How to judge an Economic System? What are the criteria to judge the performance of the various economic systems?
All economic systems are basically intended for the good of their own citizens and societies. Russia and the other countries with command socialist economic system believe that their economic system is the most suitable for their own particular social and economic conditions. They claimed that the market economy or capitalist economy of the Western countries has been an exploiter of the poor. On the other hand, the capitalist countries are very proud of their extremely prosperous economies, and the high standard of living of their peoples. The best example is the United States.
However, there are vital criteria to judge the performance of the various economic systems. These are briefly explained:
Abundance: This refers to goods and services that individual members of society have received. Are these sufficient and are the peple satisfied? Are there no problems in food, clothing, shelter, medicare, education and recreation? Has the economic system eliminated mass poverty? If the answer to all these questions are in the affirmative, then it is a good performance. The people are definitely lucky for not having experienced the pains and indignities of poverty.
Growth: The growth of the economy is tangible, and it is measurable in terms of the number of buildings, houses, cars, hospitals, factories, or machines made in a given year. More of these mean greater economic growth. However, many question such economic growth because of its destructive fruits like pollution, drug abuse, and sex crimes.
Stability: This refers to the absence of inflation and unemployment. However, if the ups and downs of economic activities like production, consumption, and saving, among other things, are minimal, there is still economic stability. The problem of inflation alone can easily create more economic and social problems. When prices are abnormally high, the purchasing power of the consumers decreases. This means they can buy less number of goods, and this reduces production of goods. The result is unemployment. A family man who is jobless becomes a social risk or liability.
Security: Economic security generally depends on economic stability. Workers and employees do not lose their jobs if there is prosperity in the economy. In fact, there is great demand for jobs. During our deep economic recession which started in 1983, more than one million individuals lost their jobs. Many firms and factories stopped operating. Such great loss of the jobs has unfavorably affected other sectors of the economy. For example, college population has greatly decreased, and the buying of houses and business went down. In the case of rich countries, an individual who loves his job gets social security benefits.
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Efficiency: This has been discussed earlier. It simply means productivity. It is measured in terms of unit cost for average cost. For example, if the total cost of production is $100 and the total number of the products produced is 100. The unit cost is $1. Supposing another country can produce the same product at the total cost of $50 and be able to produce 200 units. Clearly, the latter country is more efficient. Efficiency is acquired by applying appropriate technology, machine, material, and management.
Justice and equity: Is the distribution of wealth, income, and power among the members of society fair? Is there no big gap between the rich and the poor? If the answer to both questions are no, then there is no justice and equity. These are the main problems of the poor countries. It is very evident that a just distribution of wealth, income, and power stimulates economic activities like innovation, investment, and production. This is one key reason why the progressive countries become more progressive. Their employees and workers are encouraged to be more efficient due to the presence of recognition and reward. There are sufficient opportunities for them to improve their social and economic conditions.
Economic freedoms: If a consumer is free to choose his food, style of his house, any kind of appliances, his recreation, or his education, then there is economic freedom. If the businessman is free to invest his money, to put up any business, or to decide his strategy of management, then there is economic freedom. If the producer is free to decide what kind of product he is going to manufacture, what kind of machine he is going to use, or where to sell his goods, then there is economic freedom. However, freedom is construed not to violate moral and legal values.
Evidently, in terms of national income and standard of living, the developed market or advanced capitalist economy has the best performance. There are four possible reasons for such economic success: economic freedoms, profit motive, ownership of private property, and favorable government policies. It is inherent among people to enjoy economic freedoms and to acquire private properties. To the businessmen, profit motive is the most important factor. Profits and properties are very good incentives for people to work harder. In contrast, the collective or state farms in Russia are inefficient, because the farmers have no power to make decisions and there are no economic incentives.
Evidently, the market-oriented economy is not without weaknesses. For instance, the few giant corporations tend to increase their prices through hoarding or reducing their production. The less fortunate members of society cannot get their goods from the market. Such limitations of the market economy are being corrected by the government. It regulates economic activities to improve the whole economy, and to protect the welfare of the poor. The poor of the United States are not really poor compared with the poor of the Philippines, India or Uganda. In the United States, the poor enjoy many social security benefits like Medicare, housing, and old-age pensions. In fact, it is not uncommon to see factory workers driving their own cars. In the less developed countries, it takes a miracle for a janitor, houseboy, or messenger to be able to buy a car.
There are danger signs in the 21st century for prosperous countries and all across the globe. According to The World Inequality Report; “since 1980, the top 0.1 percent of wealth owners, about 7 million people, captured as much of the world's growth as the bottom half of the adult population — around 3.8 billion people.”
The main problem once again, is how the rich are able to take advantage of many tax loopholes, deductions and tax havens that most people cannot take. Even as countries like the United States give mouth service to this problem, they continue to enact tax laws that once again give these advantages to the rich. As of 2014, the United States richest 1 percent accounted for 39 percent of the nation's wealth.