Economic System of the US - Essay Example

The Economics System Introduction Economics is a phenomenon of social science that includes individuals, business enterprises, government and nation. The aforementioned factors interact with each other for understanding the procedures relating to distribution, consumption production of goods and/or services. In this respect, economics aid an individual or a firm to fulfill their needs, wants and demands. The concept of the economics deals with the interaction of different segments, which reveals how and why individuals, governments and firms make their necessary allocation and choices from the scare resources in order to satisfy incomprehensible demand. With the advancement in the technological and environmental aspect, the nations are involving in better means of production and distribution to earn competitive advantage in the global scenario. The concept of the economic system is elaborated as the system of production and trade of goods and/or services in a community. The overall economic system includes individual, organisation, sectors and end users of a society or in general, it is often referred as the mode of production. Moreover, economics is identified on a wider concept, which is sub-divided into the two aspects i.e. micro and macroeconomics. Microeconomics focuses on demand and supply of products and/or services in the markets in relation to the change in the price level. On the other hand, macroeconomic dimension includes the relationship of the aggregate variables including the purchasing power, price income and money (McConnell et al., 2009). The study of the overall economic system comprises both the micro and macro economy of a nation or a particular community at large about how firms and various agencies are linked among each other, how the communication information flow between the them and the social relationship in the economic system. Thus, in larger and boarder term, it comprises various processes that are followed within a geographical region in the production, distribution and circulation of labor for producing products and/or services, machineries, consumer goods and infrastructure among others. Moreover, the economic system of one nation varies with other nations due to differences in the political structure, culture and environmental conditions. In this regard, the point will be justified with the fact that Chinese economic system is comparatively very complex as compare the western nations’. The economic system consist of both capitalistic and socialistic aspects and the global economic system falls in four main categories that include ‘tradition’, ‘market’, ‘command’ and ‘mixed economy’. An economic system of a country is defined on the basis of addressing the key questions regarding what, how and when to produce a product and/or service depending on environment and other strategies. The economic system deemed to play an important role is determining whether the economic system is socialist, capitalist or any other, as the society at large is highly dependent on the satisfaction of needs. Due to the problem of scarcity of economic resources, the choice regarding the production and allocation is highly dependent on the economic system (McConnell et al., 2009). In this regard, it can be stated that economic systems and the functioning of every nation differs. Correspondingly, with these considerations the essay intends to address the prospects of the US and China economic system. Besides, the comparison is made in between the two nation’s economic system with respect to both positive and negative aspects, and advantages and disadvantages. Moreover, the comparison also helps to have a better understanding of the economic performances of the nations. Economic System of the US The economic system reveals the nation determination regarding the economic resources, how the people of the nation undergo into the process of buying and selling, the overall production approach and the process in providing the goods and/or services. The US economy consists of individuals from different culture and region, business units, government regulations and other social institutes. Various economists are having a different view regarding the US economic system and often viewed that it has ‘capitalist economy’ but in actual terms, the US economy is identified to be based on ‘mixed economy’. In this regard, private property right, competition and freedom in selection in goods and/or services are the key elements in the capitalism system. Moreover, the US economy is not highly regarded as fully under the private ownership or individual freedom, as the US ranked 12th in the ‘2014 index of freedom’ and the few of the significant components are under the control of the government (The Heritage Foundation, 2014). In the current scenario, it was estimated that one third of the economic spending is governed or controlled by the Federal Government. Prior to period of the great depressing in the year 1930, the US economy is identified to be under a free-capitalist economic system and involvement of the government is minimal. During that time due to adverse effect of depression, the US economy is badly strike, which has been accountable for increasing unemployment, poverty and other major problem relating to the failure of the capitalism system. At that time, John Maynard Keynes, a British economist proposed the approach of ‘managed economy’ with the assistance of which the government actively played a significant role towards boosting the economic activity. This period marked significant revolution in the nature of working of the government by including the rights related to education, healthcare and housing and accordingly, the government actively took part in feeding, housing and growth of the economy (Active USA Center AUC, 2014; University of North Carolina, n.d.). The US people played a significant role in the development of the US economy, as they functioned as customer, labour, saver as well as investors. In the American society, people are having the right to vote against the public policies and political leaders for having the key effect in the economy. The key organisations in the US were involved in the production and distribution of goods and/or services. Correspondingly, in the major part of the nation, the economy is based on the determination of the individuals regarding the kind of goods to be produce and at what price. The economy of the US has a long history, which is carrying on