Characteristics of Market or Capitalist
Economies
- The
dominant form of ownership of property and wealth is PRIVATE PROPERTY.
This means that the vast majority of the means of production of material
goods and services such as factories, farms, banks, insurance companies
etc or the “Commanding heights” of these economies are
owned by private entrepreneurs.
- The
primary objective and motivation of the vast majority of economic activities
in whatever sphere of business (food, clothing, health care, housing,
transport, education and others) is the PROFIT MOTIVE
- The Market
or Price system is generally the main mechanism used in these economies
to allocate scarce resources to the members of these societies and
between the sectors of these economies. This means that prices are
the main but not the only criteria employed to allocate scarce resources
- The
Government sector is generally expected to play a SMALL ROLE or a MINIMAL
ROLE in the management of economic affairs ie in
answering the five (5) main economic questions of resource allocation,
price determination, etc. The philosophical basis and rationale for the
role of government are rooted in Classical Liberalism and are:
(a)An active government in
economic affairs “crowds out” the private sector ie private
investments and innovations and is less efficient in using resources than
the private sector
(b)The private sector ie the
private sector or private property owners, innovators, investors are more
efficient in using resources than the government
(c) The “Best government
is the one that governs least”
(d)Government’s role in the
economy should be confined to do the things that government does best such
as designing and implementing contract laws, property rights, providing
national security to its citizens, providing currency or legal tender etc
- Competition and Competitive Markets are
arguably fostered to ensure cost, price, quality efficiencies that are
mutually beneficial to successful firms and to consumers
- The
pursuit of individual Self-Interests is generally realized primarily
through private markets (See Principle#7- “Government can sometimes improve
market outcomes”)
- The
existence and protection of Voluntary Exchange in markets
- The
official existence of the Judicial or Court System is to resolve conflicts
between citizens( ex. Employees and employers, wives and husbands, neighbors
and other groups)
Characteristics
of Centrally Planned or Socialist Economies
- The
dominant form of ownership of production and wealth is PUBLIC or SOCIAL PROPERTY. This means that the vast majority
of the means of production of material goods and services such as factories,
farms, banks, transportation facilities, insurance companies etc or the “Commanding
heights” of these economies are publicly or socially owned or
more popularly are state-owned
- The
primary objective and motivation of the vast majority of activities in
whatever sphere of the economy (production, wholesale, retail etc) is
the satisfaction of the of the ESSENTIAL NEEDS of the population for
food, clothing, health care, housing, transport, education and others
- The Central Planning
or Command System is generally the main mechanism used in these
economies to allocate scarce resources to the members of these societies
and between the sectors of these economies. This means that non-price
mechanisms such as worker effort, work attitudes and motivation, wants,
needs among others are the main but not the only criteria employed
to allocate scarce resources. Importantly it should be stated that
prices are also used to allocate resources in these economies though
they are not the central mechanism.
- The Government sector
generally plays the MAJOR ROLE or the COMMANDING ROLE in
the management of the economy through its design and execution of the CENTRAL
PLAN for the economy for all of the opposite reasons for the minimalist
role of the government sector in capitalist market economies earlier
stated
- Competition and Competitive Markets are
generally not fostered by the Central Planning agencies in these economies.
The latter usually leads to less efficient costs, low quality and huge
subsidies to maintain low prices for goods and services. The market or
price system is heavily restrained and overshadowed by the Central Planning
System in these economies
- The pursuit of individual Self-Interests is
generally realized through private and social markets. The latter types
of markets are predominant in these economies. (See Principle#7- “Government
can sometimes improve market outcomes”)
- The
existence and protection of Voluntary Exchange in markets
- The
official existence of the Judicial or Court System is to resolve conflicts
between citizens( ex. Employees and employers, wives and husbands, neighbors
and other groups)