Capitalist system/Market economy
Capitalism or capitalist economy is referred to as the economic system
where the factors of production such as capital goods, labor, natural
resources, and entrepreneurship are controlled and regulated by private
businesses.
In a capitalist economy, the production of all the goods and services is dependent on the demand and supply in the market that is also known as a market economy. It is different from the central planning system that is also known as a command economy or a planned economy.
Features of Capitalism
Let us discuss the important features of capitalism or
capitalist economy.
- Private property: This is one of the most
important characteristics of capitalism where private properties like
factories, machines, and equipment can be owned by private individuals or
companies.
- Freedom of enterprise: Under this system, every
individual has the right to make their own economic decisions without any
interference. This is applicable to both consumers and producers.
- Profit motive: The motive of earning profit
is one of the most important drivers of a capitalist economy. In this
system, all the companies are looking to produce and sell their products
to consumers to earn maximum profit.
- Price mechanism: Under this system, the demand
and supply in the market will determine the production level and
correspondingly the price set for the products without any kind of
involvement from the government.
- Consumer sovereignty: In this system, the market is
controlled by the demands of the consumer. It regulates the level of
production undertaken by the companies, and the consumer is free to decide
which products to purchase.
- Free trade: In this system, the low
tariff barriers exist that promote international trade.
- Government interference: In a capitalist economy,
there is no government interference in the daily activities of the
business. The customers and producers are free to make their own decisions
regarding any product or service.
- Flexibility in labor markets: In capitalism, there is flexibility
in hiring and firing of the workforce.
- Freedom of ownership: In this system, an individual
can accumulate any amount of property and use it according to his will.
After his death, the same property is passed on to the successors by the
right of inheritance.
Advantages of Capitalist Economy
The following are the advantages of capitalism.
- There is more efficiency in the
capitalist economy as the products are produced according to the demand of
the consumers.
- There is less intervention from
the government or bureaucratic interference.
- There is better scope for
innovation as companies look to obtain a major part of the market with
their offerings.
- It discourages any form of
discrimination so that the trade can take place between two parties
without any barriers.
Disadvantages of Capitalist Economy
- Capitalism leads to
inequalities in income.
- In capitalism, firms can get
monopoly over workers and consumers.
- A high profit-earning motive of
a capitalist economy is to use resources in such a way that it leads to
environmental problems by destroying the natural balance.
Socialist system and Mixed Economy
The Mixed Economy is a system that combines
capitalism and socialism. The Mixed Economy incorporates the benefits of
capitalism and socialism while avoiding their drawbacks. Under a Mixed Economy,
the private and public sectors coexist. Economic activity is directed by the
government toward particular socially significant sectors of the Economy, and the
balance is determined by the operation of the pricing mechanism.
The public and private sectors collaborate to
achieve social objectives within the framework of a common Economic plan. The
private sector is a significant component of the Mixed Economy and is regarded
as a critical engine of Economic growth. India is widely recognized as the
world's best example of a Mixed Economy.
Features of a Mixed Economy
Coexistence of all the Sectors
In the Mixed Economy system, all three sectors exist
together, that is the private sector, public sector and joint sector. The
government and private companies together hold the responsibilities of the
respective division. 51% of the total ownership belongs to the state
itself.
Cooperative Sector
According to the mixed Economy definition, a
cooperative sector exists in a Mixed Economy. The significance of this sector
is vital. In Mixed Economy countries, the government provides necessary items
and financial aids to the areas involved in cooperative societies like
warehousing, dairy industry and more.
Freedom and Control to be precise
In a Mixed Economy, we denote that the individuals
have complete liberty to manufacture goods and items and choose property and
occupation according to their choice. The regulating body maintains control to
avoid all sorts of discrimination and monopolistic issues.
Economic Planning
In a mixed Economy, the central planning authority
exists. All the sectors of the firm follow this rule and plan to pursue their
goals. The plan is solely observed with the motive to attain national Economic
growth.
Social Welfare
The significant look out of a mixed Economy is the
social welfare of society. It focuses on eliminating the unemployment issues
from the country. The mixed Economy definition further says it enhances social
security and public education facilities.
Advantages of Mixed Economy
The following are the significant advantages of a
Mixed Economy:
·
In a Mixed Economy, there is competition
between public and private sectors, which ultimately results in increased
efficiency and productivity.
· Profits from public sector firms accrue
to the government, and as a result, income inequality decreases under a Mixed
Economy.
· Economic activities are systematically
planned in a Mixed Economy. The government plans the entire Economic system in
detail.
· Since Economic activities are planned, Economic
stability prevails in a Mixed Economy.
·In a Mixed Economy, goods are produced
according to consumer preferences, which results in consumer sovereignty.
·In a Mixed Economy, enterprise
flexibility and profit incentive are critical. Due to these factors,
initiative, innovation, and productivity always tend to grow.
·A Mixed Economic system also prioritizes
social welfare. A Mixed Economy protects individual rights.