economic operations since the colonial period, where people own the required goods and/or services to be consumed. Most of the individuals and the private enterprises are controlling the factors of production. Moreover, in the US, producers mostly decide about the goods and/or services to be produced and sold and accordingly, the decision regarding the prices of the products/or services are ascertained. On the other hand, the American consumers make their own decision regarding what to buy and how much should they render for it. The factors of production in accordance with which an individual controls the economic activities falls under four categories that include natural resources, capital, entrepreneurship and workforce (Active USA Center AUC, 2014). The US economy system is considered a mixed economy with the mixture of the free market and the approach of government commanding economy. The US people are having full authority of what they want to do economically. In this regard, business units have considerable higher flexibility in undergoing their operation as compare to that of the other Western European nations’ in the decisions regarding the expansion, labour and innovating new products. Besides, the US business unit’s faces significant entry barrier while entering rivalry markets as the foreign firms face at the time of entering in the US market. American believes that they did not require government intervention in the market but they are highly relied on the government for addressing the private economic matter, education and protect the environment. The US organisations are vanguard in the global market due to utilization and advancement in the technological field particularly in the sector of the computers and medical, military equipment and aerospace. Moreover, the key essence of the US economic system is the high interaction of public, private and global sector. In this context, the US economic is regarded as one of the leading economy of the world and any fluctuation in the US economy has multiplier effect in the global economy (1Economic Watch, 2013). Consequently, the scenario of the current position of the US economy reveals that agriculture contributes at around 1.2% and industrial sector at 19.1% in the US’s GDP during the year 2012 (1Economic Watch, 2013). Additionally, from the overall evaluation of the US economic system, it is quite apparent that the US system is based on private ownership with minimal government intervention and having an extensive environment for the firms for producing the necessary products and procuring the required factors of production. In this respect, the economy is highly successful in providing the require goods and/or services. Nevertheless, the consumers can avail wide variety of products and/or services with the developed economy conveniently. Thus, it can be concluded that the US economic system mainly comprises ‘consumers’, ‘producers’ and Federal government who take prior decisions on the basis of proper price system. Moreover, the dynamic interaction of these three groups makes the overall functionality of the economy (University of Groninge, 2014). Economic System of China The People Republic of China (PRC) was founded in the year 1949. During that time, the nation was identified to be significantly suffering with the problem of high population, which is around 500 million. The industrial and agriculture sectors were the key contributors in the economy and after the reform of 50 years of planned economical construction, China became one of the largest economies in the world. In the current scenario, the Chinese economy has the high potential of growth since the reform of 1979. Economic restructuring is the key aspect in the China’s reform in the first 30 year. Since the formation of the PRC, the economic system of China has developed a planned economy and targeted various subjects in the economic development. Factories and other commercial departments underwent changes in the production and economic activities in a planned manner. On the other hand, the government was continuously engaged in the monitoring the growth aspects with regard to the economic system planning. Moreover, the Chinese economic system follows the approach of socialist and planned economy where the government plays a prior role of controlling and owning the process of production and distribution. The Chinese economic system is having the mixture of socialist, capitalist as well as communist economy. The real reform in the economic activity is noticed from the period of 1978, when government introduced the ‘household contract responsibility system’ in the economy. This provision allowed the Chinese the right to utilize the land, plan own framework and conduct the production process individually. The concept of monopoly in the purchasing and marketing field has been eliminated from the economy due to which the price of the various farm products was freed and many policies related to agriculture has been upheld, which significantly allowed the farmers to diversify their business by creating enterprises. Agricultural sector is one of the sectors, which strengthen the economy of China in the global market segments (China Internet Information Center, n.d.). Considerably, since the period of 1949, the government is highly responsible for overall planning and management of the national economy at large. Moreover, with the introduction of the Deng Xiaoping approach of the capitalist economy in the 70s, the Chinese economy has shown a massive expansion in its economic activities. The mode of production and factors of production have been liberalized to a higher extent, which assisted in determining the pricing policies, government controlling in the labor markets is reduced and the economy, which was previously struggling has now experienced rapid development. With this significant reform, the Chinese economy revealed a growth of around 48% in the year 2011 (2Economic Watch, 2013). The economic system of the China in the initial period is highly focused on the collectivizing of the agricultural activities. Additionally, the leaders of nation adopted significant approach to strengthen the other sectors of the economy. The reform of the economic system is highly focused on government to provide high independence to the business enterprises that were owned by the state government, which reflected that the government rook significant reform emphasizing the lower level sectors of the economy. Additionally, with the assistance