Question

The modern American economy is large and complex. There is extensive
specialization of labor, which implies we all rely on others for most of what we consume. How
does economic theory picture the process of coordination of all the economic agents? What can
create coordination breakdowns? What can policymakers do to reduce the frequency and
severity of such breakdowns?

Answer 1

In every economic system, entrepreneurs and managers bring together natural resources, labor, and technology to produce and distribute goods and services. But the way these different elements are organized and used also reflects a nation's political ideals and its culture.

The US is sometimes characterized as a "capitalist "economy, a concept coined by 19th-century German economist and social theorist Karl Marx to describe a system in which the most important economic decisions are made by a small number of people who control vast sums of money, or resources. Marx compared the economies of capitalism with those of 'socialism,' which exercised more influence in the political system.

Marx and his supporters argued that capitalist societies consolidate power in the hands of rich business owners, primarily directed at increasing income; on the other hand, socialist economies will be more likely to have more policy influence, which aims to place societal objectives, such as a more equitable allocation of the resources of society, ahead of income.

Although such definitions have aspects of reality about them, though oversimplified, they are much less applicable today.

If the pure capitalism mentioned by Marx still existed, it has long since vanished, as governments in the United States and many other countries interfered in their markets to restrict power inequalities and solve many of the social issues associated with the unregulated private interest.

As a result, the American economy is perhaps better described as a "mixed" economy, with government playing an important role along with private enterprise.

The first ingredient of a nation's economic system is its natural resources. The United States is rich in mineral resources and fertile farm soil, and it is blessed with a moderate climate.

The second ingredient is labor, which converts natural resources into goods.
Yet natural and human capital constitute only part of an economic structure.

Such services have to be coordinated and managed as well as possible. Managers play this role in the American economy, responding to feedback from markets.

The conventional management system in America is based on a top-down chain of command; power flows from the chief executive in the boardroom, which means that the whole company operates smoothly and effectively, to various lower management levels responsible for managing different sections of the enterprise, down to the foreman on the shop floor.

There are various duties divided into different departments and different staff. This specialization or division of labor in early 20th century America was meant to represent "economic administration" based on systemic research.

Some businesses tend to work in this conventional system while some have taken on evolving management opinions.

Faced with heightened global competition, American companies are pursuing more agile organizational systems, especially in high-tech industries that employ skilled employees and need to quickly create, change and even optimize goods.

This is generally believed that unnecessary bureaucracy and division of labor impede innovation.

As a result, many organizations have "flattened" their corporate systems, decreased the number of supervisors and transferred more power to interdisciplinary workers' teams.

Of course they have to be grouped into corporate projects before administrators or teams of employees can generate something.

The company has proved to be an successful tool in the United States to raise the funds needed to launch a new enterprise or to extend an existing one.

The corporation is a voluntary association of owners, known as stockholders, who form a business enterprise governed by a complex set of rules and customs.

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