The Role of Government in Market-Based Economies - Term Paper Example

Mixed Economies and Market Based System Name Institution Name Course Name and Code Date Introduction The economy operates and requires different business environmental conditions to suffice. Different forms of economies exist including mixed economies and market-based economies. These approaches have different fundamental operational strategies and define different reasons contributing to its utilization in accomplishing intended purposes. The aim of the paper is to define and elaborate on mixed and market-based system economies. The second part discusses the reasons why mixed economies are converting to market-based economies. The last section addresses the role of government in market-based economies. Mixed Economies and Market Based Systems A mixed economy is an economic system that consists of a mixture of economic planning, private ownership, public ownership and economic interventionism. A mixed economy can also be defined as market economies that the government provides public goods and the presence of strong regulatory oversight. In certain mixed economies, another feature that is present is the aspect of state-run enterprises (Wild & Wild, 2015). Therefore, a mixed economy allows means of production by private ownership, a profit-seeking enterprise with the idea of accumulating capital, which is the driving force (Barkley & Barkley, 2014). The government also plays an indirect macroeconomic role through monetary and fiscal policies that are aimed to address the unstable economic condition and address capitalism challenges that include wealth and income disparities, unemployment, financial crisis, social welfare and inflation. In such markets, the government maintains competition, creates and supports a standardized welfare system, addresses employment standards fundamentals and protects the environment. In market-based system basis the decision on supply and demand in distribution, production, and investment. The supply and demand also dictate the prices of services and products, which also translate to free price system (Shaffer, Deller & Marcouiller, 2004). In fulfilling the requirements of the market, cooperative negotiations are employed, which enables definition of market economy characteristics (Wild & Wild, 2015). The scope of the market-based system is wide and may range from state-owned interventionist to regulated markets variants. The issue that is debatable in the market-based system is the strength of the government in regulating and guiding the market economies and addressing or creating modalities in ensuring the economic activity is effective (Barkley & Barkley, 2014). A market economy consists of numerous types of autonomous agencies, collectives and cooperates that acquire and exchange products and services in capital markets. Hence, the strategy of a market-based economy is allowing free price system in the allocation of labor and capital. Reasons for Mixed Economies Converting to Market-Based Systems The market-based system enables the producers to produce services and goods that the customers want (Shaffer, Deller & Marcouiller, 2004). The companies become creative and search for new methods and products to fulfill the requirements of the customers and business (Barkley & Barkley, 2014). The companies are then forced to employ modern methods with specified goals to fulfill the requirements of the organization (Neelankavil & Rai, 2014). Creativity and uniqueness are encouraged through continuous approaches to satisfy the requirements of the consumers/businesses. The market enables the producers and managers incentive to acquire appropriate skills and techniques (Cullen & Parboteeah, 2009). The employees are forced to worker harder because if the business does not operate effectively, it means the business does not generate revenues and the employees being laid off (Wild & Wild, 2015). The incentive to the employees is to work harder to continue generating revenues for the company, and also to support the fundamental requirements of the businesses (Barkley & Barkley, 2014). Through such a process, the role and task of the owners of the business or investors are to continue providing resources, which are important in accomplishing the business strategy. The method is appropriate because it results in the specialization of activities, which translates to business effectiveness and efficiency. The price system enables the consumers and producers to conserve minimal (scarce) resources. It creates a situation in which supply balances the demand (Neelankavil & Rai, 2014). The supply-demand approach ensures the prices of the products and services controls each other without external forces (Wild & Wild, 2015). It enables the different stakeholders including the consumers and producers to improve production through capitalizing on the scarce resources (Barkley & Barkley, 2014). Hence, economies define the methods and strategies, which the businesses have to employ to succeed in the different operational requirements. Effective competition pushes companies to be efficient resulting in lowering cost of production, which results in higher productivity (Noland & Pack, 2003). The competition also enables friendly competition because the employees and management have to encourage efficiency, which translates to lower costs (Neelankavil & Rai, 2014). Market-based economies premises any decision made on the nature of competition, and the expectations of the customers (Cullen & Parboteeah, 2009). When a company realizes competition is high, the solution for the company is to improve the processes and