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Business
Ethics MGT610
VU
LESSON
19
FREE
MARKET ECONOMY
Mixed
Economy
Economic
system in which land,
factories, and other economic
resources are more equally
split
between
private and government ownership.
Government controls economic
sectors important
to
national security and long-term
stability. Generous welfare
system supports unemployed
and
provides
health care.
1.
Origins
of the Mixed Economy
a.
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.
b.
Many mixed economies today
are modernizing to become
more competitive.
2.
Decline
of Mixed Economies
Mixed
economies are converting to market-based systems.
Government
ownership
means less efficiency,
innovation, responsibility and
accountability;
higher
costs; slower growth; and higher taxes
and prices.
a.
Move Toward
Privatization
i.
Selling
government-owned economic resources to
private companies and
individuals.
ii.
Increases
efficiency, cuts subsidies to
state-owned firms, curtails
appointment
of
managers for political
reasons.
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
Supply: The
quantity of a good or service that
producers are willing to
provide
at
a specific selling
price.
o
Demand: The
quantity of a good or service that
buyers are willing to
purchase
at
a specific selling
price.
1.
Origins
of the Market Economy
Individual
concerns are above group
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 purchase
options.
o
Free
enterprise: companies can decide
what to produce and which markets
to
compete
in.
o
Price
flexibility: prices rise/fall
reflecting supply and demand.
o
Focus
on China
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Business
Ethics MGT610
VU
China's
theme is "Socialism with Chinese
characteristics," and the nation
has undergone great
economic
reform over the past
two decades.
a.
Early
Years
i.
1949:
communes planned all
agricultural and industrial production
and
schedules.
Rural families owned their
homes and land and produced
particular
crops.
ii.
1979:
government reforms allowed
families to grow crops they
chose
and
sell produce at market
prices.
iii.
Township
and village enterprises (TVEs) obtained
materials, labor, and
capital
on open market and used a private
distribution system.
Legalized
in
1984, TVEs laid the
groundwork for a market
economy.
iv.
Outside
companies were allowed to form
joint ventures with
Chinese
partners
in the mid-1980s.
b.
Challenges
Ahead
i.
Political
and social problems loom.
Skirmishes between secular
and
Muslim
Chinese, and democracy restricted.
ii.
Unemployment,
slow economic progress in
rural areas, and misery
of
migrant
workers.
iii.
China's
one country, two systems policy
must preserve order, as
Taiwan
is
watching closely.
Bottom
Line for Business
Ongoing
market reforms in formerly
centrally planned and mixed economies
have a
profound
effect on international business. Freer
markets are spurring major
shifts in
manufacturing
activity. Lured by low wages
and growing markets,
international
companies
are forging ties in newly
industrialized countries and exploring
opportunities
in
developing nations. Global
capital markets make it easier to
set up factories
abroad,
and
some newly industrialized
countries produce world-class
competitors of their
own.
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