Photo by Richard Badejo
Is there an ideal economy for each country? Or is there a market economy that all countries could equally follow?
One of the challenging subjects is the economy, especially the market economy. The market economy is vast in terms of its coverage, so extra care and extensive research are needed if an individual chooses to tackle it as a form of thesis.
Author Samuel Enajite Enajero, Ph.D., expertly plowed through the intricacies of the market economy in the context of the African economy in his book, an African Association book on modern economic development, Collective Institutions in Industrialized Nations, Economic Lessons for Sub-Saharan Africa. The book effectively depicts a historical narrative of social institutions that led to the economic successes and failures of Sub-Saharan Africa.
One type of economy stands out and begs to be desired as an economic goal: the Free Market Economy.
What is a Free Market Economy?
A free market economy is what it is – free trade with little or no government control. Supply and demand move freely and are the ruling factor determining an economy’s success—also termed “laissez-faire,” the direct trading transaction between the buyer and the seller, with no obstruction or restriction.
For instance, the retail price of soda drink A is determined by the current price rate in the market. At the same time, the price is also influenced by the existing demand in the market for soda drink A. If there are more demands than the current supply, the cost of soda drink A tends to go up. If the needs are low and there are more supplies, then the price of soda drink A tends to go down. The cost of soda drink A is determined alone by the existing supply and demand and not dictated by any government or private institution.
Some countries practicing free market economy trade are the US, Singapore, New Zealand, Australia, Switzerland, the United Kingdom, and Canada.
A command economic system is the complete opposite of a free market economy. This system is typically found in communist societies where the government controls resources and production decisions. China, Russia, North Korea, and Iran are examples of countries practicing command market economies.
Pros and Cons of a Free Market
So, for whom is this economy? What can be derived from this type of economic system?
The Pros
Consumers drive the direction of the demand and supply in this market. Their needs determine the flow of products and services, including setting retail prices.
This economy provides an opportunity for businesses to get innovative when it comes to their goods and services. This allows them the freedom to operate more efficiently and maximize the use of their resources as what’s deemed fit for their business.
Also, the more free market economies are, the more they contribute to a country’s economic growth and transparency. Since the market becomes more profit-driven under free trade, the economy will see investors coming in. Hence, the drive and impact of a country’s economic success.
The Cons
One of the stumbling blocks of a free market is that their kind of freedom encourages aggressiveness and competition. Smaller companies get easily swallowed by their bigger competitors, with very little support from any sector. The free market becomes this jungle of commercial wilderness where only the fit and the aggressive survive.
And because of the word “free,” there is no control over the market’s economic stability. A free market economy is at risk of overproduction and corruption, which can produce disastrous results in the long run for the general consumer population.
The Bottom Line
Is an economy ideal for countries experiencing the opposite? It all depends on which type of economic system favors and benefits them the most. Many aspects go into selecting the type of economy, including available resources, demographics, geography, culture, etc. In reality, no “pure” free market economy exists because some constraints and regulations would hold back that uncontrolled state of a pure free market economy. And these particular regulations are responsible for keeping a market economy’s equilibrium, balance, and stability.
Read Samuel Enajite Enajero’s Collective Institutions in Industrialized Nations, Economic Lessons for Sub-Saharan Africa, and get a deeper understanding of market economies and economic development from the perspective of the European, Asian, and African backgrounds. Grab a copy on Amazon, or visit the author’s website at www.aafee.org.
