Types of Economy with its advantages and disadvantages

1. Market Economy/ Capitalistic Economy

The market, without the interference of state, organizes and manages the economic activities on the basis of open market policy is called market economy. There is no control of government of state on the market or private sector for the economic growth. By entering the global scenario, one can widen its production procedures and by exporting the goods and services in the domestic and foreign market. The market economy depends upon the policy like liberalization, economic globalization, and privatization. The non-intervention policy from the state inspires the private sectors to actively participate in the process of economic development. Because of extreme competition the standards of commodities are maintained and the price is kept under strict control.

In the market economy, large number of production houses makes it easier for the consumers to get the things in relatively cheap price and also the individuals can be motivated to their passive capital for the production system which results in the proper mobilization of natural resources. This help in accumulation of capital, which can be better utilized for the national development. Thus, in developing country like Nepal, market-led development strategy is appropriate because it creates a lot of employment opportunities and offers maximum choices of goals for individual satisfaction. Market is an important aspect of market economy. Market economy is based on the investment of capital and accumulation of capital by private sector or individuals who then became the owners of means of production and distribution of goods and services.

Profit oriented system: - The first and chief feature of market economy is profit oriented system. The chief goal of investment from the private sector is to earn profit. Profitable programs are given high priority rather than welfare oriented plan and policies. Private sectors do not invest in the sector of social welfare in the society.
Private ownership and Entrepreneurship: - Market economy is conducted by the market mechanism. One of the most important features of this economy is private ownership over the means of production. It creates situation individual entrepreneurship. Individuals have the ownership of means of production and there is less probability of intervention by the state. There is the feeling of investment and earning profit which helps to individual entrepreneurship and personal entrepreneurship help in the growth of national production.
Pressure groups and collective bargaining process: - There are different pressure groups such as political parties, consumer group and stake-holder who bargains on the determining the price and quality of goods and services in the market economy.
Competitive, liberal and open economic system: - There is the condition of competition in the market economy. State becomes liberal on the market. Market is open in this economy. Different investor can invest in the similar field. So, there is competition as well as liberal aspect in the open economic system.
Government works as facilitator: - The government creates the environment for investment in every field and it does not interfere in investment of private sector. There are not any hindrances for the production of goods, investment, distribution and consumption in the Market.
Price Mechanism: - In market economy, price is determined by the balance of demand and supply of goods and services.

Market economy in Nepal

In Nepal Market economy is exercised after the Structural adjustment program (SAP) of 1985 AD. Nepal has adopted the economic liberalization under the structural adjustment program (SAP). The concept of privatization which is key policy of market economy in Nepal first initiated in 2042 B.S. but it could not be fully successful because political instability that was seen between 2036 B.S. to 2046 B.S. With the beginning of multiparty democracy in Nepal and certain changes in the constitution did not provide favorable situation for the development of the concept of privatization.But soon, it was realized by the democratic government that without the inclusion or involvement of private sector, the target of economic development cannot be successfully achieved. Institutionally, privatization began from the 6^th five year plan. Especially the government of Nepali congress started the policy of Market economy.

The 6^th five year plan once again implemented the concept of privatization in Nepal but the real effort began with the 7^th five year plan. Almost all the major commercial establishment of Nepal are either privatized or are in the process of privatization with in short period of time, the ratio of privatization in has increased from 20% to 60%. This is largely because of passing of privatization act in 2050 B.S. At present, more than big and small companies are privatized in Nepal. Some privatized companies are, Bhrikuti paper factory, Bansbari leather shoes company, Harisidhi Brick industry, Nepal film development industry, Nepal lube oil corporation, Balaju clothes industry, Nepal Bank Limited, Bhaktapur brick industry etc.

2. Planned Economy

Planned economy is also known as socialistic economy. In this model of economic development state plays important role in the development of the country and Government controls, manages, mobilizes, and regulates the economy through the planned process of development. Generally, planned economy is related socialism and socialism is an economic and political system based on the state ownership. In Planned economy State operates the means of production and distribution channels. It, usually, includes rational social planning to achieve desire goals. The term used with the wide range of meaning e.g. some writers regard socialism as democratic system and distinguish it from communism whereas the other socialism with communism. Planned economy is the strategy of development in which the state makes definite direction, plays a leading role to attain a higher level of growth of development with proper justice in terms of reducing poverty, unemployment problem, and low productivity in the condition and quality of people.

