGAL OPPOSITION.