Mixed Economy

Free market economy

Economic system in which factories, land and other economic resources are more equally split between private and government ownership. Government wheels economic sectors important to national security and long-term constancy. Generous welfare system supports unemployed and provides health care.

1.         Origins of the Mixed Economy

a. Many mixed economies today are modernizing to become more competitive.

b. Successful economy must be efficient and innovative, but also protect society.

Goals  are  low  unemployment,  low  poverty,  steady  economic  growth,  and  an equitable distribution of wealth.

2.         Decline of Mixed Economies

Mixed economies are changing to market-based systems. Government ownership means less competence, innovation, responsibility and accountability; slower growth; higher costs and higher taxes and prices.

A. Move toward Privatization

i.   Increases efficiency, cuts subsidies to state-owned firms, curtails appointment of managers for political reasons.

ii.   Selling government-owned economic resources to private   companies and individuals.

3.   Market Economy

Majority of a nation's land, factories and other economic resources are privately owned either by individuals or businesses. Price mechanism determines:

O Demand: The quantity of a good or service that buyers are willing to purchase at a specific selling price.

O Supply: The quantity of a good or service that producers are willing to provide at a specific selling price.

1.         Origins of the Market Economy

Individual concerns are above cluster concerns. The group benefits when individuals receive incentives and rewards to act in certain ways.

a.         Laissez-Faire Economics

French:  "allow them to do [without interference]."  Individualism fosters democracy as well as a market economy.

2.         Features of a Market Economy

O Free choice: individuals have buy options.

O Free enterprise: companies can make a decision what to produce and which markets to

Compete in.

O Price flexibility: prices rise or fall reflecting supply and demand.

O Focus on China

China's theme is "Socialism with Chinese characteristics," and the state has undergone great economic improvement over the past two decades.

a.         Early Years

i.          1949: communes planned all farming and industrial production and schedules. Rural families owned their homes and land and produced particular crops.

ii.         1979: government reforms permitted families to grow crops they chose and sell produce at market prices.

iii.        Township and village enterprises (TVEs) obtained resources, labor, and capital on open market and used a private allocation system. Legalized in 1984, TVEs laid the groundwork for a market economy.

iv.        Outside companies were permissible to form joint ventures with Chinese partners in the mid-1980s.

b.         Challenges Ahead

i.          Political and social problems emerged. Skirmishes between secular and

Muslim, Chinese and democracy restricted.

ii.         Slow economic progress in rural areas, unemployment and misery of migrant workers.

iii.        China's one country, two systems policy must protect order, as Taiwan is watching closely.

Bottom Line for Business

Ongoing market reforms in previously centrally planned and mixed economies have a thoughtful effect on international business. Freer markets are spurring major shifts in manufacturing activity. Lured by low wages and increasing markets, international companies are forging ties in newly industrialized countries and exploring opportunities in developing nations. Global capital markets make it easier to locate up factories abroad and some newly industrialized countries construct world-class competitors of their own.