Jeremy McVicar Discussion Board Unit 2 International Business 230 Assignment Type: Discussion Board Due Date: 4/3/2004 Debate the benefits and drawbacks of both market and mixed economies on the Discussion Board. Present questions for any opponent’s arguments, looking for holes and inconsistencies. Attempt to answer any arguments made against your position.(posted 7326 days ago)Mixed and Market Economies Benefits and Drawbacks
Today’s world is a small place compared to that which existed one hundred years ago before the advent of modern communications and faster travel. The global market is not only an ever-changing environment, but one that exist with a profound effect on each individual; perhaps more than he/she knows. The rigors of various international business ventures require not only an understanding of culture, but an in-depth knowledge of today’s world economies. With the exception of some twelve economies through out the world such as North Korea, today we see primarily that of two different economies; mixed economy, and market economy. But what exactly are the benefits of each, and what are some drawbacks? Furthermore, the question of what seems to be the better of the two is an ongoing debate.
The Mixed Economy
A mixed economy is defined as an economy that allows for the simultaneous operation of publicly and privately owned enterprise. Control of economic development, and outlook is shared among government authorities and privatized businesses. Government control the economic sectors that it considers important to national security and long term stability such as, iron and steel manufacturing, petroleum production, and the automobile industry. Of course these vary among the different nations in the world which utilize a mixed economy. Other industries or manufacturing operations within a mixed economy are typically privatized although some may still be regulated to an extent.
Benefits and Drawbacks of a Mixed Economy
There are several benefits to the regulation of a mixed economy. To discus the primary benefits which come to mind, it is also important to address each benefit with a drawback to better gain an overall perspective of the differences between a market base economy and mixed economy.
The level of control that the government assumes within a mixed economy leads to the government having a major role in the delivery of its own services. At the same time, the private sector will have an important role in helping to build government infrastructure to deliver these services. This can cause an increase in overall production and/or efficiency.
Given this, a drawback would accure if the government failed to clearly identify the method of infrastructure it needs from the private sector. Production may not keep up with supply and demand of the general population and create a surplus, or deficiency of goods or services, this then contributes to loss revenue/profits.
Many mixed economies maintain a healthy welfare system to support the unemployed and provide health care to the general population. This can guarantee that properly qualified health care professionals and wealfare workers are trained prior to employment. This also ensures that the lower level income bracket is able to access a minimum same level of quality healthcare and treatment as the higher income bracket of society.
On the other hand, certain aspects of the welfare system may be taken advantage of far too often, ultimately leading to a loss of government funds. Medical professionals may see better business opportunities within the realm of private practice. Certain individuals may want a higher quality level of health care than is available from government regulated institutions and may not have a choice or freedom to choose.
Corporate structure (within certain industries) is more heavily regulated leading to less corporate greed. An adverse example would be that of the Enron case which left hundreds of employees without a retirement fund. Such a company regulated under state control would limit this particular type of greed, thereby protecting the rights of individuals.
Lets face it however, typically the methods of retirement under a business which operates under a market based economy can yield a better return for what an employee invests. This is primarily due to more options available while not being only limited to what the state owned and regulated corporation offers. In addition, a corrupt government can also skim retirement funds into the coffers of the few.
When conducting business in some mixed economies, Guanxi, or personal relationships, can be of benefit and get you ahead when you seemingly can’t find other methods.
This of course plays a downside within structure of business ethics in some mixed economies. Certainly people in the United States would debate the issue. Such methods as guanxi to establishing business ventures, or business transactions can lead to what some may consider corruption or bribery.
The Market Economy
A market economy is defined as an economy that operates by voluntary exchange in a free market and is not planned or controlled by a central authority; a capitalistic economy. A market economy is full of a variety of benefits to business and consumers. It is very difficult to find drawbacks within an economy we Americans live in. In my personal view, we tend to think that our system is better than any other, perhaps leading towards an ethnocentric type belief not in our culture, method of government and economics. Certainly I can search the web or read my text and find many discrepancies within a mixed economy, yet can not find too much negative aspects against a market economy. Perhaps many of the drawbacks of a market economy are within the realm of macroeconomics, such as wages, employment, laws, etc. Given this, I will attempt to address a couple of issues in the area of microeconomics.
