- The Government – they plan the allocation of resources.
- The Consumers – they buy the products from the businesses
- The Workers – they obviously work for the businesses
Motivation: the government, consumers and workers all tend to think of each other and co-operate with each other for the common good, this way there is good motivation and productivity is likely to rise.
Public ownership: as said previously the government own all of the businesses in a certain country therefore all factors of production are controlled by the planners, except labour, labour can only be directed by the government, there is no private Land, Capital or Enterprise.
Planning: The government will plan a way of allocating resources. Planners will direct labour into jobs, they will direct consumers what to consume but more likely direct producers to what they produce. There is a limiting factor to the choice of goods available to the consumer.
A good example of a planned market economy would be Cuba, since the revolution that brought Fidel Castro (the president) to power in 1958, there is free universal healthcare, education and any other social activities. Its main industries are owned by the state e.g. the sugar implantations. Other essential goods and services such as; petrol, clothes and food are rationed but they are subsidised by the state.
A market economy
In a market economy all of the allocation of resources is done by the spending of millions of consumers and producers. There are 4 types of ‘actors’ in this economy:
- Consumers
- Producers
- Owners (Land and capital)
- The Government
Motivation: Motivation in this economy is seen as self-interest from the actors. Consumers want to expand greatly on their self happiness or utility. Producers aim to maximise profits. Owners aim to maximise on wages, rents, interests and profits. The government on the other hand is guessed to be motivated by the public interest and not by self-interest. This would expand on social welfare.
Private Ownership: Mostly all of the private individuals or organisations in a market economy own the factors of production. Rights of citizens is upheld by the government to own property, this is done through laws.
Free Enterprise: All owners of factors of production, and all producers have the right to buy or sell through a market mechanism, the market mechanism was explained at the beginning part of this work (what? how? & for whom?) Labour can work where is wishes to work if there is job availability. People can set up there own businesses if they wish to its free to do so. Consumers can purchase what ever they wish to purchase that is available for them. Producers are free to sell whatever they would like to sell.
Competition: The government likes to encourage competition in this economy because then the consumer receives far more choice. Lower prices would be much better for the consumer as he can afford the price. Product differentiation, slight alterations to products gives far more choice. Firms become far more efficient as they are in a competing in a market; firms want the best reputation and cost of sales to increase so they will offer quality service to the customer.
Q3) Identify the disadvantages and advantages of these economic systems
Q4) Put forward an argument for the UK to adopt a pure planned market economy.
For the UK to adopt a pure planned economy would be a bad idea, I argue this as the UK is a mixed economy anyway, this means that there is private sectors and public sectors. NHS Healthcare is already free to us as well as education. Without taxation through private sector companies the public sector couldn’t exist. If the state owned/controlled the businesses in the UK, consumers would have no choice on products and competition wouldn’t exist anymore. The government (the planners) would direct consumers what to consume, direct producers what produce and direct workers into jobs. The UK’s public interest would be against this communist style of economy and would prefer to have a mixed economy. If motivation was lead by the workers, government and consumers then would be doing it for the common good rather than self-interest. I still believe that the UK should stay as a mixed economy although Tony Blair wants a ‘stakeholder economy’ where everyone should be interested in businesses. It is so there is less reliance on the government to provide the welfare of people i.e. pensions, health and employment. If Tony Blair would like to become more like the USA then were heading in the direction to becoming almost like a free market economy:
95% of the British receive medical treatment free, 5% have to pay whereas the USA, 95% pay for there medical treatment and 5% (under extreme cases) get it for free.
So this puts my argument into a different limelight, I think people would prefer not to pay for their healthcare in the UK and so we would be shifted more towards the planned economy.
To adopt a pure planned market economy has its advantages which we would have anyway with a mixed economy but there are many disadvantages, the UK is better of staying a mixed economy.
