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Economic System

Economic System

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Published by: Hossain Mohammad Abin on Jan 03, 2010
Copyright:Attribution Non-commercial

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11/03/2012

 
Economic System
An economic system is a process that involves the production, distribution andconsumption of goods and services by organizing labor, capital and naturalresources between the entities in a particular society. It is the method used bysociety to produce and distribute goods and services.
In general, there are three major types of economic systems prevailingaround the world.
1.Planned Economy2.Capitalism3.Mixed Economy
Planned Economy
A planned economy is also sometimes called a
command economy
. The mostimportant aspect of this type of economy is that all major decisionsrelated to the production, distribution, commodity and service prices, areall made by the government.The planned economy is government directed, and market forces have very littlesay in such an economy. The government is the final authority to takedecisions regarding production, utilization of the finished industrial products and the allocation of the revenues earned from theidistribution.A planned economy aims at using all available resources for developing production instead of allotting the resources for advertising or marketing.
Characteristics of Planned Economy:
By nature, a Planned Economy is more stable, guaranteeing constantexploitation of the existing resources. It is least affected by financialdownturns and inflations.
In a carefully structured Planned Economic system, both surplus productionand unemployment rates remain at a reasonable level
 
The steady nature of Planned Economy encourages investments in long-standing project-related infrastructures without any possibility of financialrecessions.
The vision of Planned Economy is not making profit. This system prefersdeliberate planning of the entire money making process for better results. Infact, such sincere economic planning in the long run proves beneficial toimprove the economic conditions of a country.
Advantages of Planned Economy
 Stability:
 
Long-term infrastructure investment can be made without fear.
 Equity:
In this system equality is focused on. The government tries to eliminate all private property and distribute its good equally.
 
The government will provide equal health care, education opportunities, and make sure all peopleare fed.
 Assurance of the use of resources:
A planned economy can maximize thecontinuous utilization of all available resources.
 Efficiency of managing:
 
This system is organized in such a way that helps tosatisfy the majority of the population.
Quick problem solving:
 
It is capable of rapid change for major problems. Thegovernment owns the companies, so if production needs need to be shiftedinto a different area, the government is capable of doing it rather quickly.
 
 Reduction of unemployment:
 
This system helps to reduce unemployment.Government provides services to all.
Disadvantages of Planned Economy
 Inefficient resource distribution:
Some times it cannot
detect consumer  preferences accurately.
 Lack of freedom:
 
People cannot decide about the production of their desired products. They have less opportunity to decide what they want to do for a career.
 
 Lack of incentive for innovation:
 
Planned Economy dose not encourage takinginnovations.
 Individual’s initiative goes unrewarded:
Hard work is not rewarded here.Everybody is equal here.
Overstaffing problems
: Sometimes organizations are filled with over staffs.
Waste of resources:
 
Resources owned by the government are sometimes.
 Production standards problem:
 
The absence of profit motives acts as a deterrentto individual contribution. For that sometimes products are not maintainedstandard.
Corruption:
 
A planned economy creates social conditions favoring politicalcorruption.
Two concept of Planned Economy:
 Socialism Perestroika
A) Socialism
The Union of Soviet Socialist Republic (USSR) was born wit the Bolshevik Revolution of 1917. Marx’s ideas helped shape the economic systemadopted by the new nation. The communist leadership set up a centrally planned system that, until 1985, without the profit motive. It was aclassic example of a Planned Economy.The government owned productive resources, financial enterprises, retail storesand banks. In a planned economy, the government is the owner becauseit speaks for the people. Privet citizens own personal property, such asautos, clothing and furniture.
B) Perestroika
Mikhail Gorbachev, general secretary of the Communist party, began a new program called Perestroika in 1985. Perestroika means economicrestructuring. Under this program on January 1, 1988, about 60% of Soviet enterprises were put on self-financing basis. Gorbachev promoted

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