Effective resource allocation among the various economic systems
Effective resource allocation among the various economic systems
Efficient utilization of economic resources by different economic systems
An economic system is scenario whereby goods and services produced in a country or an entity and the resources within are distributed within the existing subsystems. The subsystems in this context entail the combination of agencies, entities and consumers that make an economic structure of a certain community. Or the various sub structures within an entity. The interlinking capacity within these subsystems is the one which makes information and resources to flow between them. One characteristic of a subsystem is the utilization of resources between the involved structures. Normally the inherent trait in resources is the fact that, they are scarce and as such efficiency is imperative for an economic system to survive with the little resources.
In an economic setting there are four defined factors of production, which are, land, capital, labor and entrepreneurship. All this factors have the quality of scarcity, and unless utilized effectively there is larking quality of disorganization within an economic system. The various economic systems in the world economy have their own way of utilizing these scarce resources. This essay will argue the characteristic of effective sharing of resources within command, free enterprise, mixed and transitional economies. Also the essay will argue on effective resource allocation in private and public sector initiative and also private finance initiatives.
In a capitalistic economy, the most crucial form of economic system is the free enterprise economy. This form of a system is free or rather shielded from government interference. The economy promotes free flow of ideas and implementation. This does not mean that the government is never involved when a situation calls. Hence it is a free enterprise regime where there is a minor possibility of government intervention. The inherent characteristic in this kind of a model is that, those who labor must gain. Ownership and creation of means of production is entirely left to the system. In this type the resource allocation is dictated by the market price. If an individual cannot afford it, then they cannot access the service or the product. Hence it is like a form of a system that favors those who can fit. Though it has the capacity to make economies grow fast and large, it is normally a case of survival for those who are fit (Harrison, 2002).
Contrasting that with a command economy, this type of a system has its factors of production controlled by the government. Therefore, planning is undertaken by the central government making it a planned economy. In this kind of an economy there are directives, rules, and laws to be followed. The bench mark is against a set target by the government. Governments that use this system do come up with a central plan upon which they base in order to allocate resources. Hence there is always a priority factor in resource allocation. To effectively allocate resources, the government simply identifies priority areas on which to allocate more resources than the non-priority areas. In command economies, there is a very efficient capacity to bring resources together. As such certain segments achieve much than others. A lot of one thing is normally produced and less of the other. This economy can utilize itself to come up with mega projects and spur innovation in areas that the government wants (Harrison, 2002).
In the real world though, many economies find it easier to utilize the capabilities of free enterprise and command economy to allocate resources. This creates a scenario of a mixed economy. Hence this mix brings in both the markets and government as the custodians of resource allocation. While markets depend much on living choices of the people, the government tries and force allocations. This happens through the use of taxes and regulations. Both the institutions utilize synergy and hence co exists between each other when it comes to resources allocation. There are instances where in a mixed economy; the markets are more dominant in resource allocation than the government and vice versa in other economies. Hence the mixed economy will tend to try and achieve equity while promoting economic growth at the same time. It is bringing the characteristics of both markets together to achieve positive efficiency in resource allocation (Nee, 1992).
An economy can find itself in need of shifting from a command system to a free market system. In such a scenario the economy finds itself in a unique situation of transition. Hence it gets involved in a transitional economy. Transition is changing from one form to another. Transitional economy, changes from command to free market hence initializing a form of liberalization in an economy. Hence it attempts to allow markets to allocate resources thorough pricing and the government lays back. In this type of an economy resources allocation change drastically, there is an element of government control, but an effort to support free market. Hence it is characterized by dropping of trade barriers and privatizations. It falls close to a mixed economy but outside the maturity of a mixed economy. Hence in this economy the government still dominates in resource allocation and direction. It is a work in progress format of a system (Lavigne, 2002).
Apart from the free markets system and command market existing, these economies can harbor other subsystems such as private finance initiatives or public private partnerships. These are entities whereby the public uses private sector to offer a certain service over a certain period under concessionary terms. Under this system this partnership utilizes resources by making a case for fair cost and transfer of risks to another party. This system effectively utilizes resources by spreading risks and looking for quality service that is offered by the government. Hence the government will take care of funds and the private sector takes care of the rest. In other instances the private solely finances the projects. This partnerships frees some resources to be utilized somewhere else, achieving resource efficiency (Buyya, 2002).
In conclusion all the types of economies have the capacity to effectively allocate resources. But the most efficient economy does not utilize one form of economic system. The best economies are those which utilize all the discussed economic systems above, apart from the transitional economy which is solely for countries that are shifting.
Harrison, M. (2002). Coercion, compliance, and the collapse of the Soviet command economy. The Economic History Review, 55(3), 397-433.
Lavigne, M. (1995). The economics of transition: from socialist economy to market economy. London: Macmillan.
Nee, V. (1992). Organizational dynamics of market transition: hybrid forms, property rights, and mixed economy in China. Administrative science quarterly, 37(1).Buyya, R., Abramson, D., Giddy, J., &Stockinger, H. (2002). Economic models for resource management and scheduling in grid computing. Concurrency and computation: practice and experience, 14(13‐15), 1507-1542.