All organized communities mix, in various proportions, market activity and government

intervention. Private markets themselves differ widely in the degree of competition under which
they operate, all the way from single-firm monopolies to the fierce rivalry among hundreds of
retailers. Much the same point applies to government intervention, which ranges from mild and
comparatively uncoercive manipulation of tax, credit, contract, and subsidy policies through
mandatory controls over wages and prices to the detailed central planning of Communist
countries.
Even those societies most completely committed to central planning, however, grudgingly
modify official ideology by some concessions to private enterprise. For example, the USSR
allowed its farmers, although organized in collective enterprises, to market crops grown on their
own small plots. During the Communist period in Poland, most farming was in the hands of
individual owners. The former Yugoslavia experimented in worker management of factories
during its Communist period.
Similar variation exists among capitalist economies. In most of them, the government owns and
operates railroads and airlines. Even where outright government ownership or operation is
exceptional, as in Japan, the central government exerts tremendous influence over economic
activity. The United States, the most devoted of major capitalist economies to free enterprise,
has nevertheless rescued faltering corporations such as Lockheed and Chrysler and has, for all
practical purposes, converted a number of major defense contractors into federal subsidiaries.
Many American economists have come to accept the concept of a “mixed economy,” combining
private initiative with some government control.
The major differences between Communist and American economic organization concern
ownership of factories, farms, and other enterprises, as well as contrasting principles of pricing
and income distribution. In the U.S. two-thirds of the nation's gross national product (GNP) is
directly generated by profit-making business enterprises, farmers, and such voluntary
nongovernmental entities as private universities, hospitals, cooperatives, and foundations. Of
the remaining one-third of the GNP, which is generated by the government, more than half
represents transfers from taxpayers to old-age pensioners, veterans, welfare recipients, and
other groups of beneficiaries.
In recent years in the U.S., the federal government has begun to deregulate industries such as
air transportation and thus to diminish its influence over prices and the provision of services.
Indeed, the most important price controlled by public influence is the price of money—that is,
the rate of interest.
Although American opposition to both controls and national planning is strong, the U.S.
government has repeatedly resorted to these measures in times of emergency, such as during
World War II and the Korean War. In general, however, free-enterprise economies consider
state ownership of productive facilities and government interference in price setting as
deplorable exceptions to the rule of private ownership and price determination through the
mediation of competitive markets.

Central Planning
Precisely the reverse attitude toward economic central planning is the case in China and certain
other Communist countries. Although small private enterprises are increasingly being tolerated,
and no centrally planned economy has been able to function without some reliance on private
ownership of agricultural land, the dominant ideology favors state planning over competitive
price setting, and public ownership of factories, farms, and large retail establishments.
Strictly speaking, there is no reason why a democratic community could not freely choose to
plan production, prices, and the distribution of income and wealth. In contemporary experience,
however, central economic planning has generally run parallel to Communist Party control of
political life. Nonetheless, important differences exist in the strictness of these constraints in
different Communist countries and even within the same country at different times. It is also true
that capitalism has frequently been accompanied by repressive government, as for example in
Chile and Brazil.
The gravest problems of capitalism are unemployment, inflation, and economic injustice.
Parallel problems in centrally planned economies include underemployment, rationing,
bureaucracy, and scarcity of many consumer items.
Falling somewhere between societies that emphasize either central planning or free enterprise
are those that practice social democracy or liberal socialism. Examples of social democracy are
the Scandinavian countries, Sweden in particular. Sweden organizes the bulk of productive
activity under private ownership but regulates this activity closely, intervenes to protect the jobs
of workers, and redistributes substantial portions of profits and large individual incomes to low-
income groups.
On the other hand, the former Yugoslavia from the 1950s through the 1980s supplied an
example of a liberal socialist society. Although the Communist Party dominated, censorship was
mild, emigration was easy, religion was freely exercised, and a unique mixture of state
ownership, worker management, and private enterprise combined to operate a comparatively
prosperous economy.
The various economic problems of recent years have stimulated serious debate about the
proper role of public policy. Parties on the political left in Europe have advocated more controls
and more planning. In the 1980s a different solution was offered by the Conservative Party
government of Prime Minister Margaret Thatcher in the United Kingdom and by the Republican
administration of President Ronald Reagan in the U.S. In both countries, attempts were made to
diminish taxation and government regulation on private enterprise and thus, by enlarging the
potential profits of corporations, encourage additional investment, higher productivity, and
renewed economic growth. These were the central elements of supply-side economics, the
guiding doctrine of the two leaders.
Implicit in this government decision to provide businesses with increased incentives to invest,
take risks, and work harder were the hopes that technology would reduce the costs of
alternatives to oil as an energy source and that the nonenergy sectors of the economy, such as
data processing and scientific agriculture, would experience rapid growth as a result of
encouragements to invention and innovation.
Poor nations desperately need aid from the rich nations in the form of capital and of
technological and organizational expertise. They also need easy access to the markets of the
industrialized nations for their manufactures and raw materials. However, the political capacity
of rich nations to respond to these needs depends greatly on their own success in coping with
inflation, unemployment, and lagging growth rates. In democratic communities, it is exceedingly
difficult to generate public support for assistance to foreign countries when average wage
earners are themselves under serious financial pressure. It is no easier politically to permit
cheap foreign merchandise and materials to freely enter American and European markets when
they are viewed as the cause of unemployment among domestic workers.

Central Problems of an Economy

How to Achieve Fuller Utilisation or Full Employment of Resources? The next central problem of
an economy (discussed by Stigler and Leftwitch in the extended version) is of fuller utilisation of
resources or to provide full employment. In every economy, the resources like land, labour, and
capital are often not fully employed. Labour is unemployed and at the same time factories are
idle. The land also remains under utilised. Since the resources are scarce, their unemployment
or under utilisation is a waste. An economy has to solve the problem of unemployment and
under utilisation of resources to achieve the goal of full employment. Every economy makes an
earnest effort to remove involuntary unemployment. An economy is also to ensure that prices
should remain stable under full employment situation.