Traditional Economy
A Traditional Economy is a system where the allocation of
available resources is made on the basis of inheritance. As a deeprooted economic theory with well-built social set-up, Traditional
Economies generally make use of prehistoric instruments and
techniques.
Conventional and age-old human occupations like agriculture
remained the focal point of interest for Traditional Economies.
This is perhaps the only economic theory, which has evolved
historically in certain countries. However, all nations having
Traditional Economies these days, are fast switching off to more
contemporary concepts like Mixed Economy, Command Economy or Market Economy, to keep pace with
the modern economic trends and happenings.
Irrespective of the old approaches of Traditional Economy, the concept is still prevalent in some underdeveloped South American nations like Papa New Guinea and Brazil, and in a handful of other African and Asian
countries.
In fact, Traditional Economies can be called the economy of the indigenous population of the world like the
Pygmies belonging to the Congo region in Central Africa. As per a World Bank estimate, this type of economy is
still prevalent among 400 million indigenous people across the world. So, it is not at all an extinct economic
concept in present times.
There are of course a handful of benefits derived from Traditional Economy. It actually nurtures a feeling of
unity among individuals, helping in the development of a social bond and sense within them by reducing mutual
hostilities. Consequently, people feel ps0ychologically freer, more comfortable and secured, which increase their
working abilities. This in turn, brings down the rate of unemployment. Moreover, since the entire population is
engaged in activities of some kind or the other, their minds are less likely to sit idle to plan criminal activities.
Hence, there is a significant decrease in the rates of crime as well. To sum up, Traditional Economy permits people
to enjoy more independence against minimum or no financial expenses.
The concept of Traditional Economy is all about popular autonomy, where productions take place as per the
demand generated. Primitive human occupations like animal grazing, gathering, hunting and cultivation form the
basis of this economy. However, the surplus food production is not consumed but used for commercial activities.
Command Economy
In a Command Economy or Planned Economy, the central or state government
regulate various factors of production. In fact, the government is the final authority
to take decisions regarding production, utilization of the finished industrial products
and the allocation of the revenues earned from their distribution.
The government-certified planners come second in the hierarchy. They distribute
the works among the labor class, who actually undergo the toiling part of the entire
process. China and former USSR and are perhaps two of the best instances of
Command Economy. Though many countries now-a-days are switching off from
Planned Economy to a Mixed Economy, nations like North Korea and Cuba are some
countries where Planned Economy still exists in full form.
In case of a Command Economy, both state-owned and private enterprises receive
guidance and directives from the government regarding production capacity, volume,
modes of production and course of their actions. A Planned economic system is
broadly segregated into two groups – Centralized and Decentralized. The centralized or centrally Planned
Economy, as prevalent in former Soviet Union, is a more familiar concept between the two. The decentralized
Command Economy, on the other hand, is more theoretical in nature with little or no application in the actual
economic spheres.
Characteristics of a Command Economy:
- By nature, a Command Economy is more stable, guaranteeing constant exploitation of the existing resources. It
is least affected by financial downturns and inflations.
- In a carefully planned Command Economic system, both surplus production and 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 financial recessions.
- Command Economy is just opposite to the concept of Market Economy, with respect to the basic money-making
approaches. While Market Economy tends to multiply the wealth of a nation through the gradual process of
evolution, Command Economic system prefers deliberate planning of the entire money-making process for better
results. In fact, such sincere economic planning in the long run proves beneficial to improve the economic
conditions of a country.
- Command Economy emphasizes more on collective benefits, rather than the requirements of a single individual.
Under such circumstances, rewards, wages and other monetary benefits like bonus are distributed on the basis of
the joint rendering of services. This is how Planned Economy actually eradicates the profit-making at individual
levels.
Market Economy
The market economy is characterized by the voluntary exchange of goods and
services in the absence of any government intervention or centralized planning. The
market economy operates under the free market where the basic assumption is that
the nation's well being is determined by the interaction of market forces like the
aggregate demand and supply. The key decisions of what to produce, how to produce
and how much to produce are the producers' prerogative unlike the case of the
centralized economy.
The market economy is devoid of government interventions such as price fixing, license quotas and industry
subsidizations. Friedrich von Hayek had observed that the free market economy led to a more efficient resource
allocation, its main advantage. In a market economy, there is freedom to own resources and decide on its
allocation. In the US market economy, barriers are imposed on the formation of monopoly powers. But according
to the Index of economic freedom, there are lesser restrictions in the countries like Hong Kong and Singapore.
The market economy has many gaps. There is high chance of complete anarchy in the absence of any
government intervention. The role of the government in attaining social welfare cannot be denied completely.
The market economy operates to satisfy the private wants, where the society as a whole may not reap the
benefits. There may be concentration of wealth in few pockets of the economy. For such disadvantages and much
more, a completely free market economy cannot be fully advocated.
Mixed Economy
Mixed Economy can be defined as a form of organization where the elements of both capitalist economy and
socialist economy are found.
Simply in such type of economy there is the presence of private economic freedom with centralized planning
with a common goal of avoiding the problems associated with both capitalism as well as socialism.
In this system the freedom in the economic activities are influenced by the Government's regulation and
licensing policies.
Existence of a Mixed Economy:
It is difficult to define a country's economy as capitalist, socialist, or mixed. But as the experiences tell, the role
of the Government has increased very fast after the worldwide depression in the early 20th century.
Most countries that were once the best examples of a Capitalist economy are considered mixed type today.
In a mixed type economy, both the private ownership as well as the state takes part in the means of production,
distribution and other types of economic activities. The mixed economy allows private participation in the field of
production in an environment of competition with an objective of attaining profit. On the contrary following to
the socialism features it includes public ownership in production for maximizing social welfare
Source: http://www.economywatch.com
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