THE COIMBATORE PRODUCTIVITY COUNCIL

POST GRADUATE COURSE IN

PERSONEL MANAGEMENT, INDUSTRIAL RELATIONS

AND LABOUR WELFARE [PGDPM]

INDUSTRIAL ECONOMICS
By
Dr. C. RAJENDRAN
Govt. Arts College, Coimbatore.
Industrial Economics is the study of
firms, industries, and markets. It looks
at firms of all sizes – from local corner
shops to multinational giants such as
WalMart or Tesco. And it considers a
whole range of industries, such as
electricity generation, car production,
and restaurants.
When analysing decision making at the levels of the
individual firm and industry, Industrial Economics helps us
understand such issues as:

•the levels at which capacity, output, and prices are set;

•the extent that products are differentiated from each other;

•how much firms invest in research and development (R&D)

•how and why firms advertise

Industrial Economics also gives insights into how

firms organise their activities, as well as

considering their motivation. In many micro

courses, profit maximisation is taken as given, but

many industrial economics courses examine

alternative objectives, such as trying to grow

market share.
One of the key issues in industrial economics is
assessing whether a market is competitive.
Competitive markets are normally good for
consumers (although they might not always be
feasible) so most industrial economics courses
include analysis of how to measure the extent of
competition in markets. It then considers whether
regulation is needed, and if so the form it should
take. There is again an international dimension to
this, as firms that operate in more than one
country will face different regulatory regimes.
Unit:I
Econmic Systems:
Definition: The method used by a society to produce and distribute goods and services.

Or, How the government tells us what we can get and how to get it!
All Economic Systems Must Consider the Following Questions:

What goods and services to produce?

How will they produce them?
Who will get them?
How much will they produce now, and how much later?

Each economic system answers these questions in a DIFFERENT WAY

 What is an Economy?

An economy, or an economic system,

is the way a nation makes economic
choices about how the nation will use
its resources to produce and distribute
goods and services.
 Resources :

Also called factors of production, are all the

things used in producing goods and services.
They fall into four categories:
Land
Labor
Capital
Entrepreneurship
 Land refers to everything on Earth that is in its
natural state, or Earth's natural resources.

Labor refers to all the people who work in the

economy.
Capital includes money needed to start and operate a
business. At a national level, capital includes
infrastructure , such as roads, ports, sanitation facilities,
and utilities.
Entrepreneurship refers to the skills of people who are
willing to risk their time and money to run a business.
 Scarcity:
The difference between wants and needs and available
resources. Example: Most underdeveloped nations have natural
resources, but do not have capital or skilled labor to develop
them.
Choices:
: Every day, in our country and countries around the world,
business owners, consumers, workers, and governments must
make choices about using scarce resources.
Together these choices create an economy.
These choices fall into three groups:
Basic Economic Choices:
WHAT goods and services should be produced?
HOW should the goods and services be produced?
WHO receives and consumes these goods and services
 Four Types of Economic Systems:

These questions are answered by the type of

economic system a nation has.

There are four types of economies:

Pure Market Economy

Pure Command Economy
Traditional Economy
Mixed Economy

Let’s review each of these types of economies.

 Pure Market Economy :
* NO government involvement in economic
decisions.
* Private firms account for all production.
* Consumers decide WHAT should be produced.
* They do this through the purchases they make.
* Businesses determine HOW the products will be
produced.
* They must be competitive.

WHO buys the products? :

The people with the most money are able to buy more
goods and services.
 Problems :
* Difficulty enforcing property rights - no laws.
* Some people have few resources to sell - no
minimum income.
* Some firms try to monopolize markets - conspiring
and price fixing.
* No public goods. - national defense?

Pure Command Economy:

* All resources are government-owned.
* One person (dictator) or a group of officials decide WHAT products
are needed.
* The government runs all businesses, controls all employment,
and decides HOW goods and services will be produced.
* The government decides WHO receives the products that are
produced.
 Problems:
- Consumers get low priority.
- Little freedom of choice – few products.
- Resources owned by the state are often wasted – - -
Individuals don’t care if they don’t own it.

Traditional Economy:
- Economy is shaped largely by custom or religion.
- Customs and religion determine the WHO, WHAT,
and HOW.

