I. Text types of economic systems

An economic system is a society’s way of producing, distributing, and marketing the goods and services desired by its population. The world’s three main economic systems are capitalism, communism, and socialism. The best way to distinguish between these systems is in terms of the freedom they give individuals to pursue their own economic interests.

Capitalist economies operate under a free-market system and are therefore often calledmarket economies. This means that an individual with something to sell is free to charge any price and sell to anyone willing to pay this price. In reality, however, the government sometimes intervenes in business to influence prices and wages or to change the way resources are allocated. This type is calledmixed capitalism, and it is the economic system of the United States. Under capitalism, the factors of production are owned by individuals, who make the business decisions. They determine what is produced, by whom, and for whom. Citizens have a high degree of economic freedom but also face considerable economic risk. Other countries with variations of this economic system include Canada, Germany, and Japan.

Communism allows individuals the least degree of economic freedom and is characterized by state ownership of the factors of production and planned economies. Resource allocation is handled through rigid centralized planning and government officials decide what goods to produce, how to produce them, and to whom they should be distributed. Thus the managers of a communist factory produce not what they want but what the plan wants; they can’t shop around for materials, choose customers, hire or fire labour without authorization. Social equality is a major goal. While in a free-market system mistakes are repaired and remedied as soon as possible, unprofitable items are canceled, and profitable ones run overtime, in a society planned from top to bottom none of this happens because the pursuit of private gain is nonexistent. Planned economies exist in such countries as North Korea and Cuba.

Socialism lies somewhere between capitalism and communism in the degree of economic freedom it permits. Under socialism the state owns and operates certain key industries such as transportation, utilities, medicine, steel, and communications. Private ownership is permitted in industries that are not considered vital. High taxes permit the government to provide many social services such as medical care, education, subsidized houses, etc. Varying degrees of socialism are practiced today in countries like Mexico and Sweden.

Nowadays nature of economic systems is changing. Because of economic failure and social unrest, the republics that were formerly part of the Soviet Union have now restructured their communist economies by shifting to market-driven systems. Many other planned economies are adopting free-market policies as well. They are selling off their government-owned enterprises to privately held firms to raise badly needed cash or to compete more effectively in the global marketplace. This trend is known as privatizationand is occurring in countries like Great Britain, Mexico, Argentina, Israel, and France. In fact Israel plans to sell 50 of its 140 government-owned companies, and the French socialist government is going to privatize airline Air France. Even Sweden, one of the most committed socialist countries in the world, has been forced to trim its generous social role and push for more market-based competition among businesses, diminishing the role of its government in industry. Likewise, China is taking steady steps toward a more market-based economy. The goal of China’s economic reform is to convert most of the country’s 305,000 state-owned companies into shareholder-owned corporations and open them to foreign competition – while keeping key industries under state control.

Nowadays the most striking feature of the world economy is the very great difference between the average incomes of people in developed countries and those in developing countries. Countries which have high standards of living – mainly industrialized countries – are described as developed countries.The total population in these countries is about 800 million and thegross national product (GNP)per head is more than $5000. The developed countries (USA, Japan, Canada, Sweden, Germany etc.) produce about 75 per cent (by value) of the world’s output.

Developing countries are ones in which the average standard of living is very low compared with living standards in North America and Western Europe. The total population in these countries is about 3 billion and GNP per head is less than $400. The low-income developing countries are often called Third World countries and they are very much concentrated in Asia, Africa, and South America (Bangladesh, Pakistan, India, Congo, Colombia etc) Major economic problems facing the developing countries are low-productivity agriculture, poor natural resources, a shortage of capital, and a large-scale unemployment.

But there are also some middle-income countries like Greece, Mexico, Egypt, Turkey, Hungary in which GNP per head is between $500 and $4000. The total population in these countries is about 1 billion.