of such reform, the nation tried to boost various privately held enterprises along with assist in the development of the struggling sectors. Moreover, with this approach, the banking sector and the stock market depicted a significant growth (Global Trader, 2014; China Internet Information Center, n.d.). Correspondingly, it can be revealed that the Chinese economic system adopted the policy of slow and steady method towards economic reform but proved to be highly successful. In addition, the reforms also aided the Chinese economic system to be regarded as one of growing economic powers in the global market. As per the latest reform policy i.e. 12th five year plan of the nation, the economy focused on the domestic products and/or service consumption to enhance the overall economic growth and lessen the dependency of the nation over the other nations in the future. In the way of become one of the supreme economy of the world, the government has faced various barriers in the aspects of high domestic saving and less demand for eradicating the problem with the increase in the job requirement, reducing the rate of corruption in the economy relating to various societal and environmental issues. Moreover, high liberalization in the economic environment helps and encourages the people to invest their saving in the market (2Economic Watch, 2013; China Internet Information Center, n.d.). Thus, it can be concluded that the Chinese economic system is highly based on the approach of socialism as well the capitalism unlike the US economic system. Apart from it, leaders in the earlier time are also identified to be striving for creating the approach of communist economic system in the nation but the economy has significantly noticed growth in their activities with the adoption of the capitalist system. In this respect, in the last 30 years, the GDP of China has been observed to depict high development. Moreover, as the other western countries, the government of China also administers the market operations and other economic activities. The nation also reflected the strong legislative influence of power over the privately held enterprises. This approach of economic system, which other viewed as over restrictive practice has notably help the PRC to grow its economic activities. Nevertheless, from this view point, it can be stated that China is neither the socialism nor the communism economic system rather many elements of socialism economy is still present in the nation. The officials of the Chinese government revealed that the country follows the approach of capitalism during the transitional period and emphasizing on growth, the nation adopted the approach of communism economic system (China Internet Information Center, n.d.). Comparison of the Economic Systems The US and Chinese economy are identified to possess different similarities as well as dissimilarities in relation to the economic system. In order to compare the economic systems of US and China, it can be asserted that both of these countries are having a bright prospect. On the other hand, both of these countries are identified to dealing with several risks, which are directly or indirectly related to economic performances. Moreover, it can be asserted that the contrasts between these countries are observed in terms of tradition, market, governance and economic outlooks. According to the report of Forbes (2004), the US has been the world’s fastest growing economy in terms of its growth rate relating to GDP during the early 21st century. On the other hand, the GDP growth rate of China remained comparatively slower than that of the US during the same phase. These contrasts not only depict the short term economic differences but also reflect the long term structural differences in terms of economic growth of these countries. The growth rate of the US is almost three times greater than that of the Chinese economy (Forbes, 2004). In this regard, variety of factors is identified to be associated with the extensive growth rate of these countries. For an instance, education and labor force, employment, trade performance and geographic locations among others. In this regard, Forbes (2004) argued that several economists have controversially argued regarding two of the most important factors, which can influence the growth of an economy includes income per capita and investment rates (Forbes, 2004). In this regard, several economists have claimed that a country can grow faster than other countries when overall investment level and the productive growth rate of that country is higher than that of its competitors. Moreover, according to the analyses of academic literature’s evidences, it can be asserted that several economists have supported the viewpoint that foreign direct investment is one of the key factors, which can drive economic growth for a country in the present scenario. In this regard, according to the viewpoint of Hart-Landsberg (2005), despite of having a high economic growth rate, both the nations have approached towards a dynamic relationship amid them with the aim of enhancing the performance and outcome of the economy (Hart-Landsberg, 2005). In this context, it has been observed that with the effect of increased globalization, both the nations i.e. the US and China had developed a co-operative trade relationship between them. In this case, it has been observed that this dynamic trade relationship had encouraged varied industrial challenges for the US. On the other hand, it has been recognized that with the assistance of this trade relationship, the Chinese government had boosted its economy in the global market context (Hart-Landsberg, 2005). Positives and Negatives In order to identify the positive and negative aspects of the US-China trade relationships from both sides, it can be asserted that increasing strategic independence had raised several challenges for both the US and China with regard to trade operations and business entities. On the other hand, it has been perceived that both the countries have improved bilateral relations with foreign countries (Hart-Landsberg, 2005). Moreover, during the early 21st century, the US economy faced threats for the emerging growth of China and for facing difficulties from manufacturing and production system of firms operating. At the same time, the US had also witnessed surprising economic insights and political challenges, which had been accountable for larger economic problems in the country (Hart-Landsberg, 2005). On the other hand, it has