Question

Compare and constrast how the different economies (capitalism, socialism, planned and mixed) view and copy with social problems of poverty.

Answer 1

            Most countries deploy different methods to control their economies and decide on what goods and services would be produced and how they would be distributed to the mass population. For this, numerous countries deploy three main techniques through the help of which they manage their economy and social problems such as poverty eradication.

These are explained as follows: -

1) Capitalism: -

The first technique of managing a country is through direct capitalism which is a free market economy in which the forces of demand as well as supply help in deciding the prices of goods and services.

Most countries since 1990's have switched over to this form of market wherein there is negligible restriction on trade, and the economy focuses on improving over time. Only those goods and services are available which are in high demand among consumers and it allows for producers to earn constant profits.

These countries aim to end poverty by increasing the demand and supply of goods, and constantly improving themselves due to the increased competition in the market. This helps in increasing the demand for the labour force they believe which in turn ends poverty.

Countries such as the United States of America have moved towards a capitalist economy and have seen that unemployment is low and production capacity is at its peak.

2) Socialist Countries/Centrally Planned.

A socialist or a centrally planned economy is one wherein, the government decides what goods and services it is to produce and distribute in the economy. The demand and supply are directly decided by the government and it believes that making essential items available to the masses is the best way of eradicating poverty. it does not focus on other goods and services which may also have a high demand but lays all its focus towards ensuring that essential goods for the poor people is readily available.

This however, in reality is a flawed strategy. Most government companies tend to never sell at market equilibrium and the costs for the government remain high as there is no incentive for business to earn profits.

These economies are very few in today’s modern times and are limited to North Korea or other similar military regimes if any.

3) Mixed Economies: -

Mixed economies are those in which the government as well as private players play a role. While the government focusses towards social problems of poverty eradication and takes measures such as availability of education at low cost and nutrition, the private sector is left independent on the other hand to allow for demand and supply to decide the prices of other goods and services.

This is indeed a good way of managing an economy, wherein the forces of demand and supply help the economy in having some characteristics of a market economy whereby it can earn additional revenue, and on the other hand the government focuses on plans and low cost services for the poor which help them in also growing.

Please feel free to ask your doubts in the comments section.