There are two competing primary kinds of economic system in this world, Command Economies and Market Economies.
Command Economies function with a form of economics that is directed by a centralised government. Rules and regulations are imposed by this government to regulate the way in which goods and services are supplied.
Market Economics, are driven by just that.. the markets and Private Enterprise. There is little or no restriction imposed from any centralised governance, and the businesses are left to their own devices. The reasoning behind this system is that if the market wants a product it will be seen as a demand and thus supplied. Historically this form of economics has offered far more sustainable economic growth, and far more individual and business freedoms. This Private Enterprise System is effectively based on Capitalism and Competition.
In addition to this Private Enterprise system, there are also planned Economies where a centralised body decides on business ownership, profits and resource allocation. This is a version of Command Economics. One of the most famous forms of this economical policy is Communism which states that all property and business is owned equally by all (ie the State), and that a strong central government dictates what goods are supplied at what level and price.
In Marxist theory, “communism” denotes the final stage of human historical development in which the people rule both politically and economically.
There is another economic system called Socialism. Socialism is an economic system characterised by predominantly privately owned businesses, and the State owns and controls what is believed to be the most important industries for the nations needs such as fuel and telecommunications. The Governments are also responsible for a variety of ‘national need services’, such as transportation, waste removal, unemployment benefits, free national healthcare. In order to sustain these large state expenses, large income taxes are applied. This results in a particularly non-dynamic economy, as entrepreneurs are not incentivised to start businesses due to large parts of their profits being removed through Government taxes. Socialism is a combination of both Capitalism and Communism.
Many of todays economies are actually a mixture of both planned and market economies, and these are referred to as Mixed-Market Economies. Followers of Milton Friedman, will not agree with this form of economics, as they are true advocates of the Free Market theory and that markets will ultimately balance themselves out and offer the best and most fair situation for all.
In the UK, USA and around the world the Free Market System was introduced throughout the 1980’s and beyond. Gordon Brown introduced his ‘light touch policies’ throughout London’s Financial Sector as both London and New York competed for the top spot for The Global Financial Capital. However, as has been proven, this light handed fiscal policy and the de-regulation of the Banking Sector resulted in the worst financial collapse in human history.
Although, one has to ask the question as to whether it was the free market system that failed, or the ethics of those taking the risks. Perhaps with a higher moral path, this free trade system would work and the markets would be able to balance and regulate themselves. However, for this new moral code to take effect the human species would have to undertake a huge social change immediately and perhaps have some form of ethical awakening. Realistically, this is not going to happen as this form of social change takes many years to implement and take root. What we require is leaders within the business and political realms to act with a higher level of ethics, and to take responsibility for their actions. I believe that theoretically the free market system might actually be the best and most efficient system for economic development and growth, but i feel that looking purely at a rising GDP should not be the only bench mark. We need to look for and strive to attain a lower level of inequality and higher standards of living. We live in a world that is not a perfect petri-dish to test economic policies and so some initial regulation is required of key sectors so that ‘Joe Blogs’ does not suffer in a quest for a rising bottom line in a resource restricted world.