In todays increasingly globalised context, filled with a wide range of different cultures and ideas, it is important to classify and analyse the stratagems of the different economies. Broadly, economists classify these systems into three categories: market economies, command economies and mixed economies. Each system represents a unique approach to organising resources and addressing the needs of its population, reflecting the diversity of economic practices across the globe. In this article, we will explore these economies in greater detail, examining the successes of each. 

Market Economies

A market economy is defined as “an economic system in which economic decisions and the pricing of goods and services are guided by the interaction of a country’s individual citizens and businesses”.  Individuals or firms make the key economic decisions, in place of the government. A reason why this economy has been able to flourish is because it allows innovation and creativity to take place, this is a key difference to command economies discussed later.  Many countries fall under this category, the United States, the UK and Japan, just to name a few. We can use the United Kingdom as an example.

The United Kingdom is a globally influential country, attracting many from across the world. In June 2023, 968,000 people immigrated to the UK from outside the EU. The UK is a very successful country and one of the top economies in the world. According to Statista, the GDP (Gross Domestic Product) was 2.23 trillion in 2022, making it the 5^th largest economy in 2022. This is due to the strength of tourism, construction, manufacturing and service sectors overtime. The service sector is the largest in the UK, and comprises of many industries, such as finance, business, entertainment and retail. These statistics reflect the healthy economic wellbeing in the UK, attracting foreign students and economic migrants to the country. 

The UK’s market economy is successful because of its historical legacy, the Industrial Revolution, transforming the economy. The UK’s capital city, London, is known to be a global trading hub, with a well-developed financial sector. In 2020 London contributed £88.6 billion to the UK. This shows the dynamic capabilities of allowing foreign-direct investment and international companies. There is a strong entrepreneurial culture in the country. The UK’s official government website, at the start of 2023, that there were around 5.6 million private businesses in the country. This emphasises the innovation as well as the creativity within the country, generating wealth towards the economy. The UK also has a large labour market. The Office for National Statistics declared around 32.5 million employee jobs in the United Kingdom by September 2023. These are a few of many more reasons for a successful market economy of the United Kingdom. 

The UK economy faces several challenges, including stagnant productivity growth, which lags behind other developed nations like the US, Germany and France, due to underinvestment in skills, infrastructure, and innovation. Economic inequality remains pronounced, with significant regional disparities between London and other areas, particularly in the northern areas of the UK. The housing market suffers from a chronic lack of supply, driving affordability issues and social inequality. Brexit has introduced trade frictions, reduced access to the EU market, and dampened investment. Additionally, the UK struggles with a reliance on low-wage, low-skill jobs, high public debt, and a strained NHS, highlighting inefficiencies in public services and infrastructure. These factors undermine long-term economic growth and social stability, and indicate a few disadvantages to the UK economy. 

Command Economies

Command economies differ from market economies because the governments have a definite responsibility in economic decision-making. Therefore within a command economy there is no private ownership as the government commands what is going to happen. Marxism is closely related to the concept of a command economy, as it advocates for collective ownership of resources and central planning to eliminate inequality and class exploitation. This system aims to prioritise societal needs over profit, aligning with Marxism’s critique of capitalism. Examples of command economies are North Korea, just as the USSR formally was, as well as China under Mao Zedong. The Soviet Union achieved notable successes and faced significant challenges throughout its history. 

The USSR was one of the major superpowers in the 20^th Century, occupying a sixth of the Earth’s land surface. Starting from 1922, till its collapse in 1991, the USSR were involved in many major events during the century, infamously for the Cold War. Rooted in Marxist-Leninist ideologies, it aimed to eliminate private ownership of the means of production and establish a classless, socialist society. Incorporating different means over the next 70 or so years, their GDP, by 1989, was $2,500 billion dollars. Compared to the US GDP at the time, which was around $4,862 billion dollars, the USSR was the first non-western country to close the developmental gap that had existed with the west, since the 16^th century, according to Wikipedia. How was it able to reduce the developmental gap that had existed? And what were the strategies used to reduce it. 

