Free Market Economy vs. Command Economy

12 December 2016

Free market economy stimulates greater economy growth, whereas state-directed or command economy stifles growth. Discuss. An economy can be defined as the production of the nation in a period and consumption of goods and services. The two main systems of economy are free market economies and command economy. There are lots of arguments about which is better for the growth of nation’s economy. This essay is about both the two economic systems and how they impact the growth of economies, it will be then discusses the special economic system of China.

A free market economy is an economic system that is out with the control of a political party or government. The customers’ ability to pay determines which direction will be focused by market, and the ownership of an enterprise is private or public but not state. As Greg Philo and David Miller (2001) state that the social right to have enough food or to be warm depends on the ability to pay, and these items that we need in our lives are not provided by ‘public service’ companies but by private industry.

In a free market, the growth rate of the economy depends on the degree of market liveliness that has a link with the costumers’ purchases. So, the economy can grow freely in such an economic environment that is not controlled by governments. However, compared with command economies, the process of economic growth is completely different. Command economies are much more monotonous without fierce market competition which is a feature of free market economy. The command or state-directed economy is an economic system that is under the control of government.

What command economies focus on is the level of production, which means the guide of market is government but not customers. Growth of economies under the command economic system is increasing with a predictable future, because the economies are developed under a plan. The command economy takes control of the nation’s economy using CPE, centrally planned economy, which is a coordination measure opposed to the market. As Marie Lavigne (1999) said a plan is a set of techniques to achieve the future goals in a most efficiently process.

In the socialist economy, the plan is mandatory. There are a number of people who claim that a free market economic growth can increase economy faster than command economies while command economy keeps the economy back. Is it really true? It is widely believed that lots of countries that have large size of economy are under free market economies. But in capitalism, which under the free market economy, there is an ideology providing by the money in market. People under the free market always have an exclusive concern with money and seize a chance to seek private gain.

Then they will lose their dream that they hold before in the market while command economic countries are growing their economies arranged in a good order. The shortage of free market economy has occurred in the Asia Financial Storm (1997) and the Global Financial Crisis (2008). The effects in countries under command economy, such as China, Vietnam and North Korea, are much less than Japan, Europe and the United States where is the origin of the Global Financial Crisis (2008). However the economy under the control of government is not as terrible as we thought.

Although the Soviet Union which is the representative of the countries under command economy broke up on 1991, but there are a number of examples to prove that command economies have benefit with the nation’s economy. As Gur Ofer (1987) states that since Bolshevik Revolution (1917), the Soviet Union achieved the economic modernization gradually. During 1928-1985, the economic situation developed from an undeveloped economy to a modern industrial economy. Furthermore, the GNP (Gross National Product) of the Soviet Union grew by a factor of 10, and the level of GNP per capita grew more than five times.

Industrial structure in the Soviet Union had changed dramatically. In 1928, 82 percentage of population in the Soviet Union are organized by rural people and the economy of agriculture made the majority of GNP. However, the population in urban grew to 78 percentage and 40-45 percentage of GNP was made up by industries. Thus, both the two economic systems are not wonderful for the growth of economy but there is example from China which is different from both free market economies and command economies.

China’s economic system seems strange for a number of people, because the economic system of China combines free market economy and command economy together. It is true that Chinese average gross domestic production (GDP) growth increased from nearly 4 per cent prior to 9. 5 per cent approximately during 1978-2005. 1978 is a special year when China’s government decided to combine free market economy to command economy which China used before. Loren B. and Thomas D. Rawski (2005) claimed that before 1978, China’s overall output grew faster than GDP in United States and India, and fell far more behind Japanese performance.

After 1978, the size of China’s economy expanded dramatically pushing Chinese output from 37. 5 per cent of Japan’s 1978 figure to 219. 2 per cent of Japan’s 2004 GDP. Compared with free market economy and command economy, the economic system in China seems like a better choice. To conclude, the free market economy is an economic system that provides a free environment. In such an environment, economies can grow outside the control of the government, but there is a risk that economies may be developed in a so confused order that stifle the growth of economies.

Although the economic system of command economy can develop economies in a good order, there is no enough proof to prove that command economies can growth economies faster than the free market economy. However, China is the only one country that keeps a high-speed growth of economies for over 30 years, and China’s economic system that combines free market economy and command economy strategies together can be a great formwork to be studied by other countries.

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