TYPES OF ECONOMIES

WHO AND WHY?  Who makes economic decisions?  Who owns resources?  Who provides goods and services?  Why?

Either... or... FREE MARKET ECONOMY COMMAND ECONOMY (PLANNED ECONOMY) WHO makes economic decisions? WHY?

Either... or... FREE MARKET ECONOMY COMMAND ECONOMY (PLANNED ECONOMY) WHO makes economic decisions The market: -supply and demand -sellers-buyers -producers – consumers The state WHY? -to allow competition and thus make the economy more efficient ↓ -to provide better quality products at lower costs -to redistribute wealth in the country more fairly -to care for public needs

Group the following expressions:  government interference  privately-owned companies  market mechanism  market reliance  state-owned companies  central planners  laissez-faire  government-run business  central planning system  privately-run companies  government intervention  USSR

PLANNED E.vs. MARKET E.  government interference  state-owned companies  central planning  government intervention  USSR  market mechanism  market reliance  privately-owned companies  privately-run companies  laissez-faire

... or both... FREE MARKET ECONOMY (FREE ENTERPRISE ECONOMY) COMMAND ECONOMY (PLANNED ECONOMY) MIXED ECONOMY WHO makes economic decisions The market: -supply and demand -sellers-buyers -producers – consumers The stateBoth the market and the state WHY -to allow competition and make the economy more efficient -to provide better quality products at lower costs -to redistribute wealth in the country more fairly -to care for public needs To benefit from both economic systems

Identify the advantages and disadvantages of the market economy as opposed to the command economy (R: p.13). - Assignment FREE MARKET ECONOMY COMMAND ECONOMY (PLANNED ECONOMY) advantages disadvantages

“The market has a keen ear for private wants, and a deaf ear for public needs.” (R. Heilbroner)

MIXED ECONOMY PUBLIC SECTOR VS. PRIVATE SECTOR Who provides goods and services? Why? (What is their interest?) What do the two sectors consist of?

WHO AND WHY? PUBLIC SECTORVS.PRIVATE SECTOR  The government, local authorities (e.g. municipalities, counties)  Care for socially important issues of public interest (e.g. protecting environment, consumers, education)  Less profitable and unprofitable businesses  Private owners  Making a profit  Profitable businesses

WHAT DOES IT CONSIST OF? PUBLIC SECTOR VS.PRIVATE SECTOR  State services: e.g. education, defence, social welfare, public safety, utilities  Government-owned industries: e.g. public corporations* (e.g. electricity company)  Municipal enterprises: local government, e.g. bus company  Privately-owned companies

The division is not always so clear... PRIVATE S. → PUBLIC S. →PRIVATE S. → ?... nationalisation denationalisation privatisation... and there may be cases of cooperation.... PPP

nationalisation vs. privatisation Are the following arguments in favour of nationalisation or privatisation? 1.The sale of an industry raises money for the government. 2.Competition makes an industry more efficient. 3.It is socially right. 4.These companies are more likely to innovate and develop desirable products than these owned by …. 5.The government has a better control of the economy. 6.Consumers are offered more choice and better quality. 7.An industry is more efficiently managed by that sector.

What is privatization, anyway? (Read the text, find answers - R:p.24)  in the broadest sense  contractor  seek  though  leap  state enterprise  issue vouchers  general public  auctions  public stock offering  contradictory goals  raise money  attract  layoffs  proponents  argue

Homework: 1.R: p.27a) fill in b)heading for each pg. 2.MK:pp.129 and 130 Compare the two texts ( The Role of Government: Galbraith vs.Friedman)

The Role of Government (1) Galbraith vs. Friedman (MK:129, 130) Galbraith  Main point (topic sentences)  Examples Friedman  Main point (topic sentences)  Examples

The Role of Government (2) Example of notes (R:p.27) The pendulum of control I2 EXTREME VIEWS (pgs.1, 2) Karl Marxvs. Adam Smith IILESS DRAMATIC CHOICES IN MORE RECENT HISTORY (pgs.3-6) 1. Towards government intervention: e.g. New Deal 2. Towards free market in the 1990s: a) countries in transition (CEE) b) privatisations: W. Europe, Latin America, Asia c) Republican election victory

The Role of Government (3) And today...?  “Ten short days saw the nationalisation, failure or rescue of what was once the world’s biggest insurer, two of the world’s biggest investment banks, and two giants of America’s mortgage markets”  “government rescue of American International Group (AIG)” The Economist, 20 Sept 2008

The Role of Government (4) And today... (2) “Regulation is necessary and much must now be done to improve the laws of finance”:  better oversight  more transparency  supervision of giants  accounting that values risk better  safer financial transactions (derivatives) The Economist, 20 Sept 2008