Economic System

 An economic system, or economic order, is a system of production, resource allocation and

distribution of goods and services within a society or a given geographic area.

1. Traditional economic system

The traditional economic system is based on goods, services, and work, all of which follow certain established
trends. It relies a lot on people, and there is very little division of labor or specialization. In essence, the
traditional economy is very basic and most ancient of all four types.

Some parts of the world still run a traditional economic system. Particularly, rural settings in second- and third-
world nations, where economic activities are predominantly farming or other traditional income-generating
activities.

There are very little resources to share in communities with traditional economic systems. The reason is the
resources don’t occur naturally or access is restricted by other influential systems. Thus, the traditional system
lacks the potential to generate a surplus, as is the case with other systems. Nevertheless, because of its
primitive nature, the traditional economic system is highly sustainable. In addition, due to its small output, there
is very little wastage compared to the other three systems.

2. Command economic system

In the command economic system, there is a dominant and centralized authority, which is usually the
government, which controls a significant portion of the economic structure. Also known as the planned
economic system, the command economic system is common in communist societies since production
decisions are a preserve of the government.

If an economy enjoys access to many resources, the chances are that it will lean towards a command
economic structure. In such a case, the government comes in and exercises control over the resources.
Ideally, centralized control covers valuable resources such as gold or oil. The people regulate other less
important sectors of the economy such as agriculture.

In theory, the command system works really well as long as the central authority exercises control with the
general population’s best interest in mind. However, command economies face many challenges, and they are
slightly rigid compared to other systems. That is, they react slowly to change because power is centralized.

3. Market economic system

Market economic systems are based on the concept of free markets. In other words, there is very little
government interference. The government exercises no control or say over resources, and it does not interfere
with important segments of the economy. Instead, regulation comes from the people and the relationship
between supply and demand.

The market economic system is mostly theoretical. That is to say, a pure market system doesn’t really exist.
Why? Well, all economic systems are subject to some kind of interference from a central authority. For
instance, most governments enact laws that regulate fair trade and monopolies.

From a theoretical point of view, a market economy facilitates substantial growth. Arguably, growth is highest
under a market economic system, and the economy exists separately, away from any form of government
interference.
However, its greatest downside is that it allows private entities to amass a lot of economic power, particularly
those that own resources of great value. Thus, the distribution of resources is not equitable because a select
few enjoy most of them, while a huge part of the remaining population fight for the little that is left.

4. Mixed economic system

Mixed systems combine the characteristics of the market and command economic systems. For this reason,
mixed systems are also known as dual economic systems. While there is no straightforward way to define a
mixed system, sometimes the term describes a market system under strict regulatory control in certain
segments of the economy.

Many countries in the west follow a mixed system. Most industries are private, while the rest, comprising
of public services, is under the control of the government. Thus, the government and the private sector serve a
significant role in maintaining a mixed economy.

Mixed systems are the norm globally. Supposedly, a mixed system combines the best features of market and
command systems. However, practically speaking, it’s been challenging. Some governments exert much more
control than is necessary.

North Korea
North Korea, officially known as the Democratic People’s Republic of Korea (DPRK), is an unreformed,
isolated, tightly controlled, dictatorial command economy. The Korean peninsula was a Japanese colony from
1910 to 1945. As World War II drew to a close, the Japanese forces in the northern region of Korea
surrendered to the Soviet troops while the American troops took charge of the southern region. The supposed
reunification through elections never took place in the Korean peninsula, and the two regions appointed their
respective leaders. In 1950 Kim II-Sung, backed by the Soviets, made an attempt to capture the U.S.-backed
southern region (Republic of Korea), which sparked the devastating Korean War (1950 to 1953).

North Korea Today

Kim II-Sung's aspiration of bringing the entire peninsula under his communist rule failed. Soon after, North
Korea (DPRK) established its national economy through heavy industry-first development and military-
economy parallel development. Many experts believe that these policies have been an obstacle to the
country’s economic development.

