FREE MARKET ECONOMY:Mixed Economy, Bottom Line for Business

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Business Ethics MGT610

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.

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.

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

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.

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.

Laissez-Faire Economics

French: "allow them to do [without interference]." Individualism fosters

democracy as well as a market economy.

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

Business Ethics MGT610

China's theme is "Socialism with Chinese characteristics," and the nation has undergone great

economic reform over the past two decades.

Early Years

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.

Challenges Ahead

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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