been identified that due to the US-China trade co-operation, China has highly benefited. In this regard, it has been identified that China has supplied low-cost involved workforce and labor-intensive mechanisms with the aim of expanding the supply chain in the global market. At the same time, China has also emphasized wide range of productivity with the intention of diversifying business activities in the global market segments. Moreover, China has benefited for adopting high range of technology and applied research methods in business operations, which has resulted in increased production output and improve the growth of GDP. Simultaneously, it has been also identified that China has relied on human efficiency and higher-education spectrum for the growth of its economy (Hart-Landsberg, 2005). Advantages and Disadvantages The Chinese government has changed the Chinese economic outlook into a powerhouse of exportation and at the same time, targeted the US market as potential market segment. Apart from this, it has been also recognized that China has improved its capitalism economic system by improving the trade operations in the global market, which has also assisted the country to enhance the economic growth rate and to maintain capitalistic competition in the global market (Hart-Landsberg, 2005). On the other hand, to compare the US economic systems with reference to Chinese economy, it has been recognized that with the effect of co-operative trade policy, China has enhanced its economic growth rate. On the contrary, the US had faced devastated problems in relation to its manufacturing sector. In this context, it has been identified that massive number of the US firms had been driven out of business. As a consequence of the closure of different firms, the US economy has faced various issues relating to unemployment and long term debt in the market places. Moreover, high inflation has been observed in the domestic market of the US. In this regard, it has been recognised that financial problem and trade deficit had initiated larger problems for the country. In this regard, all these issues have adversely influenced larger foreign borrowing from China (Hart-Landsberg, 2005). One Overpowering the Other During the earlier 21st century, the US economy was dynamic and flexible in terms of its productivity. At the same time, the country was determined as the highest exporter on the globe. On the other hand, during that phase, China has emphasized economic growth in order to maintain its good working relations with the foreign countries. During the year 2006, the US market has witnessed several conflict situations from its internal and external environments in terms of terrorism, political forces and economic threats among others. At the same time, the US has also witnessed lack of sovereignty and religion riots in different states. As an effect, direct and indirect effect has been observed in the economic performance and productivity of the country. Moreover, larger problems have been also identified in terms of debt and unemployment in the local market segments (Morrison, 2013). On the other hand, during that phase, China had strengthened its position in the global market in terms of economy and capitalism. At the same time, China had also enhanced the level of productivity through its determined effort with the aim of reforming its power in the global economy. Correspondingly, co-operative relationship with the US has helped China to cultivate their powers in global market for a sustainable business. During this phase, China has ensured its competitive position in the global market and established a healthy relationship with its neighboring countries such as India, Pakistan and Bhutan with the intention of ensuring a bilateral beneficiary agreement for the future business expansion. Moreover, China has also been able to mark its presence amid the world’s most powerful nations like the UK, Russia and European Union (EU) with the aim of avoiding threats and challenges owing to its modern business system (Morrison, 2013). Recommendations Recommendations for the US Based in the above study, it has been recognized that the US has faced several difficulties in terms of its economic aspects. As an effect, the US have witnessed varied problems and crisis in terms of economic growth, which has also lead to higher complexity in the domain of unemployment in the domestic market and financial crisis. At the same time, negative impact has been also observed in case of investments and business activities (Astana Economic Forum, 2013). In this context, the US needs to emphasize few factors in order to recover the US economy from the weaker and unstable condition, which can stabilize the growth of the country. In this regard, it can be recommended that the US should concentrate on its financial regulations and international trade policies with the aim of establishing a better economic power globally. At the same time, the US should concentrate on its investments policies, which can enhance the opportunity of increasing FDI. In this regard, it can be asserted that by improving the volume of FDI, the country can grow its economy, which will also improve the employment condition of the same. Apart from this, the US should have controlled the internal and external debt of the country with the aim of enhancing the unstable situation of the economy. Moreover, the US should remain careful regarding corruption related issues to prevent the downfall of the economy (Astana Economic Forum, 2013). In addition, it can be recommended that the US should stabilize its economy by reducing the negative effects from the macroeconomic policies for reinforcing its position in the global market. At the same time, to stabilize the financial situation of the country, the US should concentrate towards securities and insurance market regulators with the aim of minimizing the risk factors. Moreover, the US should also emphasize banking system of the country in order to maintain and supervise the inflation and financial volatility related aspects. The banking system will also assist the US to identify the financial position and investment flow of the country, through which the government authorities can control money flow in the country (Astana Economic Forum, 2013). On the other hand, to strengthen international trade condition of the country, the US should have emphasized productivity of the country. At the same time, the US needs to react in a responsible manner regarding its trade