Market economy and planned economy: main characteristics and differences

The market economy and the planned economy, as a rule, are contrasted. These models have a number of fundamental differences. Let us consider them in more detail.

General information

The market economy and the planned economy are primarily opposed along the political line. The latter, in particular, is associated with capitalism. This usually means the liberal development of the economic structure. The planned-command economy is associated with socialism. In doing so, they have in mind the specific state of the economy during the Soviet years. On the other line, the market economy and the planned economy are contrasted by the way of labor integration. The first relates to the exchange one, and to the second - the technological method.

Political line

A number of experts believe that a market economy and a planned economy can not be attached to a specific form of government. This position is substantiated by the following arguments. Experts point out that the market economy today not only does not reject, but, on the contrary, actively uses planning. In particular, it is widely used in large corporations. In addition, capitalist, but absolutely planned economic systems are known in history. This situation, for example, took place in Germany during the Second World War. In the country, there was a strict plan for the production of defense products for a specific period on the scale of the state. In addition, the interaction of related industries was clearly specified.

Specificity of labor integration

Professionalization and differentiation are used in the work area to increase production efficiency. They are compensated by the integration of labor. It, in turn, is achieved either through the formation of technological chains, or through the exchange of value in the market. The first option can be used only for performance of production tasks. It can not be said that it acts as the basis of a planned economy. It is due to the fact that she herself also develops production tasks in accordance with the analysis of economic activity and the state of society. This, in turn, requires the application of market parameters. It is also impossible to name the method of integration through an exchange dividing the second considered structure of the economy. Of course, it occupies a priority position, but simultaneously in the market economy the method of the technological chain is applied. For example, this is the case in conveyor production.

The key difference

Negative feedback is typical for the economic system . This means that the resulting disagreement between the indicators of supply and demand structure will tend to minimize. This process is called regulation. The key difference between the structures under consideration is the specific character and method of minimizing this discrepancy. The basis of a planned economy is centralized, coercive and conscious regulation. It is carried out through production. In the market model, spontaneous regulation is autonomous. It is realized through prices.

Characteristics of a market economy

The economic structure consists of state institutions of management, enterprises, population. All these subjects interact with each other through direct and feedback. In theory, two extreme states of the economic system are allowed. The first assumes the absolute absence of state management by enterprises. Firms in this case are completely autonomous and independent. They freely carry out their activities, perform exchange operations. This is the general characteristic of a market economy. Any impact on it can trigger a change. Nevertheless, it will be able to adapt, since it has a certain margin of stability. It is worth noting that the crisis of overproduction does not necessarily accompany it. It is regarded by theorists as a product of the capitalist system, and not the functioning of the market. Inside enterprises, a predominantly technological way of integrating labor is used, between companies - exchange.

Specificity of regulation

The market model does not need government agencies. It has the ability to self-regulation. It consists in the fact that attempts by producers to change the cost of production relative to the equilibrium affect the demand. Its change is aimed at maintaining the price balance. Since the mechanism of self-regulation operates, monopolists can not infinitely increase the value of goods. Its limiting value will be limited by the decline in demand.

Benefits

The market economy is inherently focused exclusively on making the most profitable exchange. In other words, the model does not solve social and other problems. When it is implemented, the systemic approach is excluded, that is, not all factors and consequences are taken into account. Accounting, mainly, only profitability. Regulation within the system in the short term is effected by price changes. As a key advantage of the model is its speed. This is due to the fact that the price regulation does not involve inertia production. The subject producing the product responds to demand automatically, almost instantly through value and with a certain slowdown through investing capital in the most profitable industries.

Planning and command economy

This is the second extreme state of the economic structure. Another one of its name is administrative-command. Regulation is carried out through government agencies from the center. At the same time, within the economic sphere, the feedback between the subjects is rather weak. Enterprises receive instructions from the center. It receives signals from the population and producers. In fact, the administrative-command model can function in the absence of a directorate at the enterprises. This is explained by the fact that all decisions are made in the center and are brought down. This model is quite workable. However, the conditions of the planned economy require an operational structure and a perfect arrangement of the central apparatus, the availability of high-speed and reliable channels for providing feedback.

Tasks

The planned system of economy is projected. Therefore, it assumes the possibility of setting and implementing various tasks. However, they are not limited solely to the economy. The tasks that can be solved with the help of this model concern environmental, defense, social and other spheres. They are developed by the corresponding state bodies. At the same time, a systematic analysis of the state of the society is carried out, signals received from the population, cost and technological evaluation of alternative projects are taken into account. In the normal functioning of the model, the coordination of demand and supply indicators is realized not through prices, but through adjusting production. However, in some cases, a market mechanism can also be used. For example, price regulation is used to prevent product shortages.

Intermediate state

This is the name for the transition from a planned economy to a market economy. This condition is different in that in the structure of management there are features of both models. Along with this, in a transitional state, all relations in the economic sphere are transformed, and not only individual components. Most foreign and Russian researchers distinguish the following signs of an intermediate phase:

1. Priority of variability over sustainability.
2. Strengthening the uneven development of the economy, manifested in crises.
3. The growth of randomness, randomness, and discontinuity.
4. Increasing the multivariate and alternative development of the economy.
5. An increase in the number of contradictions, increased tension and conflict in the society in connection with a mismatch of interests.
6. The emergence and functioning of special transitional forms.
7. Historicity of the intermediate state.
8. Specificity of contradictions.

Before all the formerly socialist states, there was one task: to move from a planned type of management to a market type. It was decided by governments in different ways. Meanwhile, in all countries, the transition phase had common trends.

Liberalization of the structure

It involves the introduction of a set of measures aimed at drastically reducing or eliminating restrictions and prohibitions. Liberalization also provides for the removal of state control over all spheres of management. Researchers identify a number of key areas of this activity. First of all, the liberalization of prices. It involves the removal of state control over the process of forming the value of products. At the same time, there is a transition to pricing in accordance with the indicators of supply and demand. Further, the liberalization of economic life operations is carried out. The state monopoly on economic activity is abolished, and opportunities for entrepreneurship are provided. Changes begin in foreign trade. It also removes the monopoly of the authorities on economic relations with foreign partners, opens the way to the world markets for domestic producers.

Structural and institutional transformations

Within the framework of the transition, a new economic model is being formed. At the same time, the sectoral and intersectoral disparities remaining from the previous structure are either eliminated or mitigated. First of all, the property system changes. Institutional reforms presuppose the formation of conditions for the functioning of the new economic regime. This is achieved by changing legal institutions, creating the appropriate infrastructure, determining the degree of state participation in regulation.