ADVANTAGES AND CHARACTERISTICS; DISADVANTAGES OF THE COMMAND/SOCIALIST ECONOMY AND CHARACTERISTICS OF PURE CAPITALISM
ADVANTAGES AND CHARACTERISTICS; DISADVANTAGES OF THE COMMAND/SOCIALIST ECONOMIC SYSTEM AND CHARACTERISTICS OF PURE CAPITALISM
The types of economic system and functions of economic systems have been discussed in an earlier writing. However, the merits and demerit and the characteristics of the command and capitalist systems in particular is of great importance, if the total functioning of economic systems is to be clarified.
SOME ADVANTAGES AND CHARACTERISTICS OF THE COMMAND ECONOMIC SYSTEM
The command/socialist economic system has a fairer distribution of income than other economic systems. This is not to say that differences in wages do not occur. It occurs when the economy decides to reallocate its manpower. It also ensures that adequate resources are devoted to community, public and essential goods and services like road, hospitals, defense etc. In this system, there is typically a high level of employment. Workers are employed in order to keep them occupied, although doing so may be unprofitable in certain cases. Most of the resources are publicly owned and it is the state which takes decision as to what to do with these scarce resources. A small proportion may however remain under private ownership.
The command economy uses advertisement to inform rather than to persuade. Thus resources are not wasted on competitive advertisement. Again goods and services are produced in the interest of the society. In this light, firms produce on a large scale not with the intention of making profit, but to satisfy the society as a whole.
SOME DISADVANTAGES OF THE SOCIALIST / COMMAND ECONOMY.
To some extent, consumers cannot choose the goods they want to consume since they do not have sufficient alternatives to choose from. In fact this is decided for by a planning authority. In this system, personal incentive may be reduced, since resources are owned by the state. This may lead to diminished efforts and initiatives. Moreover, officials are needed to estimate the amount of goods to be produced and to direct inputs of production, in the socialist economy. This may result in delays in arriving at decisions compared to the invisible forces of demand and supply playing this role. Sometimes too, officialdom has been accompanied with corruption.
CHARACTERISTICS OF PURE CAPITALISM
The main characteristics include freedom of choice and enterprise, private ownership, and competition. Under a purely capitalistic system, individuals are free to engage in any type of economic activity they wish, as long as they have the means to do so and it is in conformity with the laws of that economy. In other words, if they have the necessary ability or financing, and if there is demand for their product and services, individuals can choose to be merchants, bankers, bricklayers, teachers, doctors, plumbers and others. Moreover, they can choose what they wish to do with their income and accumulated wealth – buy new cars, invest in businesses, gamble or donate to charity, among other possibilities.
Private ownership means that individuals own the goods and the means of production in an economy. That is, individuals own not only the cars, stereos and houses produced by the capitalist system, but also the factories, land and their own labor. Private ownership is either less extensive or non-existent in other types of economic systems.
In a free enterprise system, we expect to see many firms and individuals competing with one another. The firms compete for markets for the consumers’ dollar or whatever currency, whereas individuals compete for goods and services they are willing and able to buy. Prices are kept at levels that reflect the cost of doing business including profits.
There are many firms which produce similar commodities which inevitably engage them in competition. They are therefore not in a position to control prices of their products. Owing to this competition, however, the firm are compelled to produce what consumers want and at a low price. If a firm charges a high price for a commodity produced by other firms, it will lose sales to these firms.
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