Capitalism: Planned Economy and Free Market Essay

Submitted By stephaniemaeg
Words: 1289
Pages: 6

Stephanie Gonzales
Mr. Kenneth Ng
Economics 160
November 13, 2012
Term Paper

Throughout history, many forms of economic systems and practices have been established and utilized in order to keep a sense of success, prosperity, and equality within a society’s own market. Free markets, capitalism and The Do Nothing Principle create and increase collective and individual wealth. Free Market policies pose a threat to dictatorial governments because dictatorial governments regulate or regulate the supply and demand of a free market. However, in Free Markets, each side benefits both the seller and the consumer. Because of this, you find that free market allows only private ownership and not government ownership. According to Nobel Prize economics Milton Friedman, free markets, capitalism and The Do Nothing Principle also promote individual freedom and contribute to bringing down dictatorial governments that mistreat its’ citizens. Today, many Asian dictators adopt free market policies to increase their wealth and power, but hope to deny the theory of Milton Friedman that free markets will lead to their overthrow and downfall. Communist China’s leaders are an example of such dictators. In Communist China, a centrally controlled communist command and control economy has been abandoned and replaced by a semi-market economy. Mao Zedong, Zhou Enlai, and other revolutionary veterans were prepared to embark on an intensive program of industrial growth and socialization. For this purpose the administration adopted the Soviet economic model, based on state ownership in the modern sector, large collective units in agriculture, and centralized economic planning (McGregor 40). The Soviet approach to economic development was manifested in the First Five-Year Plan, which was from 1953-1957. As in the Soviet economy, the main objective was a high rate of economic growth. Soviet planners helped their Chinese counterparts formulate the plan. Large numbers of Soviet engineers, technicians, and scientists assisted in developing and installing new heavy industrial facilities, including many entire plants and pieces of equipment purchased from the Soviet Union. Government control over industry was increased during this period by applying financial pressures and inducements to convince owners of private, modern firms to sell them to the state or convert them into joint public-private enterprises under state control. By 1956, over 65 percent of all modern industrial enterprises were state owned, and 32.5 percent were under joint public-private ownership. No privately owned firms remained. During the same period, the handicraft industries were organized into cooperatives, which accounted for 91.7 percent of all handicraft workers by 1956. In terms of economic growth the First Five-Year Plan was successful, especially in those areas emphasized by the Soviet-style development strategy. A solid foundation was created in heavy industry. Although the reform program achieved impressive successes, it also gave rise to several serious problems. One problem was the challenge to party authority presented by the principles of free market activity and professional managerial autonomy. Another difficulty was a wave of crime, corruption, and moral deterioration caused by the looser economic and political climate. The most fundamental tensions were those created by the widening income disparities between the people who were getting rich and those who were not and by the pervasive threat of inflation. These concerns played a role in the political struggle that culminated in party general secretary Hu Yaobang's forced resignation in 1987. After Hu's resignation, the leadership engaged in an intense debate over the future course of the reforms and how to balance the need for efficiency and market incentives with the need for government guidance and control. The commitment to further reform was affirmed, but its pace, and the emphasis to be placed on