policy and it will be essential to maintain a strong hold on the tariffs and barriers of the international trade policies. Apart from this, the US should adopt flexible norm for reducing the problems of the domestic labor market. The flexible domestic labor market will also assist the US to enhance its level of productivity in the global market and it will retain the flow of production in the US. Moreover, the US should incorporate ‘green’ trade policy for developing / manufacturing products in order to sustain the economy and infrastructure of the country. Additionally, it can be also recommended that by establishing an ecological environment, economic growth can be ensured for future. Furthermore, by ensuring FDI in the country, the US can enhance the political, social and economic condition of the country, which can assist the US to overcome the crisis phase of the country. Simultaneously, it also creates employment opportunity in the country, which will also reduce the unemployment related issues among the state (Astana Economic Forum, 2013). Recommendations for China According to the study, it has been identified that the Chinese government has ensured its power in the global economy through the development of supportive attitude. In this regard, China has also adopted advanced technological measures with better positivity. Moreover, China has also maintained a good working relation in the global market, which has assisted the country to ensure its commanding position in the global economy. Moreover, it has been recognized that by ensuring ethnicity and reducing cyber adversary, China has prevented major potential threats from its own economic growth. At the same time, China has also prevented damages in the field of economic, political and social conditions, which has assisted the growth of the Chinese economy (International Institute for Sustainable Development, 2014). In this regard, China should regulate its legal as well as tax framework more adequately with the aim of encouraging the Chinese entrepreneurs to conduct cross-border trade. In this respect, the Chinese government with the assistance of effective legal framework would be facilitated in maintaining the economic sustainability for long term period. At the same time, China has emphasized non-manufacturing industries with the intention of accelerating the growth of the economy and for maintaining a balance. Simultaneously, China will need to remain conscious regarding its financial sectors. In this regard, it can be suggested that China should adopt zero tolerance strategy for the financially insolvent companies, so that a better stability is maintained within the growth of banking system, equity market, and insurance and investment sectors among others. Moreover, China will need to focus for enhancing the flexibility of the labour market by incorporating modern technological tools and mechanisms. Additionally, the country will also need to undertake foreign relations more sincerely in the order to ensure its economic growth in the global market relating to business operation that include import-export activities (International Institute for Sustainable Development, 2014). Conclusion Based on the above study, it has been recognized that the US is the world’s fastest growing country and it is regarded as one of the highest exporters of good and/or services in the global economy. Due to strong financial and political situation, the US had witnessed enormous growth in the world economy since 1900s. On the other hand, China has been one of the fastest growing countries in the world economy. With the effect of globalization, China has started expanding its business and trade operations in the global economy. Moreover, the country had lifted its economic performance through its efficiency and determined effort. During the early 21st century, China had established a co-operative trade relationship with the US, which has assisted the economy to conduct operations in a better sustainable manner. Moreover, according to the study it has been revealed that the US economic system was highly depended on the private ownership with a minimal government intervention. At the same time, it has been also observed that most of the US organizations have an extensive environmental impact on the society in terms of product and/or services. Nevertheless, the US economic system mainly comprises three essential aspects in case of economic decisions such as ‘consumers’, ‘producers’ and Federal government. On the other hand, the Chinese economy is highly relied on socialism as well the capitalism similarly like the US economic system. Apart from this, the approach of the Chinese economic system is more of communism. In this regard, it can be stated that the approach of economic system of the Chinese government was communism, during the transitional period. However, according to the recent observation relation to the economic system of China, it can be stated that China is neither socialism nor communism in terms of its approaches of the economic system, as different elements of socialism economy can be still observed in the approaches of the Chinese economic system. In addition, based on the observation it can be observed that the US was the first sovereign power holder in the globe market, but after the establishment of China and American co-operation trade relation, the US has faced several different challenges in terms of political instability and religious riots. At the same time, the US has also witnessed financial crisis, which has adversely influenced the economy of the nation and as an effect productivity of the country reduced and employment related issues have arrived. As a consequence, the US lost its economic position on the global context. During this phase, China has already improved its position in the global market through its industrial development and by establishing good working relations with foreign countries or partners. Respectively, China is identified to develop a better economic system as compared to that of the US in the present day context. References Active USA Center AUC. (2014). US economic system. Retrieved from http://www.theusaonline.com/economy/economic-system.htm Astana Economic Forum. (2013). Recommendations for G20 leaders. Retrieved from http://2013.astanaforum.org/en/recommendations-2013 Forbes, K. J. (2004). The United States, China and Japan: Economic prospects and the role of foreign direct investment. 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