The shortcomings of the policies were accentuated by the regime’s focus on songun (military-first politics),
which has worsened North Korea's chronic economic problems. There is stagnation in industrial and power
output, along with food shortages, because of systemic problems. According to the Central Intelligence Agency
(CIA) World Factbook, “Industrial capital stock is nearly beyond repair as a result of years of underinvestment,
shortages of spare parts and poor maintenance. Large-scale military spending draws off resources needed for
investment and civilian consumption.”

North Korea’s Economic Phases

North Korea’s initial phase of economic development was dominated by industrialization, which was impressive
considering the devastation caused by the Korean War. The country then assumed the Soviet model and the
ideology of juche(self-reliance), which emphasized the development of heavy industry. With investments in the
iron, steel, cement and machine tool sectors, there was a steady increase in industrial output in the 1960s.
However, trouble was brewing by the 1970s.

The country incurred foreign loans and indulged in large-scale imports of machinery and plant facilities from
advanced countries such as Japan, Germany, France and Britain in the early 1970s. The decade witnessed a
shift in North Korea’s borrowing; almost all loans in the 1960s were accepted from socialist states while
loans in the 1970s included a huge amount from capitalist states. 
https://www.investopedia.com/articles/investing/013015/how-north-korea-economy-works.asp

Cuba

Cuba has a planned economy dominated by state-run enterprises. Most industries are owned and operated
by the government and most of the labor force is employed by the state. Following the fall of the Soviet Union,
the Communist Party encouraged the formation of worker co-operatives and self-employment.

Economy of Cuba - Wikipedia

https://en.m.wikipedia.org/wiki/Economy_of_Cuba

China
China has the second-largest economy in the world in terms of nominal gross domestic product (GDP), and
the largest economy in terms of purchasing power parity (PPP). Officially the People’s Republic of China, the
country had an estimated nominal GDP of $13.457 trillion in 2018, while PPP in that same year stood at
approximately $25.313 trillion. China operates as a socialist market economy, which is characterized by state-
owned enterprises and public ownership within a market economy. By definition, a market economy is one in
which key decisions in the economy are controlled by supply and demand, which are the two key factors that
influence prices. According to the government of China, the economy is one of the stages towards achieving
full socialism. However, some economists argue that the current form of state ownership in China is actually a
type of state capitalism and not a socialist market economy.
Is China's Economy Socialist?
Some economic experts claim that China's economy represents state capitalism rather than a socialist market
economy. This claim emerged in the 1980s and the 1990s after the country experienced various industrial and
economic reforms. Additionally, the argument for state capitalism is linked to the way in which the country runs
the enterprises that it owns. The Chinese government operates these enterprises the same way that privately
owned firms operate, meaning that the government keeps all profits. However, in a true "socialist" system,
these profits would be distributed in a way that benefits the entire population. Therefore, critics question
whether the word "socialist" should be used to describe China’s economy.
In response to such arguments, China's government introduced a reform program in 2017. Under the
program, the government encourages enterprises owned by the state to submit dividends to the central
government. In addition, the government transferred some of its state-owned assets to social security funds.
These transfers are designed to help ensure that pensions are financed, or could be used to fund other social
programs.
Research on China's Economy
In 2005, two Chinese economists, Chenggang Xu and Julan Du, conducted a study designed to determine the
type of economy that operates in China. Interestingly, they concluded that the system encourages capitalism
and that it does not represent a socialist market economy. More precisely, the two experts described the
economy as an unstable form of capitalism. This conclusion was reached after the study noted that the
country’s economy allows for private share ownership, particularly through the financial markets. Most
literature on market socialism agrees that this type of private share ownership should not exist in market
socialism. The study's conclusion was also explained by the fact that enterprises keep all profits instead of
redistributing them to the public. Other studies have not arrived at the same conclusions, but mostly agree that
the country does not practice market socialism.

https://www.worldatlas.com/articles/what-kind-of-economy-does-china-have.html
Singapore

Economy - overview: Singapore has a highly developed and successful free-market economy. It enjoys a
remarkably open and corruption-free environment, stable prices, and a per capita GDP higher than that of most
developed countries. Unemployment is very low. The economy depends heavily on exports, particularly of
consumer electronics, information technology products, medical and optical devices, pharmaceuticals, and on
its vibrant transportation, business, and financial services sectors.

