04 Economic Systems and Development - Economic Systems and...

Economic Systems
and
Economic Success Measurement
VS.

Economy Regulation Continuum
Pure Free Market
nothing regulated –
produce and sell what
you want, how you want,
and bare all the risk
Mixed Model
Regulation of some industries (e.g., military regulated,
banking free)
Regulation of some aspects of operation of all companies
(e.g., accounting regulated, production free)
Pure Planned Economy
Mandated plan for what and
how to produce and sell, risks
covered by the government
(usually only semi-successfully)
Where on the continuum is the US?
A B C D E

Which system is better?
In which country and under what system would you
prefer to live?
A. Pure capitalism (unregulated markets, very small
B. Mixed (some areas regulated, some not, powerful
C. Socialism (fair degree of regulations, many services
government, no service free or subsidized, very low
taxes, equal taxes for rich vs. poor)
but not all-powerful government, some services
free or subsidized, a bit higher taxes for rich)
free or subsidized, higher taxes, high taxes for rich,
no taxes for poor)

Which company
would you prefer to
work for as
accountant?

•
Most people on Earth (both in the West and in the East) have a very strong
bias and cannot clearly think about pros and cons of different political and
economic systems
•
Most Russians and Chinese (about 2B people) sincerely believe that “controlled democracy”
and possibly even a command economy are the most effective systems
•
Most Europeans (about 1B people) sincerely believe that mixed socialist economic system are
most effective
•
Most North Americans (350M people) sincerely believe that Democracy and Free Market
Economy are most effective systems
•
While we may not know who is right, we know for sure that two of these three
groups are wrong as these options are mutually exclusive
What is more likely:
Important Remarks
1B+ people are stupid and
we are smart
Each system has its pros and
cons and centuries of
brainwashing by our
governments prevent us from
seeing that something we don’t
have may also work well?

Economy Regulation Continuum
The truth is, nowadays all world’s economies are mixed.
But the extent differs.
Note, contrary to
common perception,
Canada is not socialist
(compared to the rest
of the world), but
extremely capitalist

1. The following is true:
system
continuum Canada is almost at the Free
Economy extreme, second only to the
US.
None of the above are true

Centrally Planned Economy
Government owns most land,
factories, and other economic
resources and plans nearly all
economic activity
Examples?
Asia
Central Europe
Eastern
Europe
Latin America
Russia (1917)
China (1949)
Cuba (1959)

Welfare of the group
is paramount

Economic and social
equality is the goal

Planned Economy: Opponents’ Arguments
No incentive for effort and initiative -> reduced productivity
•
fixed pay
•
Entrepreneurship unnecessary  no profits
•
The only way to earn more
•