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Mixed Economy Brought Great Changes To China

2177 words - 9 pages

The centrally planned economy has proven to be a failure due to the collapse of the Soviet Union. In 1979, the economic situation in Laos further proved that central planning is a dead duck. Throughout the century, most countries have forgone the system of centrally planned economies and are undergoing a process of transition to mixed economies. Such phenomena are taking place all around the world because the transition could bring great changes to their countries. Mixed economy is actually an economic system directed by both the state and the private sector. In this system, the centrally planned economy and market economy co-exist. Such a hybrid system is introduced simply to overcome the ...view middle of the document...

There are a few arguments against centrally planned economies and reasons of the transition to mixed economies.
First of all, there is an argument by Friedrich Hayek’s knowledge problem against centrally planned economies (R. McElroy, 2005). His argument was that the malfunction of a socialist country is due to the lack of a price system for consumption goods. The main purpose of a price system is to organize economic activity through the coordination of decision of consumers and producers. In a centrally planned economy, the government set prices willy-nilly without referring to the reality of economic circumstances, which is always changing unpredictably. The prices are fixed in concurrence with their ad hominem goals, maledicting the consumers. The existence of an efficient price system in an economy can help to guide economic activity flawlessly as the prices fluctuate with the availability of resources. Market prices effectively convey messages about relative scarcity of goods and services to both the consumers and producers and efficiently lead to economic activity coordination. Look at the example of the restriction of oil supply by OPEC cartel during the 1970’s (Mark J. Perry, 1995). The price of oil rose so drastically until both consumers and producers reacted vigorously to the change. Consumers sought for alternatives to reduce oil usage, for example carpooling and taking public transportation, thus conserving the precious resource whereas producers increased their effort in oil exploration and development of alternative resources to replace this scarce resource. Therefore, the price system is undeniably the sole method to create incentives which will ensure economic efficiency.
There is also an argument about the incentive problem in centrally planned economies (R. McElroy, 2005). Under the system of central planning, everyone has an iron rice bowl and people receive only according to their basic amenities. There is no reason to work hard or do unpleasant jobs when they can receive the same reward by doing less work. Jobs such as sewage cleaners or garbage collectors become disdained and no one is willing to plot the farm under the scorching sun or strive through medical school. In the long run, shortages would appear in many sectors and this certainly will cause stagnation to the economy.
Mixed economy is developed by including elements of free market economy into the system to overcome the weaknesses of centrally planned economy. Different countries have a different mixture of degrees of private economic freedom and government regulation of markets in their mixed economies. Policies variegate between countries in different aspect, however, all of them are of the same objective, which is to improve the economy of their countries and welfare of citizen.
Mixed economy enhances the economic development of the country. In a mixed economy, both state and public sectors have adjacent roles in developing the economy. Their efforts...

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