Economic System

INTRODUCTION

Men live in society. They work, produce and consume. They have an economic activity. The economic system is the legal and political framework within which economic activity takes place.

Freely chosen by members of a society in countries with a democratic political system, it is imposed by the ruling authorities in countries with dictatorial political regimes.

It is manifested concretely by constitutional articles, laws, regulations, which regulate economic activity.

In reality, there are as many variants of economic systems as there are countries. Nevertheless, it is possible to try to identify the main features of the two most important economic systems from which the various States have based their economic activity: the market economy and the collectivist economy.

I- THE MARKET ECONOMY

1) Features

- The priority is given to the individual: he enjoys a wide range of rights and a wide freedom of action. By seeking his own interest, he collaborates in the general welfare. The State plays only a secondary role; its action is limited to a few areas of general interest such as the police, national defense, relations with foreign countries (a gendarme state).

- Private property, in particular of the productive assets, is guaranteed: everyone may, within the limits of the law, acquire, retain and transmit property, dispose of it as he sees fit.

- Private ownership implies private initiative and enterprise: economic activity is directed and organized by private individuals. Households decide freely how to dispose of their income and choose the goods and services they intend to consume; The entrepreneur decides what he wants to produce, how he will produce it (with what productive resources) and how much; Individuals freely choose their profession. If everyone is master of his decisions, he also bears the consequences, good or bad. Thus, a producer who tries to sell a product that does not meet the needs of consumers, or at a price that is too high compared to his competitors, will make losses rather than profits, so the individual who chooses a trade that does not correspond the needs of enterprises will find himself unemployed.

- The income distribution is based on the capacity of each participant in the economic activity.

It is therefore a system of economic decentralization whose regulating element is the MARKET and the driving forces the personal interest and the research of PROFIT. It is all the more powerful because competition is strong.

- Agents who correctly interpret market signals (solvent demand for certain categories of goods or services, demand for a certain professional qualification) are rewarded (profits, high wages); otherwise they are penalized (losses, bankruptcy, unemployment).

2) Benefits

- Individual freedom allows a harmonious and complete development of the human person.

- Self-interest and the pursuit of profit are powerful stimulants of human activity; and this system is favorable to progress and inventions, to increased productivity, and to the improvement of general welfare.

- Competition encourages companies to best meet the needs of consumers.

3) Disadvantages

It creates considerable inequalities between men, inequalities which are far from being always justified by merit or labor, all the more so because they are perpetuated by the institution of inheritance.

- Concentration possibilities run counter to the principle of competition and favor the formation of very powerful companies that dominate the market.

- The priority exploitation of the activities that generate the highest profits may lead to neglecting activities of general interest which are not profitable.

- This system can hardly avoid large economic fluctuations which alternate periods of prosperity with periods of depression.

4) The social market economy

The "pure" market economy never really existed. "Wild capitalism", which reached its peak at the end of the 19th century, has come a long way. However, Western states, especially since the end of the Second World War, have increasingly intervened in economic life, to correct the excesses and disadvantages of this integral capitalism (the passage of the gendarme state to Welfare state). These interventions, which have varied greatly from one country to another, have not sought to eliminate the principles of competition and maximization of profits, but to mitigate the negative effects of these.

Examples of state intervention in a social market economy:

- It corrects social inequalities and proceeds to redistribute income by means of taxes;

- It legislates to limit the harmful effects of concentrations;

- It encourages certain activities of general interest which are not profitable by means of subsidies (a subsidy is a definitive

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