Example: India has a caste system which restricts

occupational choice. (A social class separated from others
by distinctions of hereditary rank, profession, or wealth.)
 Mixed Economy :
Most economies in the world today are mixed .
Classification is based on government’s intervention.
In the U.S. the government accounts for about 1/3 of all
U.S. economic activity.
Government Philosophies:
Countries also have different philosophies of government
which reflect not only the laws and rules, but how individuals are
treated. There are three political philosophies:
Capitalism
Socialism
Communism
 Capitalism :
- Private ownership of businesses and marketplace competition.
- It is the same as a free enterprise system.
- The political system most frequently associated with capitalism is
democracy.
Socialism :
- The main goal of socialism is to keep prices low for all people and
to provide employment for many.
- The government runs key industries, generally in
Telecommunications, mining, transportation, and banking.
- Socialist countries tend to have more social services.
Communism :
- Have a totalitarian form of government; this means that the
government runs everything and makes all decisions.
- Theoretically, there is no unemployment in communist countries.
- The government decides the type of schooling people will receive
and also tells them where to live.
 Economies in Transition:

Many countries are in transition from either

communism or socialism to capitalism.

Privatization is a common aspect of transition

from a command economy to free enterprise
system.

Privatization means state-owned industries

are sold to private individuals and companies.
 Evolution of Economic System:

An economic system is a system of production and exchange of

goods and services as well as allocation of resources in a society. It
includes the combination of the various institutions, agencies, entities
(or even sectors) and consumers that comprise the economic structure
of a given community.

The study of economic systems includes how these various

agencies and institutions are linked to one another, how information
flows between them, and the social relations within the system
(including property rights and the structure of management).

Today the dominant form of economic organization at the global

level is based on market-oriented mixed economies.
 Economic systems is the category that includes

planning, coordination, productive enterprises; factor and

product markets; prices; population, public economics;
financial economics, national income, product, and
expenditure; money; inflation, international trade, finance,
investment, and aid, welfare and poverty, natural resources;
energy; environment; regional studies, political economy;
legal institutions; property rights.
 There are multiple components to economic
systems.

Decision-making structures of an economy

determine the use of economic inputs (the
factors of production),

Distribution of output, the level of centralization in

decision-making, and who makes these decisions.

Decisions might be carried out by industrial councils

, by a government agency, or by private owners.
 Every economic system represents an attempt to solve three
fundamental and interdependent problems:

What goods and services shall be produced, and in what

quantities?

How shall goods and services be produced? That is, by whom and
with what resources and technologies?

For whom shall goods and services be produced? That is, who is to
enjoy the benefits of the goods and services and how is the total
product to be distributed among individuals and groups in the society?

Thus every economy is a system that allocates resources for

exchange, production, distribution and consumption
 An economic system possesses the
following institutions:

- Methods of control over the factors

- A decision-making system
- A coordination mechanism
- An incentive system
- Organizational form
- A distribution system
 The basic and general economic systems are:
Market economy ("hands off" systems, such as laissez-faire capitalism)

Mixed economy (a hybrid that blends some aspects of both market and planned economies)

Planned economy ("hands on" systems, such as state socialism, also known as "command
economy" when referring to the Soviet model)

Traditional economy (a generic term for older economic systems)

Participatory economics (a system where the production and distribution of goods is guided
by public participation)

Gift economy (where an exchange is made without any explicit agreement for immediate or
future rewards)

Barter economy (where goods and services are directly exchanged for other goods or services)

Post-scarcity economy (a hypothetical form where resources aren't scarce, such as Marx's
concept of a Communist society)
 Mixed Economic System in India: Characteristics, Merits
and Demerits

Mixed Economy is neither pure capitalism nor pure

socialism but a mixture of the two system. In this system
we find characteristics of both capitalism and socialism.
Mixed economy is operated by both, private enterprise and
public enterprise.

