The Advantages and Disadvantages of the Various Types of Economic Systems
A national economy is an extremely important factor shaping the country’s profile, its power, the level of the population’s welfare, and the state’s role in the international arena:
“A national economy is the organized process of developing markets for natural resources, industrial production, agricultural output, and technological innovations. All nation-states must choose not only how their natural resources should be exploited to meet social needs but also how to distribute the goods and services produced from them”.
Judging from this quotation, it is possible to see that every state has to get involved in trade-offs between economic growth and environmental quality – in case the state makes the choice for economic growth, it will inevitably use the natural resources excessively, but in case environmental wellness is the priority number one, it is hard to get involved in intense production that is the basis for economic growth.
Depending on the way resources are distributed, one can distinguish capitalist, socialist, and mixed economic systems. Theoretically, there are no pure socialist or capitalist economies because they cannot correspond to the needs of the state and its population simultaneously. In the capitalist economy, the intrusion of the state in the economy is absent, and the national economy represents a free enterprise sector. This system is surely beneficial for private entrepreneurs who may develop their businesses without any restrictions and limitations, but at the same time, the system has a set of drawbacks. It is risky for social security as social interests may be infringed, with the uncontrollable prices and produced products, etc.
In the socialist economy, all economic activity is strictly regulated by the state in the interest of the society; the government establishes prices, products, and all other economy-related activities. Nonetheless, this type of economy threatens the free development of the economy because of governmental control that restricts economic development in many areas. Urbanization, industrialization, and communication development have altered the political institutions in many ways – since large population groups have moved to cities, and the industrial economic sector has become the prevailing part of the national economy, the politics of a state has to correspond to the changing needs of people. Communication systems are the main contribution to the internationalization of all economic aspects, which also produces a direct impact on the political institutions of a particular state.
The GNP indicator seems to be inefficient in measuring the real state prosperity or economic decline – it is possible to understand this in case GNP figures of different countries are compared, e.g. Denmark has the GNP volume of $29,000 and Japan has the indicator of $28,000. It is hard to compare these states because they highly differ in terms of their prosperity and economic activity, so some alternative measures should be chosen to make the comparison adequate.