Economic Systems

Different Approaches to Economics in

Comparative Government & Politics
 Economic Systems
• Economic System – an organized way of
providing for the wants and needs of a people.
Three Major Forms
1) Command Economy
2) Market Economy
3) Mixed Economy
 Economic System
• Economic Systems – an organized way of
providing for the wants and needs of a people.
 Command Economy
• Command (Planned) Economy – a central
government determines the price of goods and
services using a fixed price system.
• ADVANTAGES
1. Can change economic direction drastically
2. Stability; no ‘market downturns’
3. Eliminates individual profit motives
4. Can provide public services/goods at a low cost
 Command Economy
• Command (Planned) Economy – a central
government determines the price of goods and
services using a fixed price system.
• DISADVANTAGES
1. Ignore the basic wants & needs of consumers
2. Incentives based on quotas, not necessarily quality
3. Large decision-making bureaucracy, inefficient
4. No rewards for individual initiative
 Market Economy
• Market Economy – goods and services are
determined in a free price system set by supply
and demand.
• ADVANTAGES
1. High degree of individual freedom & consumer
satisfaction
2. Lack of government interference
3. Variety of goods and services
4. Able to adjust to change gradually
 Market Economy
• Market Economy – goods and services are
determined in a free price system set by supply
and demand.
• DISADVANTAGES
1. High degree of uncertainty
 Market Adjustments, Recessions, Depressions
2. Does not provide for everyone; basic goods &
services
3. Produces class division
 Mixed Economy
• Mixed Economy – economic system that
combines free market elements with an active
governmental role.
• ADVANTAGES
1. Compromise of two extremes (market & command)
2. Provides assistance to those in need
3. Provide stability, while encouraging innovation
• DISADVANTAGES
1. Higher costs (taxes) for citizens
2. Role of Government? – difficult to balance
3. Somewhat less efficient
 Measuring Economic Success
1. Gross Domestic Product (GDP) – all the goods
and services produced by a country’s economy in
a given year (excluding income earned outside the
country) .
Country Gross Domestic Product (2009)

United States $14.25 trillion

United Kingdom (Britain) $2.165 trillion

Russia $2.103 trillion

China $8.767 trillion

Iran $876 billion

Mexico $1.473 trillion

Nigeria $353.2 billion

 Measuring Economic Success
2. Gross National Product (GNP) – like GDP, but also
includes income earned outside the country by
individuals and/or companies.
3. GDP/GNP per capita – divides GNP by the
population of the country

Country GDP per capita (2009)

United States $46,400
United Kingdom (Britain) $35,400
Russia $15,200
China $6,500
Iran $12,900
Mexico $13,200
Nigeria $2,400
 Measuring Economic Success
1. Gross Domestic Product (GDP) – all the goods and
services produced by a country’s economy in a given
year (excluding income earned outside the country) .
2. Gross National Product (GNP) – like GDP, but also
includes income eared outside the country by
individuals and/or companies.
3. GNP per capita – divides GNP by the population of
the country
4. Purchasing Power Parity (PPP) – like GNP, however it
also takes into consideration what people can buy
using their income in their local economy.
5. The Gini Index – a formula that measures the
amount of economic inequality in a society.
 Measuring Economic Success
4. Purchasing Power Parity (PPP) – like GNP,
however it also takes into consideration what
people can buy using their income in their local
economy as compared to prices in the U.S.
5. Human Development Index (HDI)– a formula that
measures the well-being of a country’s people by
factoring adult literacy, life expectancy, and
educational levels in addition to the GDP.
6. The Gini Index – a formula that measures the
amount of economic inequality in a society.
 Trends of Global Economics
1) Economic Liberalization – the general
trend/movement of global economies toward
market economies.
– WHY? –
• (1) Belief that government is too big
• (2) Lack of success of command economies.
 Trends of Global Economics
2) Globalization – the increasing interdependence
of economies, political systems, and societies
on a global scale through the utilization of
technological innovations.
ADVANTAGES
o Rapid overall economic growth
o ‘Global Access’ to information, technology, capital
o Spread of democracy and human rights
o Sense of global citizenship
 Trends of Global Economics
2) Globalization – the increasing interdependence of
economies, political systems, and societies on a
global scale through the utilization of technological
innovations.
DISADVANTAGES
o Exploitation of poorer countries – Multinational Corporations
(MNCs)
o MNC account for 1/3 world’s exports; top 10 MNCs have sales greater
than GDP of 170 countries; Pakistan nuclear test & Coke
o Erosion of state sovereignty
o Actions in one nation now affect all nations
o SARS outbreak in China or Swine Flu in Mexico
o Negative environmental impact
o “Americanization” – spread of American culture – backlash?
 Trends of Global Economics
3) Industrial vs. Post Industrial Value Shift –
– Modernism – a set of values that comes along with
industrialization
• Secularism
• Emphasis on reasoning
• Materialism
• Technology
• Emphasis on freedom rather than collective equality
– Worker Distribution
• Small Service Sector (technology, health care, finance, education)
• Large Industrial Sector (factories, industry creating tangible goods)
• Shrinking Agricultural Sector (farming, food creation)
 Trends of Global Economics
4) Industrial vs. Post Industrial Value Shift –
– Post-Modernism – a set of values that that comes
along with post-industrialism
• Quality of life over material gain
• Preservation of the environment
• Promotion of health care & education
– Worker Distribution
• Large Service Sector (technology, health care, finance, education)
• Shrinking Industrial Sector (factories, industry creating tangible
goods)
• Very Small Agricultural Sector (farming, food creation)
Trends of Global Economics