Distinguish between a market economy and a command economy and discuss the policies implemented by China to move from a command to a market economy. When discussing the policy outline: Your post should have a minimum of 200 words. The links below may be of help
A market economy and a command economy are two contrasting economic systems that differ in their approach to the allocation of resources and the role of the government. In a market economy, the allocation of resources is primarily determined by the interaction of supply and demand forces in the market, while in a command economy, the government plays a dominant role in planning and controlling economic activities.
In a market economy, resources are allocated based on the principle of price mechanism, where the forces of supply and demand determine the prices of goods and services, which in turn influence production and consumption decisions. Individuals and firms are free to make their own economic decisions, guided by self-interest and profit motives. The government’s role is limited to ensuring the rule of law, protecting property rights, and enforcing contracts. Examples of countries with market economies include the United States, Germany, and Japan.
On the other hand, in a command economy, the government has significant control over resource allocation and economic decisions. The government sets production targets, determines prices, and directs resources to various industries and sectors based on national economic plans. The primary goal of a command economy is to achieve economic equality and social welfare rather than maximizing profits. Countries that have historically adhered to command economies include the Soviet Union and Cuba.
China, however, has embarked on a series of reforms since the late 1970s to transition from a command economy to a market economy. The policies implemented by China, commonly known as the “Chinese economic reform,” have been instrumental in transforming the country into one of the world’s largest economies.
One of the significant policies implemented by China was the decentralization of economic decision-making power from the central government to local authorities. This allowed local governments to have more autonomy in making economic decisions, such as resource allocation and industrial development plans, based on the local conditions and needs. The decentralization policy enabled China to have a more flexible and efficient economic system, as decision-making was closer to the ground and tailored to different regional characteristics.
Another policy adopted by China was the liberalization of foreign trade and investment. China opened up its economy to international trade and attracted foreign investment by establishing special economic zones and offering incentives to foreign companies. This policy provided access to advanced technologies, capital, and markets, which fueled China’s export-oriented growth and integration into the global economy.
Furthermore, China embarked on agricultural reforms, known as the “rural household responsibility system,” which allowed farmers to lease or own land and sell agricultural products in the market freely. This policy aimed to increase agricultural productivity and improve living standards in rural areas by incentivizing farmers through market-oriented mechanisms.
Additionally, China introduced gradual price liberalization and market-oriented pricing mechanisms. Under the command economy, prices were controlled by the government, which often led to distortions and inefficiencies. The introduction of market-oriented pricing allowed prices to be determined by supply and demand forces, which improved resource allocation and efficiency in the economy.
Furthermore, China implemented financial reforms, including the establishment of stock markets and the liberalization of the banking sector. These reforms aimed to mobilize domestic savings and channel them into productive investments, as well as introduce market mechanisms into the financial system.
In conclusion, a market economy and a command economy have fundamental differences in terms of resource allocation and the role of the government. China has implemented several policies to transition from a command economy to a market economy, including decentralization, foreign trade liberalization, agricultural reforms, price liberalization, and financial reforms. These policies have played a significant role in China’s economic transformation and integration into the global economy.