The USSR had many different economic phases. Starting from the New Economic Policy, from around 1921-1928. This policy aimed to retreat from former centralisation methods, end War Communism and respond to the economic devastation plaguing Russia since the Russian Civil War. There were some successes to this approach, with an increase in agricultural production of about 40%, as well as an overall 14% increase in economic production. Following the NEP were the 5 Year Plans. These 5 Year Plans were incorporated to initiate rapid industrialisation across the USSR. Although the plans may have been unattainable and unrealistic, there was significant progress. During the first 5 year plan, capital goods had increased by 158%, consumer goods by 87%, and total industrial output by 118%. The USSR also incorporated many more means, such as the space race development, which lead to the development of many major powerful technologies. The first artificial satellite, Sputnik 1, was sent by the USSR in 1957, as well as the first human, Yuri Gagarin, into space by 1961.

By 1991, the Soviet Union collapsed. There were several reasons for this. The arms race with USA added long term problems – the arms race with the USA forced the USSR to allocate vast resources to military spending, which hindered the development of its civilian economy and led to shortages of consumer goods. This prioritisation of defence over other sectors contributed to economic inefficiency and long-term stagnation. The decline in the Oil prices put strain on their economy, reducing revenue from the country’s primary export commodity. Attempts at economic restructuring (perestroika) and increased political openness (glasnost) by Soviet Leader Gorbachev, hastened the unravelling of the political and economic systems. Ultimately, a summary of their decline suggests that the USSR was not stable in their economy. 

Mixed Economy

The mixed economy is an economy which accepts both private ownership and government services. Therefore a mixed economy incorporates a blend of market and command economies. There is space for innovation although the government is slightly involved with other industries. Many countries are at this stage of a mixed economy, as governments should still regulate. A few examples are Norway, Sweden, China and Singapore – all with state-owned enterprises running alongside private enterprises. One of the most successful mixed economies, in China, who have become vital for a lot of different companies, nationally and internationally.

Ever since the late 20^th Century, China has been on an upwards trend. A lot has improved since the communist days of Mao Zedong. In 2022, the GDP of China amounted to around $17.9 trillion. Purchasing Power Parity (PPP) is used to consider the differences in the price of equivalent goods and service between countries. According to the World Bank, in terms of GNI (Gross National Income) on a ppp basis, it is the largest economy in the world at 30 trillion dollars, compared to the USA’s 25.8 trillion dollars. Gross National Income looks at the net amount of money coming into the country from abroad, as well as the nation’s GDP. This highlights China as a large and successful mixed economy. What factors contribute to its leading position? 

China has excelled, in part, through the effectiveness of its state-owned enterprises (SOEs).  There are more than 150,000 SOEs in China, which provide around $22,310 billion for China, according to the disclosure of the Stat-owned Assets Supervision and Administration Commission of the State Council (SASAC). The advantages of these SOEs, is that government interventions in the market creates capital-intensive industries. They make functional operation possible as well as to move the economy by providing infrastructure construction. Investment in education and infrastructure have helped to provide a skilled and competitive workforce, and efficient transportation networks that benefit both domestic and foreign businesses. In addition, China’s focus on innovation and technology have fostered economic growth and to remain competitive. China has moved from low-cost manufacturing to high-tech industries, with companies such as Foxconn, which Apple use to manufacture most of its products. 

Ways in which China may potentially decline economically is becoming increasingly notable. Friedrich Hayek, a prominent critic of excessive state intervention, argued that central planning undermines individual freedom and economic efficiency. In China’s case, heavy government involvement in key industries risks stifling innovation and discouraging private enterprises, echoing Hayek’s concerns about the inefficiencies of planned economies. Furthermore, the lack of rule of law and transparency can deter foreign and domestic investment, which Hayek would view as a failure to uphold the market’s self-regulating nature.

China’s demographic challenges, including the long-term effects of the one-child policy, exacerbate these risks by threatening workforce sustainability and productivity. Hayek emphasised the importance of market forces in addressing such issues, suggesting that excessive intervention could prevent the natural adaptation of the economy to these demographic shifts. China’s recent economic slowdown, with growth below its 5% target for two quarters in 2024, reflects the potential consequences of overregulation and limited market freedom. This highlights the broader risks of mixed economies when the balance between state and market tilts excessively toward government control.

In conclusion, understanding the different economic systems—market, command, and mixed—reveals the different strategies nations employ to manage resources, foster growth, and address social needs. While market economies like the UK thrive on innovation and competition, command economies such as the USSR face challenges from centralisation, and mixed economies like China balance state intervention with private enterprise to maintain growth. Ultimately, each system has its strengths and weaknesses, and the future success of any economy depends on its ability to adapt and find the right balance between government control and market forces.