Organising an Economy

Organising an economy can be defined as the organisation of the production, distribution, and consumption activities performed by the society. It involves a wide range of economic activities, such as producing different types of goods, ensuring that people know about those goods, buying and selling the produced supplies, and finally, generating employment. 

As an economy is a collection of a huge number of interconnected markets, organising an economy involves organising the markets depending on their nature of functioning. However, it is not easy to segregate the economy into multiple sections, and it is usually the government of the respective country that decides how to organise the economy. 

The three ways that the government can organise an economy are as follows:

• Market economy
• Planned or command economy
• Mixed economy

Let’s take a closer look at the different ways to organise an economy.

Market economy

In this type of economy, the businesses and citizens of a country are responsible for deciding the prices of different goods and services. Although the government may sometimes intervene in setting the goals and objectives of the economy, it doesn’t play an intricate role. As the name suggests, a market economy is primarily market-oriented, and the economic decisions are driven by the mutual discussion between the customers and the sellers. It is the law of demand and supply that determines the production levels and prices of goods and services.

The basic characteristics of a market economy are as follows:

• In a market economy, production takes place depending on the requirements of the customers; each manufacturer produces goods as per their capacity and sells that in the free market. The business owners consider different factors, such as labour, capital, and land to finalise the prices of their products. Their decision to increase or decrease the prices depend on the financial backing and the general demand for the related products in the market. The more the demand is, the supply will be limited and the price will be high.
• The sellers and buyers need to agree to the terms and conditions of the transactions. It is up to the business owners to decide where to allocate the resources in the country. The resources can be easily moved from one place to another or one industry to the other to meet the requirements. For example, if State A has more demand for ceiling fans than State B, then the business owner can send more supplies to State A.

Command or Planned economy

Unlike in a market economy where the citizens and businesses decide the prices of products and services, the command economy is controlled and regulated by the government of the state. In this type of economy, everything is in the hands of the government. The government is solely responsible for determining the production levels of different goods and services. It also determines how the goods should be distributed and to whom. In fact, it is also the government that decides the prices of the goods. 

In this economy, it is not the demand or supply that determines the level of production or prices of different goods or services. It is the government’s duty to assess the average demands of goods and services that the country’s citizens would usually need and based on that decide the required production. This makes the command economy a very streamlined and well-regulated process with several advantages like full resource utilisation and better employment.

A few characteristics that make a command economy stand out are as follows:

• The prime focus of a command economy is the overall well-being of the citizens. While in a market or mixed economy the individual profits of businesses play a decisive role, in a command economy the government lays maximum emphasis on the welfare of the residents.
• The government comes up with a five-year plan that has various economic goals for different industries and sectors. It can also create multiple short-term plans that could give an idea of how the country’s economy is going. 
• It’s the government that allocates its resources depending on its five-year plan. Hence, there is minimal wastage of resources. The government makes the most of natural resources and the skills of different individuals to strengthen its economy. A planned economy also allows the government to reduce mass unemployment.

Mixed economy

In a mixed economy, you experience the best of both worlds of socialism and capitalism. On the one hand, it provides economic freedom to business owners, but on the other hand, it also allows the government to intervene in various economic activities so that it can achieve different social goals. The blend of a socialist economy and a capitalist economy gives rise to a mixed economy. 

This type of economy usually has three characteristics that are explained below:

• It keeps private property intact. No one can damage private property and claim it to be theirs.
• It allows demand and supply to decide the prices of goods and services. This means it follows the norms of a free-market system as well. 
• The economy is also motivation-driven. Companies with self-interests in mind are usually the big players in a mixed economy. 

A country with a mixed economy gives business owners a chance to make profits out of the consumer’s requirements. The business owners are aware of the demand of their products in the market and they accordingly increase or decrease the prices. On the other hand, if the government decides to allocate capital to a specific industry or resource, then it has full freedom to do so.

Conclusion 

With these options available to organise an economy, it may seem like an easy task for countries to choose an economy and stick to it. In reality, it is quite difficult and complex as the government of the country has to first think of the welfare of its citizens before the profits of individual companies. Thus, the government considers various factors before deciding on an economic system.