The economy contracted 0.6% in 2009 as a result of the global financial crisis, but has continued to grow since
2010. Growth in 2014-17 was slower than during the previous decade, at under 3% annually, largely a result of
soft demand for exports amid a sluggish global economy and weak growth in Singapore’s manufacturing
sector.

The government is attempting to restructure Singapore’s economy by weaning its dependence on foreign
labor, addressing weak productivity growth, and increasing Singaporean wages. Singapore has attracted major
investments in advanced manufacturing, pharmaceuticals, and medical technology production and will
continue efforts to strengthen its position as Southeast Asia's leading financial and technology hub. Singapore
is a member of the Regional Comprehensive Economic Partnership negotiations with the nine other ASEAN
members plus Australia, China, India, Japan, South Korea, and New Zealand. In 2015, Singapore formed, with
the other ASEAN members, the ASEAN Economic Community.

Definition: This entry briefly describes the type of economy, including the degree of market orientation, the
level of economic development, the most important natural resources, and the unique areas of specialization. It
also characterizes major economic events and policy changes in the most recent 12 months and may include a
statement about one or two key future macroeconomic trends.

Source: CIA World Factbook - This page was last updated on January 20, 2018

https://www.indexmundi.com/singapore/economy_overview.html

USA

There are many different types of economic systems used throughout the world. Some examples are
socialism, communism, and capitalism. The United States has a capitalistic system.

Capitalism

Capitalism is an economic system where capital goods are owned privately or corporately through private
investment decisions rather than state control. It is distinguished by the determination of prices, production,
and distribution of goods through competitive markets.

Since the U.S. uses a capitalistic system, it stresses the use of markets for allocating goods and the effective
use of resources. However, not all markets are competitive and the government does interfere in many
instances.

How does the government interfere in markets?

The government can interfere by using many different tools: price floors and ceilings, regulation, anti-trust laws,
taxes, tariffs, and quotas.

Price Floor � When the government sets a minimum price in the market. A great example of this is in the labor
market with the minimum wage. A price floor often creates a surplus.

Price Ceiling � When the government sets a maximum price in the market. An example of this is rent control
laws in New York City. A price ceiling often creates a shortage.

From the discussion on supply and demand can you show how price floors and ceilings create a
shortage or surplus?

Regulation � The government can set regulations of any kind in any industry. An example would be the
government regulation that states seatbelts and airbags are mandatory in the automobile industry. Regulation
often creates new markets that are then ruled by capitalism.

Can you think of other government regulation that created new markets?

Antitrust Laws � The Sherman Act was established in 1890, which was the first national antitrust law to
regulate monopoly and monopoly power. Other similar laws, such as the Clayton Act, followed over time.
Antitrust laws are designed to promote competition. AT&T was broken up into the Baby Bells under antitrust
legislation. Many large-scale mergers and acquisitions are reviewed and sometimes stopped under antitrust
laws. Antitrust laws also prohibit any type of inter-company agreements that promote monopoly power.

Taxes � There are many different types of taxes: sales, excise, revenue, profit, property, etc. We all pay sales
tax every time we purchase something (in NY). State and local governments determine the sales tax percent.
An excise tax is a tax on each unit sold and the revenue is collected from the producer. There are many other
types of taxes that we will not discuss.

Tariffs � A tariff is an additional tax on imports. Tariffs usually differ by country of origin.

Quotas � A quota is a restriction on the number of a specific type of import. In the 1980�s the U.S. had a
quota on Japanese cars that led to a shortage that allowed the price of both domestic and foreign cars to be
raised.

https://www.rpi.edu/dept/advising/free_enterprise/us.../economic_systems.htm

New Zealand
New Zealand has a mixed economy which operates on free market principles. It has sizeable manufacturing
and service sectors complementing a highly efficient agricultural sector. Exports of goods and services account
for around one third of real expenditure GDP.

