Socialism Vs. Capitalism & Everything In-Between.
We have all grown up seeing that we live in a world that divides our planet into territories. These territories are bordered by imaginary lines that divide us from them. The borders in which we live play a major role in developing each of our identities, our customs or traditions, the way we conduct ourselves in business and personal endeavors. Some of us have grown up with an expectation of freedom to choose, while others depend on their government to act in their best interest. Depending on what country you call home, you either participant in a free market economy, a controlled economy, or a mixture of both. In this report we are going to ...view middle of the document...
This rule assumes that the best product will win over an inferior product. The rule of free competition paved the way for the theory of supply and demand, when operating within a capitalist economy.
The theory of supply and demand articulates that the supply of products and services are determined by the demand for them. This verbalizes to say that “when supplies increase, prices tend to drop. If prices drop, demand usually increases until the supplies are depleted. Once the supply is depleted the price will rise once more” (Freidman). This will continue in a cycles of ups and downs to keep the prices from getting too high or too low.
In modern times, more nations are trending towards a free market (Sorman). According to my research into political rankings across the world; Hong Kong, Singapore, Australia, Switzerland, and New Zealand, in order, are the five freest political systems in the world(Heritage House).
On the opposite side of the economic spectrum is a centrally planned economy. In a planned economy industry is owned and managed by the government. The government controls what is brought to market and what price the commodity or service will be sold for. The theory of supply & demand does not drive consumer choices. In a planned economy the government aims to provide goods and services to the masses, as opposed to turning a profit (Sen).
Historically, centrally planned economies tend to be practiced in socialist societies. Typically the government creates a five year plan for each sector and region of the country. This five year plan is broken down into short term plans to achieve goals that will robust the economic growth and increase production efficiency (Gregory). The goal of a centrally planned economy is to “allocate all resources, as planned, and utilize them and the nation’s capital, and labor in the most effective way possible”(Grossman). In turn, the economy will experience a “lower rate of unemployment, since there will be a job that uses each person’s skills and abilities to the highest capacity”(Gregory).
A major difference between a free market and a planned market is that, in a planned economy there is little to no domestic competition. This is especially true if the government owns a monopoly business in a key industry. Also, other disadvantages of a centrally planned economies are;”the lack of consumer choices and the in-efficiency of the industries”(Grossman). Often times the inefficiency of a command economy leads to the over production of one item and not enough of another item. This miss appropriation leads to costly waste.
Command economies see a low level of autonomy and are discouraged from making any decisions without consent from the commanding force. As a result there is a lack of innovation . They lack individual freedom to exercise their creativity. This often leads to repression. As of the 2014 Index of Economic Freedom, the 5 most repressed countries are Eritrea, Venezuela, Zimbabwe, Cuba,...