Planned and market economies
Introduction
Human beings are solely responsible for sustainable development in the world’s business environment. Due to the need to solve environmental and human needs, governments and business sectors have utilized factors of production. Planned and market economies determine the organization of markets. Their major differences arise in the ways of management of factors of production. The various activities performed by an economy determine the externalities and benefits of a country’s economic stability. Market economies are majorly characterized by the privatization of property and decision-making processes. On the other hand, planned economies have a structured norm where government officials are in control of production factors. Decision-makers on employment are the key differences between these economies. Each type of economy influences the political and social landscape of an economy. Command economies result in authoritarian leadership while command economies resulting in democratic nations. The majority of governments issue regulations on businesses by inducing taxes or levies, redistribution of employment, and directing service provision. The public interest theory attempts to explain the impact of government regulations on determining a country’s economy. Restriction of the number of employees per firm for a particular department balances all sectors’ production levels. This thus ensures balanced economic growth.
Market economies
Market economies and planned economies have different perspectives on the organization of economic activities. Any particular central authority does not organize activities that occur in the market economy but majorly depend on the division of labor and supply and demand of goods and services. Market economies majorly rely on the labor market to obtain an order from the unplanned economy. For instance, if a production firm decides to produce a certain number of goods annually, the government cannot instruct them to produce more. However, their production rate will majorly depend on the size and quality of their labor force.
Planned economies
In planned economies, governments own the critical factors of production. Government officials such as politicians and appointees determine the rate and quantity of goods produced. The social division of labor is controlled by a centralized government that is in control of all businesses. They are often considered authoritarian economies whose rate of production is directly influenced by governments of the day. Government officials can instruct industries and businesses to employ a specific number of workers to perform particular activities. Since labor is efficiently managed, the production rate in planned economies is more likely to be moderated. For instance, if government officials discover that some goods are produced in higher quantities at the end of the year than others, they would adjust labor distribution to balance production targets in the next year.
From the comparison, the decentralization of employment decisions is the major difference between the two economies. Market economies do not have a structured way of determining the rate of employment. Competitors strive for labor and quality of production. Their employment rates determine the levels of production. In planned economies, however, employment rates and related decisions are made directly by government officials. Division of labor is the technical division of tasks where specialized production of commodities is divided between workers according to their occupations. Depending on gaps in the economy, workers of different specialization can be employed. For instance, if there is a break out of a pandemic, more health workers are likely to be employed than engineers. Social division of labor creates interdependence, thus developing the exchange market. Freedom for labor division results in the diversification of markets and increased quality of products. Therefore, productivity rates of labor are likely to be higher in market economies than in planned economies.
Capitalism
A capitalist society is a political, social, and economic system where the property is owned and managed majorly by private persons. Under capitalism, labor is exchanged for money in the form of wages. The pricing mechanism, therefore, controls the supply and demand for labor. Here all markets in an economy are controlled by one particular political authority, usually the government. Governments are tasked with creating peace, fair taxation, and a tolerable administration of justice, which are crucial for businesses’ growth. According to Adam Smith’s argument in the Wall Street Journal, the government should endeavor to work as a regulatory agency. He states that “As every individual… endeavors…to employ his capital in support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual labor to render the annual revenue of the society as great as he can. [While] he intends only his own gain, he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” He argues that a capitalist society is more likely to be biased as individuals in control of factors of production tend to distribute them unevenly. He argued that government laws should still regulate a capitalist society, and profits realized should be heavily taxed.
Regulation of capitalist societies is crucial for creating rules for ownership of factors of production by governments, businesses, and civil society. These regulations protect citizens’ public interest, rights, and safety in the delivery of goods and services. Governments such as ours mainly control inflation and deflation levels through the formulation of fiscal and monetary measures. If the inflation rates are high, governments should lower taxes and induce levies to ensure that prices of commodities remain at acceptable margins.
Furthermore, governments in capitalist economies seek to control businesses by regulating monopolistic and large corporations’ power. This can be achieved by the government developing parastatals competing with monopolistic markets. Increased competition will solve economic problems such as unemployment and inequitable distribution of resources caused by fewer minorities. Through these parastatals, governments create competitive job markets and opportunities requiring existing companies to value highly technical and skillful workers. According to economist Colin Clark, “The role of government must be held to a ceiling of 25% of national income.” He suggests that capitalist societies should enforce regulatory measures that ensure businesses contribute up to 25% of national income. Furthermore, capitalist governments control businesses by owning public utilities such as railways, electricity, water, and medical care. When companies require services of these utilities, they are given at regulatory portions at a fee by the government.
Governments in capitalist economies further control businesses by handling environmental problems such as the threat of extinction of natural resources. Governments provide alternative resources and manufacturing techniques to ensure companies avoid exploiting scarce resources. Capitalists can also abolish manufacturing techniques that pollute the environment on a large scale. Therefore, it is evident that governments in capitalist economies can control businesses by supporting private ventures and creating regulations. They also maintain law and order, thus safeguarding freedom of businesses and thus ensuring businesses provide high-quality goods to the public in large quantities.