The 3 different types of economies:
Traditional economy is an original economic system in which traditions, customs, and beliefs help shape the goods and the services the economy produces, as well as the rules and manner of their distribution. Countries that use this type of economic system are often rural and farm-based.
Characteristics of a Traditional Economy
Traditional economies are often based on one or a few of agriculture, hunting, fishing, and gathering. Traditional economies are still found in many developing countries- in parts of Africa, Asia, South America, and the Middle East, parts of northern Canada.
The activity in a market economy is unplanned; the decisions are made in markets, where individuals or enterprises voluntarily agree to exchange goods and services, usually through payments of money. There is no central authority that takes or implements decision in this kind of an economy. Alternatively, a command economy is one in which all the important decisions about production and distribution are taken by the government. The government owns the factors of production and also directs the operations of the enterprises.
Based on the Ownership and Control over Means of Production or Resources the economies are divided into three types:
Resources or means of production remain either in private ownership with full individual freedom to use them for the profit motive or they can be in collective ownership (government control) and can be used for the collective welfare of the society as a whole. Based on the criterion of degree of individual freedom and profit motive, economies are labelled as:
The capitalist or free enterprise economy is the oldest form of economy. Earlier economists supported the policy of ‘laissez fair’ meaning ‘leave free’. They advocated minimum government intervention in the economic activities. The following are the main features of a capitalist economy;
Disadvantages of Capitalism:
Capitalism in today’s world: Pure capitalism is not seen in the world now-a-days. The economies of USA, UK, France, Netherland, Spain, Portugal, Australia etc. are known as capitalistic countries with active role of their respective government in economic development.
Socialist Economy: In the socialist or centrally planned economies all the productive resources are owned and controlled by the government in the overall interest of the society. A central planning authority takes the decisions. The socialist economy has the following main features:
Disadvantages of Socialism
Socialism in today’s world: Countries such as Russia, China and many eastern European countries are said to be socialist countries. But they are changing now and encouraging liberalisation in their countries for their economic development.
“If a man is not a socialist by the time he is 20, he has no heart. If he is not a conservative by the time he is 40, he has no brain. ” – Winston Churchill
Mixed Economy A mixed economy combines the best features of capitalism and socialism. Thus mixed economy has some elements of both free enterprise or capitalist economy as well as a government controlled socialist economy. The public and private sectors co-exist in mixed economies. The main characteristics of a mixed economy are as follows:
Thus in a mixed economy people at large enjoy individual freedom and government support to protect the interests of weaker sections of the society.
Indian economy is considered a mixed economy as it has well defined areas for functioning of public and private sectors and economic planning. Even countries such as USA, UK, etc. which were known as capitalistic countries are also called mixed economies now because of active role of their government in economic development.