That is private enterprise is not permitted to function freely

and controlled through price mechanism. On the other
side, the government intervenes to control and regulate
private enterprise in several ways. It has been realised that a
free functioning of private enterprise results in several types
of problems.
 Characteristics of Mixed Economy:

1. Co-existence of the public and Private

Sectors

2. Economic Welfare

3. Economic Planning

4. Free and Controlled Economic Development

 Merits of Mixed Economy:

1. Adequate Freedom:
(a) Consumers are free to dispose of their incomes in a manner they
want,
(b) Factors of production are free to choose their own occupations
(c) Private initiative is always encouraged to find it’s best possible use.
2. Maximum Welfare:
In mixed economic system, the state makes efforts to provide
maximum welfare to workers and other citizens. etc.
3. Modern Technology:
In mixed economy, the modern technology and capital saving method
is used, with the result large- scale production and profit could be
possible.
4. Best Allocation of Resources:
The resources are utilised in the best possible manner in the Mixed
Economic System.
Demerits of Mixed Economy:
1. Low inflow of Foreign Capital

2. Inefficiency of Public Sector

3. Maximum Control on Private Sector

4. Fear of Nationalisation

5. Problem of Concentration of Economic Power

6. Presence of Imbalance in the Economy

 UNIT–II
03.07.2020

* Industry and Economic Development

* Industrial Policy 1980
* Industrial Policy 1991 and
* Backward Industrial Development
 Unit:II
Industrial Policies in India

The industrial policy of a country, sometimes denoted

IP, is its official strategic effort to encourage the
development and growth of the manufacturing sector.

Industrial policies are sector-specific.

Many types of industrial policies contain common

elements with other types of interventionist practices such
as trade policy and fiscal policy.
Objectives:
The major objectives of industrial policy are:

(i) Rapid Industrial Development:

(ii) Balanced industrial Structure:

(iii) Prevention of Concentration of Economic Power:

(iv) Balanced Regional Growth:

Backward Industrial
Development
Major causes responsible for regional imbalances in India
1. Historical Factors:
India started from its British regime. The British rulers as well as industrialists started to develop only
those earmarked regions.

2. Geographical Factors:
Geographical factors play an important role in the developmental activities of a developing economy.
Surrounded by hills, rivers and dense forests leads to increase in the cost of administration

3. Locational Advantages:
Some regions are getting special favour in respect of site selections of various developmental projects.

4. Inadequacy of Economic Overheads:

Economic overheads like transport and communication facilities, power, technology, banking and
insurance etc. are considered very important for the development of a particular region

5. Failure of Planning Mechanism:

Although balanced growth has been accepted as one of the major objectives of economic planning in
India since the Second Plan onwards but it did not make much headway in achieving this object.
6. Lack of Growth of Ancillary Industries in Backward States:

Due to lack of growth of ancillary industries in these areas, all these areas
remained backward in spite of huge investment made by the Centre.

7. Lack of Motivation on the Part of Backward States:

Growing regional imbalance in India has also been resulted from lack of
motivation on the part of the backward states for industrial development.

8. Political Instability:

Another important factor responsible for regional imbalance is the political

instability prevailing in the backward regions of the country. Political instability
in the form of unstable government, extremist violence, law and order
problem etc
 Balanced Regional Development:
Balanced regional development is an important
condition for the harmonious and smooth
development of a country. It does not imply equal
development of all regions of a country. Rather it
indicates utilization of development potential of
all areas as per its capacity so that the benefit of
overall economic growth is shared by the
inhabitants of all the different regions of a
country.
What is to be done for BRD?...

(a) Utilisation of local resources

(b) Expansion of employment opportunities

(c) Utilisation of Infra-structural Facilities

(d) Socio-Political Arguments

(c) Strategic Considerations

 Proper Strategy for Regional Development

Adoption of a proper strategy includes:

(a) An examination of the existing criteria for the

identification of backward areas of the country,

(b) Adoption of a selective and purposeful system of fiscal

incentives so as to fulfill the basic objectives of
expansion of employment opportunities, utilization of
available local resources, exploitation of local
development potential, linkage effects, distributional
impact, expansion of infra-structural facilities, etc.,
(c) Proper co-ordination of development strategy
formulated by various agencies, viz., the central and State
Governments, financial institutions, private sector units,
etc.,

(d) Adopting location specific and appropriate project

oriented programmes having importance on growth
centre approach

(e) Introducing a sustained programme of investment by

the public sector to realize the objective of
employment expansion and income distribution to attain
the development of backward areas.
UNIT-III