The Treasury's Role

The Treasury is the Government’s lead economic and financial adviser, providing strategic advice on the
current and future New Zealand economy. Its role is to help the Government achieve higher living standards
for New Zealanders.
The Treasury focuses its efforts in a number of key areas that support the Government’s goals and have a
positive impact on the lives of New Zealanders. These outcomes – economic performance, macroeconomic
stability and state sector performance – are closely linked and reflect the issues that the Treasury considers
most important for economic growth – enhancing productivity growth, maintaining fiscal stability and lifting the
performance of the state sector.

 Economic Performance
 Macroeconomic stability
 State sector performance

The Treasury also monitors and manages the financial affairs of the Government, and assesses public sector
proposals which have economic and financial implications.

The Treasury, as one of three central agencies, is jointly responsible for providing leadership, coordination and
monitoring across the entire public sector. This is along with the:

 Department of the Prime Minister and Cabinet

 State Services Commission

https://treasury.govt.nz/information-and-services/new-zealand-economy

Philippines

The Philippines has a mixed economic system which includes a variety of private freedom, combined with

centralized economic planning and government regulation.Philippines is a member of the Asia-
Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN).

Overview Of The Economy Of The Philippines

The Philippines has a mixed economy with privately-owned businesses regulated by government policy. It is
considered a newly industrialized economy and emerging market, which means it is changing from an
agricultural-based economy to one with more services and manufacturing. The economy here is the 36th
largest in the world and the 3rd largest of the Association of Southeast Asian Nations (ASEAN).
In 2016, its nominal gross domestic product (GDP) was $316.87 billion and GDP per capita was $3,042. This
country has a workforce of 64.8 million and an unemployment rate of 4.7%. Of these employed individuals,
53% work in the services sector. This is followed by agriculture (32%) and industry (15%).
Leading Industries Of The Philippines

The leading industry of the Philippines is the services sector which contributes 57.03% of the GDP. Industry,
although only providing 15% of employment, contributes 33.48% of the GDP. Agriculture only provides 9.49%
of the GDP. The leading manufactured goods include: electronics assembly, chemicals, food manufacturing,
shipbuilding, textiles, fishing, petroleum refinery, and business process outsourcing.
Top Export Goods And Export Partners Of Philippines

In 2014, the Philippines exported $80 billion worth of goods, making it the 41st largest export economy in the
world. Its principal exports include: integrated circuits ($17.1 billion), computers ($6.44 billion), office machine
parts ($4.37 billion), semiconductor devices ($3.65 billion, and nickel ore ($2.9 billion). A large percentage of its
exports go to the following countries: China ($19 billion), Japan ($11.1 billion), the US ($9.4 billion), Singapore
($5.54 billion), and Hong Kong ($5.01 billion).
Top Import Goods And Import Partners Of Philippines

The 2014 imports to the Philippines totaled $80.7 billion, giving this country a negative trade balance of $741
million. This means the country imported more goods than it exported. Its major imports include: integrated
circuits ($9.7 million), refined petroleum ($6.15 million), crude petroleum ($5.88 billion), cars ($2.74 billion), and
planes, helicopters, or other aircrafts ($2.52 billion). A large portion of its imports come from the following
countries: China ($13.8 billion), South Korea ($7.51 billion), Japan ($7.02 billion), the US ($6.65 billion), and
Singapore ($4.84 billion).
Challenges Faced By The Economy Of The Philippines

Although this economy is predicted to be the 16th largest by the year 2050, it does face some significant
challenges. Its growth is hindered by underdeveloped infrastructure and widespread poverty. Additionally,
many people here rely on remittances from family living abroad, which means that if the economic situation of
Filipinos living abroad declines, remittances will also decrease. This country also has a significant problem with
government corruption, a fact that hinders the potential for maximum private foreign investment. Without
foreign investment, this country is not able to keep up with its rapid population growth.
Future Economic Plans

Part of the future economic plans of the Philippines includes increasing employment opportunities throughout
the country. Not only does this increase residents’ purchasing power, thus driving the economy, but it also
increased government income in the form of taxes. An increase in taxes would allow the government to
increase its budget and invest in infrastructure projects of both transportation and communication. Some
economists suggest that the Philippines should look to expand its international relations as well, to increase its
number of export partners.

https://www.worldatlas.com/articles/the-economy-of-philippines.html