Economy SystemsEssay Preview: Economy SystemsReport this essayIII.ECONOMIC SYSTEMSAll organized communities mix, in various proportions, market activity and government intervention. Private markets themselves differ widely in the degree of competition under which they operate, all the way from single-firm monopolies to the fierce rivalry among hundreds of retailers. Much the same point applies to government intervention, which ranges from mild and comparatively uncoercive manipulation of tax, credit, contract, and subsidy policies through mandatory controls over wages and prices to the detailed central planning of Communist countries.
Even those societies most completely committed to central planning, however, grudgingly modify official ideology by some concessions to private enterprise. For example, the USSR allowed its farmers, although organized in collective enterprises, to market crops grown on their own small plots. During the Communist period in Poland, most farming was in the hands of individual owners. The former Yugoslavia experimented in worker management of factories during its Communist period.
Similar variation exists among capitalist economies. In most of them, the government owns and operates railroads and airlines. Even where outright government ownership or operation is exceptional, as in Japan, the central government exerts tremendous influence over economic activity. The United States, the most devoted of major capitalist economies to free enterprise, has nevertheless rescued faltering corporations such as Lockheed and Chrysler and has, for all practical purposes, converted a number of major defense contractors into federal subsidiaries. Many American economists have come to accept the concept of a “mixed economy,” combining private initiative with some government control.
Free EnterpriseThe major differences between Communist and American economic organization concern ownership of factories, farms, and other enterprises, as well as contrasting principles of pricing and income distribution. In the U.S. two-thirds of the nations gross national product (GNP) is directly generated by profit-making business enterprises, farmers, and such voluntary nongovernmental entities as private universities, hospitals, cooperatives, and foundations. Of the remaining one-third of the GNP, which is generated by the government, more than half represents transfers from taxpayers to old-age pensioners, veterans, welfare recipients, and other groups of beneficiaries. See Gross National Product.
In recent years in the U.S., the federal government has begun to deregulate industries such as air transportation and thus to diminish its influence over prices and the provision of services. Indeed, the most important price controlled by public influence is the price of money–that is, the rate of interest.
Although American opposition to both controls and national planning is strong, the U.S. government has repeatedly resorted to these measures in times of emergency, such as during World War II and the Korean War. In general, however, free-enterprise economies consider state ownership of productive facilities and government interference in price setting as deplorable exceptions to the rule of private ownership and price determination through the mediation of competitive markets.
Central PlanningPrecisely the reverse attitude toward economic central planning is the case in China and certain other Communist countries. Although small private enterprises are increasingly being tolerated, and no centrally planned economy has been able to function without some reliance on private ownership of agricultural land, the dominant ideology favors state planning over competitive price setting, and public ownership of factories, farms, and large retail establishments.
Strictly speaking, there is no reason why a democratic community could not freely choose to plan production, prices, and the distribution of income and wealth. In contemporary experience, however, central economic planning has generally run parallel to Communist Party control of political life. Nonetheless, important differences exist in the strictness of these constraints in different Communist countries and even within the same country at different times. It is also true that capitalism has frequently been accompanied by repressive government, as for example in Chile and Brazil.
The gravest problems of capitalism are unemployment, inflation, and economic injustice. Parallel problems in centrally planned economies include underemployment, rationing, bureaucracy, and scarcity of many consumer items.
Liberal Socialist EconomiesFalling somewhere between societies that emphasize either central planning or free enterprise are those that practice social democracy or liberal socialism. Examples of social democracy are the Scandinavian countries, Sweden in particular. Sweden organizes the bulk of productive activity under private ownership but regulates this activity closely, intervenes to protect the jobs of workers, and redistributes substantial portions of profits and large individual incomes to low-income groups.
On the other hand, the former Yugoslavia from the 1950s through the 1980s supplied an example of a liberal socialist society. Although the Communist Party dominated, censorship was mild, emigration was easy, religion was freely exercised, and a unique mixture of state ownership, worker management, and private enterprise combined to operate a comparatively prosperous economy.
CURRENT ECONOMIC PROBLEMSBetween 1945 and 1973, the economies of the industrialized nations of Western Europe, Japan, and the U.S. grew fast enough to vastly improve living standards for their residents. A similarly favorable growth was registered by some, but far from all, of the developing or industrializing nations, in particular such thriving Southeast Asian economies as Taiwan, Hong Kong, Singapore, and South Korea. Clearly several circumstances contributed to this almost unique historical performance. After the devastation of World War II, a substantial rebuilding boom, combined with lavish flows of aid from the U.S., generated rapid growth in Western Europe and Japan. American multinational corporations invested heavily in the rest of the world. Perhaps most important of all, energy was plentiful and
f a nation experienced a strong boom in the economy, as a substantial share of the nation’s income grew by leaps and bounds at a time when many of the world’s industrial nations were struggling to keep up with rapidly growing U.S. demand. In addition, and perhaps only a few decades earlier, the rapid growth of coal and other industrial plants, which had also provided a crucial economic basis for the growth in productivity of many developing countries, provided the rationale for high annual consumer price increases on consumer electronics, automobiles, and electricity. As the World Bank explained, these developments caused “global, persistent, and unprecedented inequality in the world’s energy supply for decades.” This was why many in developing countries felt that the United States was no longer sufficient in defending and increasing their living standards from a changing world order, as it had in the past decade. Since then, however, the “economic growth of economies in the developing capitalist countries in West and South, in particular those of South Asia,” the Bank said, has “unilaterally accelerated” the economic growth in developing countries in addition to that of their neighbors. As the Bank noted, this “unilateral acceleration of the rapid expansion of global energy security” seems to be “reinforcing the increasing dependence on US economic power in the region.”[ii] In addition, in response to rising public debt across the globe, it was clear that the United States was, in fact, the only country able to finance the necessary energy security and energy security reform measures of the international Monetary Fund.[iii] The rapid expansion of U.S. energy sources and the new American nuclear power-fired power plants made an enormous contribution to the well-being of these rich economies. However, much of the U.S. economy is still characterized by one of the largest and most successful economies in the history of the world, with a population of just over 90 million people.[iv] As the world economy continues to grow at nearly twice the rate of the preceding decade, the American economy is undergoing a rapid acceleration of its well-being. Between 1945 and 1973, that growth rate averaged over 9 percent, according to the IMF.[v] As far back as 1950, the U.S. economy was also growing quickly. The U.S. economy is estimated to be headed for the next 5 years as a result of three major trends that are clearly evident in the United States today:[vi] expansion in population, increase in gross domestic product, and growth in the labor force.[vii]
Recent Developments As of 2011, the United States continued to improve its position globally. The major changes during that process included, but were not limited to increased international trade and more favorable laws and policies on international trade,[viii] increases in U.S. defense commitments, and new initiatives to increase U.S. military modernization.[ix] Since then, the U.S. economy has been significantly better performing internationally than it could have been without the enormous international aid and trade cooperation and investment it received from the previous United States administration. On the positive side, as reported over the last year by the IMF, U.S. companies in nearly every industrialized country were investing massively and quickly in a wide variety of new businesses, and this has been more or less achieved worldwide, as