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The European Union Free essay! Download now

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The European Union

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The European Union



Command, market and mixed economies

Command economy

A type of communist economic system where the state controls macro-economic policy and entrepreneurial activity, but allows some freedom for economic decisions about employment and consumption at the household level. In other words, there is state control of the factors of production and centralised, state planning - what to produce, how to produce it, and who to produce it for - but with some freedom for individual decisions, for example, which job to take. Command economies have been criticised because they tend to be badly organised, lack quality control or worker incentives, and have been responsible for severe environmental degradation. We can see from the table (appendix 1) that the countries that emerged from the former USSR, which was a command economy have a much lower GDP than those in a market and mixed economy.

Market 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 and businesses and there is little government intervention or central planning.
Market economies work on the assumption that market forces, such as supply and demand, are the best determinants of what is right for a nation's well being.

While most developed nations today could be classified as having mixed economies, they are often said to have market economies because they allow market forces to drive most of their activities, typically engaging in government intervention only to the extent that it is needed to provide stability. Although the market economy is clearly the system of choice in today's global marketplace, there is significant debate regarding the amount of government intervention considered optimal for efficient economic operations.

Mixed economy

In a mixed type economy, both the private ownership as well as the state takes part in the means of production, distribution and other types of economic activities.
The mixed economy allows private participation in the field of production in an environment of competition with an objective of attaining profit. On the contrary following to the socialism features it includes public ownership in production for maximising social welfare.

Though many countries now-a-days are switching off from Command Economy to Market Economy (America) or Mixed Economy (France, Uk), there are still nations like China, North Korea and Cuba where command Economy still exists in full form.

However, this transition from a command economy to a free market economy was not easy.

In 1989, Poland became the first member of the former Soviet bloc to re-establish political democracy and a market economy. The fledgling government was faced with a stagnant economy, inflationary pressure, a large external debt, and market inefficiencies. GDP growth rate was nearly stagnant, growing by only 0.2 percent, consumer prices had risen by 250 percent, and real wages increased by a mere 9 percent. In view of the economic situation, the new government introduced radical measures that were intended to stabilize the economy and encourage the development of a free market. The country’s much publicized "shock therapy" had begun. There was massive a cut down in government spending, private enterprise was allowed and the government sat back and watched. Initially the inflation rose and the situation seemed to be worsening, when entrepreneurship and the laws of supply and demand kicked in, and the free market economy began to materialize.
In 1990–91, Poland experienced a deep recession throughout which GDP decreased by almost 20 percent, the demand for labour decreased, and unemployment increased. During the first 3 years of the nation’s transformation, both the State sector and the cooperative sector lost 4.6 million jobs, while the flourishing private sector created 2.6 million new jobs.

In 1992 the number of unemployed reached 2.8 million, of whom 80 percent had been previously employed. Since 1992, Poland has experienced annual economic growth ranging from 3 percent to 7 percent; correspondingly, inflation decreased from 585 percent in 1990 to 11.8 percent in 1998. Employment had increased, unemployment has begun to decrease, and real wages have risen once more, but despite its transition to a free market, today the GDP growth rate for Polland is £2,680 with a population of 38.72m compared to Luxembourgh with a population of only 0.42m and GDP of £20,919. The difference in new and old countries is still clearly evident today.

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