Four types of economic plannings

We may observe 4 types of economic planning by the Governments of different parts of the world. They are Planning by Direction and Inducement, Physical and Financial Planning, Imperative and Indicative Planning, Fixed & Rolling Plans, and Decentralized and Centralized Planning

These economic systems practiced through economic planning can be classified as Traditional Economies, command economies, market economies, and mixed economies.

Traditional Economy:

A traditional economy, as the name suggests, is based on a traditional approach based on ancient rules and is the most basic type of economy. Traditional economies are subsistent economies, production is aimed at self-sustenance—they consume whatever they produce and rely mostly on barter systems. There is no concept of trading or concept of money in the traditional economy. Trading was meant to be minimal. The focus of traditional economies tends to focus primarily on agriculture, cattle herding, fishing, etc.

Even today traditional economies can be found in Alaska, Native Americans, Amazonian groups, and a majority of Haiti.

Command Economy:

The command economy is a system where the government plays the principal role in planning and regulating the country’s goods and services and the government has total control over the economy it reigns over. The government makes all decisions regarding the economy. It will decide which goods and services will be produced, and in what quantities. The price will also be determined by such centralized power and not by market forces. Command economies are also known as Planned Economies because the government plans all the services of the economy, nothing is decided by the free market.

Because the public authority sets and controls all parts of the business in a command economy, there is no rivalry. Market monopoly, which is possessed by the public authority, is normal. These may incorporate monetary administrations, utilities, or even organisations inside the transportation area. Examples of command economy countries include Cuba, Vietnam, Laos, and North Korea. China was a command economy before going to a mixed economy with both capitalist and communist beliefs.

The main disadvantages of a command economic system include lack of competition, limited economic choices for citizens, possible over/under the production of important goods, and no allowance for private ownership of businesses. Lack of competition, can lead to a lack of innovation, and lack of efficiency.

Market Economy:

A market economy is an economic system where the exchange of goods and services takes place by two forces, known as supply and demand. It is the complete opposite of a command economy. This means there are no rules or regulations imposed on either buyers or sellers. The entire economy is determined by the participants of the economy and the laws of demand and supply.

Market economies have other characteristics as well. The concept of private property is central to the market economy because it gives owners the right to sell their goods. If the law of supply and demand regulates production, labour, and the marketplace with minimal or no interference from the government, it is known as a free market capitalist economy. Since such an economy is based on the concept of demand and supply, competition is also an important factor in the market economy. When several sellers are more for a specific item, competition to make a sale can drive down the cost of that good—and the buyer has a choice of where to shop, which gives them additional leverage they would not otherwise have.

Theoretically, a free market economy can show very high levels of growth. It makes private organizations (only these exist) very powerful and influential in the country. So it may create an imbalance of wealth and a scenario where the rich get richer and the poor get poorer.

The Cato Institute’s Human Freedom Index presents the state of human freedom in the world based on a broad measure that encompasses personal, civil, and economic freedom. As of 2023, Singapore, Hong Kong (China), Switzerland, New Zealand, and the United States ranked as the world’s five most economically free countries in the Cato Institute’s Human Freedom Index, making them the world’s top 5 market economies in terms of economic freedom. Nevertheless, the free market is a subjective definition. No country can be realistically called a perfect free market in the world as some level of regulations like anti-monopolies, anti-pollution laws, restrictions on the sale of certain harmful goods, etc., are in force in every economy.

Mixed Economy

A Mixed economy combines a command economy and a market economy wherein the public and private sectors coexist. A mixed economic system accepts private property and permits economic freedom in the use of capital, but also allows for governments to interfere in economic activities to achieve social aims. But the government will regulate and oversee specific sensitive areas of the economy like transportation, public services, defence, etc. It is the perfect blend of socialism and capitalism.

Mixed economies have high state participation and spending levels, leading to tax-funded libraries, schools, hospitals, roads, utilities, legal assistance, welfare, and social security. At the same time, various restrictions on business are made for the greater good, such as environmental regulation, labour regulation, and anti-monopoly, anti-pollution, and intellectual property laws. The ideal combination of these freedoms and restrictions is meant to ensure the maximum standard of living for the population as a whole.

Most economies of the world including India are currently considered mixed economies.

Conclusion:

Traditional economies are based on conventional forms of providing sustenance. In command economies, the government has total control over the economy it reigns over. In market economies, private individuals and groups hold economic power, rather than the government. A mixed economic system accepts private property and permits economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims.

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