Benefits and Drawbacks of a Market Economy
For those countries which already utilize a market economy, economic freedoms typically allow for a higher standard of living and better work wages.
However, these economic freedoms and benefits of better wages are not always the case for new countries adopting a market based economy. Poland for example is categorized as relatively homogeneous by views of dominant macroeconomic trends during the transformation of mixed economic methods to market economic methods from 1994-1997. These transformations lead to much unrest and an unemployment rate of 17%.
Market based economies regularly share a lower unemployment rate compared to that of mixed economies.
Today, unemployment is a concerning factor while businesses move overseas to countries such as China to pursue cheaper operating cost and low labor costs, this creates an even higher unemployment rate and a serious issue among many of todays market based economies.
Property Rights are enforced to a higher degree in market based economies compared to that of a mixed economy such as China.
To address this issue as a negative, I can only refer to what everyday life was like as I lived in China. While westerners enforce property rights in terms of piracy, Many Chinese tend to believe that ethically it is Ok to copy another persons idea and market it. As a business owner in China attempts to establish himself/herself in a successful business and support his/her lifestyle to a higher degree through a better standard of living compared to that of the “average” standard of living in China, it is perfectly acceptable to pirate various media. Furthermore, as the laws are not enforced regularly, it is worth the easy, and acceptable to do this in a developing/mixed economy such as China. This helps to gain more profit for new business owners helping to ensure success.
(For the record: In China Violation of Property Rights is just as illegal as in the United States, however, Government laws are not enforced due to ethical and moral standards of people compared to that of the United States or other market based economies. Furthermore, it is regarded as “OK” to conduct this type of business if it means more money and laws are not enforced. )
In conclusion, these benefits and drawbacks listed for each type of economy can be transferred. In other words, what I have listed as a negative within a mixed economy in the first section of this report can also be regarded as a positive for a market based economy in the second portion of this report; and vice versa. The list certainly goes on well beyond what I have discussed above however finding the better issues of benefits and drawbacks is perhaps best left to, and understood by an Economist. Never the less, it is important to consider and understand to reasonable degree when talking about international business.
Finally, the question arises; what is the better of the two economies? I myself can not answer this and don’t think many people can. If someone can answer it, are they right? I would like to see many changes in the United States that take the form of a mixed economy. The area I believe needs the most reform is the health care sector and regulation of health insurance agencies. I suppose that the best of economies would be determined by what can be of most benefit to the ones who wish to conduct business or reside within an economy. I know that many American companies seem to think that mixed economies are of better benefit to them due to the number of businesses moving to Mexico and overseas to countries such as China. Of course this is another debate all together.
WORKS CITED Books:
International Business, by: John J. Wild, Kenneth L. Wild, and Jerry C.Y. Han
World Wide Web:
Dictionary Online www.dictionary.com
REFERENCES
Books:
International Business, by: John J. Wild, Kenneth L. Wild, and Jerry C.Y. Han
World Wide Web:
Economic History (and Related Observations) http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=003oBw
Creating A Mixed Economy http://www.number- 10.gov.uk/su/delivery/creatingamixedeconomy/content.htm
Dictionary Online www.dictionary.com
Home School Resource and Archive http://www.worldandihomeschool.com/public_articles/1999/october/wis18 864.asp
The Twentieth Century: An Economic Retrospect http://www.siu.edu/~esa/econ302i/readings/20thcentu.htm
Transition to a Market Economy and the Distrubution of Wages http://www.lehigh.edu/~incbeug/Attachments/Transition%20to% 20a%20Market%20Economy.PDF