In planned economy, the means of production are under the direct control of the state. The state executes its policies through the proper central planning. What, why, how, and when to produce the goods and services is totally determine by the state. In planned economy government formulates short-term, midterm and long-term plan for economic development. In this economy, land, capital, labor, organizations, industries, and resources etc. get equal importance in society. There is a public ownership over the means of production and state operates those means of production. The total production system is based on help, cooperation and necessity rather than competitions. The life of people, wealth and production are under the direct control of state in socialistic mode of production. After the Russian Revolution the socialistic planned economy was implemented. At present, The Republic of North Korea, Cuba, China, etc. are strongly following this planned economy.

Characteristics of Planned Economy

Means of production are publicly owned and state controls, regulates, mobilizes and distributes means of production.
State adopts the planned process of economic as well as social development.
Objectives of production is social welfare rather than profit making.
In this economy production is based on the needs and demands of society.
Government determines the objective of the development.
Government controls the price and quality of goods and service in society.
Government formulates plan, policies and strategies in this economy.

Brief history of planned economy in Nepal

The history of planned economy is not long in Nepal. First plan of planned development was declared in 1990 B.S. during the rule of Juddha Shamser. This plan was 20 years plan but it was not implemented. Similarly Prime Minister Mohan Shamser brought 15 years plan but it was also not implemented. The institutional effort of planned development was begun from 2013 B.S. First five year plan (2013-2018 B.S.) has aimed the objective of increment in production, increment of employment opportunities, provide equal opportunity up-liftment of living standard to all people, establishment of institution to conduct developmental activities etc.

This plan allocated 33 corer to achieve the objectives of plan. But only 65% rupees were invested during the time of plan. The plan was given first priority to the transportation and communication. Agriculture and rural development was in second priority. From the first to eighth five year plan the main objective of planning was to increase production directly or indirectly. From the ninth five year plan the objective plan is the poverty alleviation directly or indirectly.

3. Mixed Economy

Mixed economy is an economic system that combines the characteristics of both planned economy and market economy. In other words combined set of market economy and planned economy is known as the mixed economy. It benefits from the advantages of all the component economy of the mixed economy. According to Collin’s Dictionary of sociology, ‘Mixed economy is an economic system which combines two or more contrasting forms of economic decision making, especially the combination of market principles and state interventions”

In this economy the role of government in other area depends on the priorities of the citizens. Mixed economy protects private property, allows the free market in the country, and protects the law of demand and supply to determine the price and quality of goods and services and it is driven by the motivation of the self-interest of individuals. These characteristics are related to the market economy. Especially mixed economy adopts the characteristics of planned economy in strategic, plan and decision making areas. State becomes the safeguard of people’s life and wealth. The state plays crucial role in the military, international trade, national transportation and social welfare sector. In mixed economy, the state makes the central plan that guides the economy of the country. Government manages certain areas of economy and other areas especially production sector is run by the private sector in the society.

Characteristics of Mixed economy

Co-existence of public and private sectors: - In mixed economy, public sector and private sector are run in juxtaposition way in society. Governments makes the plan and policies to run the economy of the country. On the other hand, private sector is free to invest their capital in the open market.
Central economic planning: - In mixed economy there is central planning regarding to the economic development of the country in the society. The government makes certain plan about the economy of the country. Private sector conforms the rule and regulation laid down by the government of the state.
Promotion of both social welfare and profit: - In mixed economy state works all the activities in the social welfare sector and private sectors increases the production of goods and service through the motivational factor of profit. In this economy state becomes the parent of all people of the country. State formulates certain rules regarding to the welfare of the country and its people. And private sector also takes parts in the social welfare activities.
Price mechanism: - In mixed economy, state allows the law of demand and supply to determine the price of goods and services. Sometimes state interfere the market to determine the price and quality of goods and services.
Regulation and control on the market: - In mixed economy state does not provide total freedom to market in the economic activities in the society. It sets the certain rule and regulations to control the economic activities of the market in the society.

Advantages of Mixed economy

It secures both rapid growth rate and social welfare in the country.
There is the environment of healthy competitions in the production of goods and services in the society.
Economic and social development is possible in the mixed economy.
Mixed economy minimizes the disadvantage of a market economy.
A mixed economy has all the advantages of market economy. First it distributes goods and services to where they are most needed.
It allows prices to measure supply and demand.
It encourages innovation to meet customer needs more creatively and effectively
Individuals can invest the capital in more business and production of goods and services because it allocates capital to the most innovative producers.
Government fulfills the basic needs of individual in the society.

Disadvantage of Mixed economy

The defense industry could become the government subsidized monopoly. That can slow down the economic growth in the long run.
Successful Business Company can lobby the government for more subsidies and reduction of tax.
There is the possibility of creation of conflict between private sector and public sector.
There is the possibility of corruption due to the role of both government and private sector.
There is the possibility of unfair competition between government and private business company.
Delay in decision making by the government due to the intervention of private sector on the government decision.