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Planned Economy
A p l a n n e d e c o n o m y i s a l s o s o m e t i m e s c a l l e d a Command economy.
T h e m o s t important aspect of this type of economy is that all
m a j o r d e c i s i o n s related to the production, distribution, commodity and service
prices, are all made by the government. The planned economy is government
directed, and market forces have very little say in such an economy.
The government is the fi nal authority to take
decisions regarding production, utilization of the fi nished industrial produc
ts and the allocation of the revenues earned from their distribution.A plan
ned economy aims at using
all available resources for developing production instead of allotting
the resources for advertising or marketing.
Characteristics of Planned Economy:
By n atu re , a Pl an ne d E con omy i s more stab l e , gu a ran te ei n g c
o n s t a n t e x p l o i t a t i o n o f t h e e x i s t i n g r e s o u r c e s . I t i s l e a s t a ff e c
t e d b y fi n a n c i a l downturns and inflations.
In a carefully structured Planned Economic system, both surplus production
and unemployment rates remain at a reasonable level
The steady nature of Planned Economy encourages investments in
long-standing project-related infrastructures without any possibility of
financial recessions.
The vision of Planned Economy is not making profit. This system prefers
deliberate planning of the entire money making process for better results.
Infect, such sincere economic planning in the long run proves
benefi cial to improve the economic conditions of a country.
Socialism
A) Socialism
T h e U n i o n o f S o v i e t S o c i a l i s t Re p u b l i c ( U S S R ) w a s b o r n w i t h t h e
B o l s h e v i k Revolution of 1917. Marxs ideas helped shape the economic
system adopted by the new nation. The communist leadership set up a
centrally p l a n n e d s y s t e m t h a t , u n t i l 1 9 8 5 , w i t h o u t t h e p r o fi t m o t i v e .
I t w a s a classic example of a Planned Economy. The government owned
productive resources, fi nancial enterprises, and retail stores and banks. In a
planned economy, the government is the owner because it speaks for the
people. Privet citizens own personal property, such as autos, clothing and
furniture.
B) Perestroika
Mik h ai l Gorb a ch e v, ge n e ral se cre t ary of the Commu n i st p art y, b e g
an a new
p rog ram call ed Pe restroi ka in 19 85 . Pe restroi ka me an s
e c o n o m i c re stru ctu ri n g . Un de r th i s p rog ra m on J an u ary 1, 1988,
a b o u t 6 0 % o f Soviet enterprises were put on self-financing basis. Gorbachev
promoted
Increase of unemployment:
Rate of unemployed people increases. Business wants to maximize profi t by
minimizing costs. They get minimum number of staffs.
Capitalism
A system of economics based on the private ownership of capital and production
inputs, and on the production of goods and services for profit. The production of
goods and services is based on supply and demand in the general market (market
economy), rather than through central planning (planned economy). Capitalism is
generally characterized by competition between producers. Other facets, such as
the participation of government in production and regulation, vary across models of
capitalism.
Explanation
Capitalism rose to prominence with the end of feudal economies, and has become
the dominant economic system in developed countries. Specific tenets of
capitalism, such as property rights and wage labor, can also be considered
cornerstones of representative government. Capitalism is often closely associated
with economic growth, as production and price are determined by the market rather
than by governments. Private property rights provide individuals with the freedom
to produce goods and services they can sell in the market.
Capitalism has been criticized for its underlying focus on profit, and how that focus
can lead to social and economic inequality. Further, it is also criticized for its
emphasis on consumption, as the constant purchase of goods and services is
necessary for capitalism's success.
Advantages
Economic freedom helps political freedom. If governments own the means of
production and set prices, it invariably leads to a powerful state and creates a
large bureaucracy which may extend into other areas of life.
Efficiency. Firms in a capitalist based society face incentives to be efficient
and produce goods which are in demand. These incentives create the
pressures to cut costs and avoid waste. State owned firms often tend to be
more inefficient (e.g. less willing to get rid of surplus workers and less
incentives to try new innovative working practices.)
Economic growth. With firms and individuals facing incentives to be
innovative and work hard this creates a climate of innovation and economic
expansion. This helps to increase real GDP and lead to improved living
standards. This increased wealth, enables a higher standard of living; in
theory, everyone can benefit from this increased wealth, and there is a
trickledown effect from rich to poor.
Disadvantages
Monopoly Power. Private ownership of capital enables firms to gain monopoly
power in product and labor markets. Firms with monopoly power can exploit
their position to charge higher prices.
Monopsony Power. Firms with monopsony power can pay lower wages to
workers. In capitalist societies, there is often great inequality between the
owners of capital and those who work for firms.
Social Benefit Ignored. A free market will ignore externalities. A profit
maximizing capitalist firm is likely to ignore negative externalities, such as
pollution from production. This can harm living standards. Similarly, a free
market economy will under-provide goods with positive externalities, such as
health, public transport and education. This leads to an inefficient allocation
of resources. Even supporters of capitalism will admit that government
provision of certain public goods and public services is essential to maximize
the potential of a capitalist society.
Inherited Wealth and Wealth inequality. A capitalist society is based on legal
right to private property and the ability to pass on to future generations.
Capitalists argue that a capitalist society is fair because you gain the rewards
of your hard work. But, often people are rich, simply because they inherit
wealth or are born into a privileged class. Therefore, capitalist society not
only fails to create equality of outcome, but also fails to provide equality of
opportunity.
Inequality creates social division. Societies which are highly unequal create
resentment and social division.
Diminishing marginal utility of wealth. A capitalist society argues it is good if
people can earn more leading to income and wealth inequality. However, this
ignores the diminishing marginal utility of wealth. A millionaire who gets an
extra million sees little increase in economic welfare, but that 1 million
spent on health care would provide a much bigger increase in social welfare.
Boom and Bust cycles. Capitalist economies have a tendency to booms and
busts with painful recessions and mass unemployment. See: Boom and bust
economic cycles
Mixed Economy
M i xe d e c o n o m y i s a t e r m u s e d t o d e s c r i b e a n e c o n o m i c s y s t e m ,
w h e r e s o m e important production is undertaken by the state, directly or
through its nationalized industries, and some is left for private enterprise. In a
mixed type economy, both t h e p r i v a t e o w n e r s h i p a s w e l l a s t h e
g o v e rn m e n t t ake s p ar t in t h e p ro ce s s o f p ro d u ct i o n an d
distribution and other economic activities.
The mixed economy allows private participation in the fi eld 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 maximizing social welfare. In a mixed economy there is flexibility in
some areas and government control in others. Mixed economies include both
capitalist and socialist economic policies a n d o f t e n a r i s e i n s o c i e t i e s
t h a t s e e k t o b a l a n c e a w i d e r a n g e o f p o l i t i c a l a n d economic views.
Bangladesh
Bangladesh economic system is mixed economy. Both private and government
is producing and distributing goods and services. Defense, roads, education,
pension and some medical care are under the authorization of government. Private
sectors are also providing goods and services to the people.
Conclusion
Diff erent countries follow diff erent types of economic system. But now a
days most of the countries are adopting mixed economy system. Even capitalist
country U.S.A., socialist countries like China, Cuba are moving their
economic system towards mixed economy. Now pure capitalism and socialism are
found in books only. Because of fl exibility, government support,
international business policy countries are being interested in mixed economy.