Economic Systems: A Comparative Analysis
Introduction
A nation's economic system is the way it sets up its production
and distribution of commodities and services. Traditional,
market, command, and hybrid economic systems are the four
primary categories of economic systems. Every system has
distinct features, benefits, and drawbacks. With the use of
recent real-world examples, this paper seeks to give a general
overview of each economic system, covering its history,
operation, and prospects.
Traditional Economic System
Social values, traditions, and conventions form the foundation
of a traditional economic system. It is frequently seen in rural
or indigenous communities where social and cultural norms
serve as a guidance for economic activity.
Operation: In a traditional economic system, traditions and
practices serve as the foundation for economic decisions.
Bartering is used to exchange things, and production is
frequently centred on subsistence.
Origin: Societies with close cultural and social links are more
likely to have traditional economic systems, which date back
thousands of years.
Future: Although modernisation and globalisation may provide
difficulties, traditional economic systems are probably going to
persist in rural or indigenous areas.
As an illustration, the Inuit people of Greenland and Canada
have a traditional hunting and fishing-based economy that is
governed by social and cultural norms (Usher, 2003).
Command Economic System
In a command economy, the majority of economic decisions are
made centrally by the government. It frequently connotes
communist or socialist beliefs.
Operationally, a command economy is one in which the
government owns and manages important economic sectors
like manufacturing and farming. The government makes
economic choices and allocates resources according to its
goals.
Origin: During the 20th century, command economic systems,
especially in the Soviet Union and Eastern Europe, came into
being.
Future: Although certain nations, including North Korea and
Cuba, still have command economies, command economies
have mainly decreased after the fall of the Soviet Union.
For instance, the government of North Korea controls the
majority of the economy, including both industry and
agriculture, under its command economic system (Haggard &
Noland, 2010).
Market Economic System
Individuals and corporations make economic decisions in a
market economy, which is a decentralised system. It is
frequently linked to ideas of capitalism.
Operation: In a market economy, supply and demand, among
other market factors, influence the economic decisions made
by both individuals and corporations. Market pricing determine
how resources are distributed.
Origin: In the 18th century, market economic systems,
especially in Western Europe and North America, began to take
shape.
Future: Although some nations have put laws in place to
address problems like income inequality and environmental
damage, market economic systems still control the majority of
the world economy.
For instance, under the market economic system in the US,
people and companies base their financial decisions on the
demands of the market (Krugman & Obstfeld, 2009).
Mixed Economic System
The components of both market and command economies are
combined in a mixed economy. It is frequently linked to social
democratic principles.
Operationally, a mixed economy allows for both private sector
and market forces while also allowing the government to step
in and solve problems like environmental degradation and
income disparity.
Origin: In the middle of the 20th century, mixed economic
systems, especially in Western Europe and North America,
began to take shape.
Future: As mixed economies continue to develop, some nations
are reducing government involvement in the economy while
others are pursuing more comprehensive measures.
For instance, Sweden has a mixed economy in which the
government controls businesses and offers substantial social
welfare programs, but it also permits private sector and market
forces (Henrekson, 2014).
Conclusion
To sum up, every one of the four primary categories of
economic systems has distinct traits, benefits, and drawbacks.
Command economic systems are centralised and governed by
the government, whereas traditional economic systems are
founded on traditions and norms. While mixed economic
systems have aspects of both command and market economic
systems, market economic systems are decentralised and
driven by market forces. Gaining knowledge about these
various economic systems can help one better understand the
intricacies of economic structure and decision-making..