productivity (Shaffer, Deller & Marcouiller, 2004). It achieves these goals through countering or supporting the competitors approaches to business. It ensures the competition and improved efficiency are transferred to the customer. The appropriateness of market-based economy is different from the mixed economy based on the analysis and discussion. For example, the mixed economy system is heavily taxed, which reduce incentives to work harder or create strategies that may result in more profits (Barkley & Barkley, 2014). The mixed economy approach is less efficient when compared with the private sector because of numerous controls and the inability of utilizing effectively the internal resources to accomplish the requirements of the business (Wild & Wild, 2015). These complications are associated with the excessive control of business activities, which increases the cost of production; therefore, discourage enterprise development (Cullen & Parboteeah, 2009). These shortcomings of a mixed economy are addressed by the market-based economy because the aim is to fulfill the requirements of the customers/business through addressing operational and market dynamics. The Role of Government when a Mixed-Economy Transitions to a Market-Economy The government approaches the mixed economy and the market economy differently. The role of the government changes based on the expectations of the market economy. The government has a minimal role but plays four important roles (Shaffer, Deller & Marcouiller, 2004). The first role is enforcement of antitrust laws (Barkley & Barkley, 2014). The aim of the antitrust (antimonopoly) laws is to create an environment that encourages the development of industries, which the purpose of encouraging healthy competition (Wild & Wild, 2015). It results in allowing more business to entertain into the market, and the market should sustain these businesses (Noland & Pack, 2003). In addition, the government advances the laws through preventing trade restraining monopolies and other combinations of processes that exploit customers, which constrains commerce. The second role of the government is perseveration of property rights. The property rights are aimed at encouraging firms and individuals to take a risk such as new product invention and technology investment (Cullen & Parboteeah, 2009). Encouragement of the business activities enables continuous research and development, and other marketing approaches, which are important to healthy business activities (Noland & Pack, 2003). The property rights also safeguard the future incomes and assets that the business activities generate. The third aspect is the provision of stable monetary and fiscal environment (Shaffer, Deller & Marcouiller, 2004). Through effective monetary and fiscal policies, the government influence unemployment and inflation rate (Wild & Wild, 2015). The government can adjust the policies, forcing the other stakeholders to incorporate approaches to address the requirements of the business (Noland & Pack, 2003). The government also creates a stable environment, which improves company operations while reducing the risks associated with future investments (Cullen & Parboteeah, 2009). The appropriate of the strategy is to sustain a viable business environment to address and sustain the needs and requirements of the investors. The last role of government in the market economy is preserving political stability (Wild & Wild, 2015). Any economy requires a stable political system to sustain the different business and operational requirements. The market economy relies on stable government, and the role of the government is to ensure this requirement is achieved (Barkley & Barkley, 2014). The government also creates and implements a mechanism to ensure the companies and enterprises do not worry about political risks. The government is supposed to create legislations and policies to drive the requirements of companies and industries (Noland & Pack, 2003). The legislations are possible through legislative policies that the political system of the government should formulate and support. Conclusion Different economies target different requirements and have to adhere to different governmental controls. The mixed economies and market-based economies are different in nature because of the role of the government and other controlling forces. However, the preferred economy, which numerous business targets are the market based economy. In the market-based economy, the supply-demand determines the effectiveness of the enterprises because each established aim to be competitive resulting in continuous investments in the improvement of business activities. The government also plays minimal roles in market-based economies. Some of the roles include implementing antitrust laws, adjusting and reviewing fiscal and monetary policies, and championing political stability to spur economic development. References Barkley, A., & Barkley, P. W. (2014). Depolarizing Food and Agriculture: An Economic Approach. Routledge. Cullen, J. B., & Parboteeah, K. P. (2009). International business: strategy and the multinational company. Routledge. Neelankavil, J. P., & Rai, A. (2014). Basics of international business. Routledge. Noland, M., & Pack, H. (2003). Industrial policy in an era of Globalization: Lessons from Asia (Vol. 69). Peterson Institute. Shaffer, R., Deller, S., & Marcouiller, D. (2004). Community economics: linking theory and practice (No. Ed. 2). Blackwell Publishing. Wild, J., & Wild, K.L. (2015). International business: the challenges of globalization, Vpack international business plus Myiblab (8th ed.). Pearson Education. Read More