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Are the obstacles to development best overcome by a planned or a free market economy?

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Introduction

Are the obstacles to development best overcome by a planned or a free market economy? The idea of the free market system, believes that under development is a result of poor governments, whom are accused of adopting policies which are economically damaging, and suggests the free market system is the best option to stimulate growth. Simply put the free market theory states that scarce economic resources are best allocated by the forces of supply and demand. The free market system relies on certain conditions for it to work sufficiently well, it assumes that the conditions for perfect competition exist in all the markets of the economy. That is that there are many consumers and producers of the good or service, there is perfect knowledge of the goods and price sexist on the part of both consumers and producers, the goods produced in the market are all perfect substitutes, meaning the goods are homogeneous, and finally the producing firms all have identical cost structures. But during the twentieth century it has been seen that there has been many arguments for government intervention because the free market system wasn't working well at overcoming economic problems. ...read more.

Middle

There could even be the possibility to increase the production possibility, if a firm is making abnormal profits, then there is the possibility to re invest, and improve the available capital this should inevitably lead to growth and development. But it isn't this simple for developing countries often they cannot do this, because the labour is paid such low wages profits are often difficult to come by and so investment is unlikely. This is the poverty cycle, and is major problem to development in developing countries. Also a free market economy doesn't over come the problem of poor natural resources, which can be a problem faced by developing countries. Poor natural resources mean there will be low productivity in the primay sector, making it difficult for the economy to get started and to begin to develop a free market system and hope to develop because of the proposed advantages this can bring about. Another problem it doesn't really overcome is the possibility of the country having a poor infrastructure, such as roads, health or education. With a poor infrastructure similar to the idea of poor natural resources it can be difficult to get the economy started and enable to grow and develop. ...read more.

Conclusion

In some cases government intervention has worsened the situation, and government failure is evident. This could be due to corrupt officials who waiver policies towards their best interests, with no consideration for the rest of the economy. So if governments do pose policies in an attempt to provoke development or growth, which is necessary in developing countries, they could be bias and selfish, only implemented to benefit themselves and could have an incredibly negative affect on the economy. I feel that government intervention and planned economy are a must to enable development. Because without them the benefits of a free market system cannot be exploited. In many cases developing countries don't have the equipment or resources to sustain a free market, such as road infrastructure, or education. So firstly these need to be put into place before development can occur, so the best way to do that is via government intervention, and investment to build a stable platform for growth and development to occur in the surroundings of a free market. So I feel neither can resolve or ease the obstacles to development on their own, but if both are used and the foundations are set in place the obstacles could be eased and development will occur. ...read more.

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