Introduction To demonstrate that there can never be a truly “free-market” economy, it is necessary to examine economic systems in the world then proceed to inspect the role played by government in an economy. Economic systems are basic structures formed to address three specific issues: the kinds of goods and services produced by a country’s resources, procedure followed in producing the goods, and persons who will benefit from the goods hence it can be defined as a system of producing and distributing goods (Bonney, 1995). According to Terence (2002), economic systems are widely classified into planned and market economies.
Planned economy assumes the form of a centralised government controlling most factors of production and participates in making all decisions about production and allocation (Myant, 2010). On the other hand, Myant states that market economy encompasses individuals controlling and making decisions on production and allocation. Myant goes ahead to assert that frequently changing price is a revelation of decisions made that accompanies supply and demand of various products and services. In planned economies, there is communism system where government owns and operates all production bases.
Communism came into being in the 19th century but received insurmountable force when Soviet Union came into being. Communism in the Eastern part of Europe was the consequence of World War II whilst China, North Korea, Vietnam, and Cuba came under communism following political revolution (Myant). However, by 1990, Soviet Union and Europe were already out of communism. Communist economies are characterised by a number of factors such as state owned enterprises, central planning, collective farming, and a shortage economy (Furet, 2000). Driven by the need to industrialise, communist governments allocate large proportion of resources to production of capital goods.
Concentrating on manufacture of capital goods means that consumer goods and housing are discouraged. Government control in this scenario is therefore indispensible. In the example of Soviet Union, Communist Party made decisions in relation to appointments, promotions, and dismissals of staff in various enterprises (Theotônio, 2000). Planning in communist state is done centrally with planner’s preference taking precedence over consumer preferences. In the farming sector, former Soviet Union decided to conduct collective farming to provide food for the people.
Additionally, prices in this economy were set below the equilibrium price, leading to deficits (Gregory, 2004). This demonstrates government’s control over businesses. The second economic system is socialism, which is based on central ownership of capital. Even as individuals work in various levels, it is the responsibility of government to regulate how the earnings are used hence the aspect of government intervention. At the same time, citizens define their needs. The central focus for socialist society is to conduct its activities for the common good of the people (Jacobus, 2003).
Notwithstanding existence of several types of socialism, this economic arrangement comes in between capitalism and communism. This balanced state has seen people contribute proportionally for the common benefit of all people. Contrary to capitalist societies, socialism has minimal government control (Engels, 2006). In an argument by Karl Marx, societies and economies eventually fall under the category of capitalism (Engels). This ardent supporter of socialism believes that government control would be replaced by power vested on the people. Even though Sweden and Canada are examples of socialist economies, they practice varied aspects of socialism.
Moreover, democratic nations often practice socialism where people have most freedom. One of the distinctive features of socialism from capitalistic society is healthcare (Engels). In a capitalist society for example, individuals go for their own health insurance whilst under socialist state; central government provides healthcare plans to all citizens. In summary socialism meets the following description: more state control over the people, the control outlines wages and compensations, taxes are high and goes a long way to meet citizen needs, classes exist but not similar to capitalist, and government control is aimed at satisfying needs for all people (Engels).