Question

Private ownership in the market system is believed to enhance innovation and faster growth than in the command economic system. With examples, explain why this statement is true.

Answer 1

PRIVATE OWNERSHIP: In this , an individual has the complete control over the company including the production, prices , sales etc, there is no intermediate or interference by any one.

COMMAND ECONOMIC SYSTEM: In this, the government determines everything like what amount is to be produced, which product to be manufactured, what will be the market price of the product etc.

The statement is definitely true due to following reasons

1. NO GOVERNMENT INTERVENTION: In case of private ownership, the company belongs to an individual so he can run it according to his wishes. The production, sales, advertising, the prices etc are the choices of individual and the government has no control over it but in command economic system the government determines every single thing from the items to be produced to the prices to be set. So it is better to have a private ownership as you are free to make decision.

For eg: Public sector banks charge rates for various services like debit cards, credit cards etc according to the government but in case of private sector banks they have the choice of setting the rates of various services accoding to them.

2. EFFICIENCY: There is a huge difference in the efficiency of both, in the private ownership an individual takes care of the production , sales everything because there is competition in the market and in order to be the best out of others you need to be efficient , so it works very efficiently but in case of command economy the government takes no burden as there is no pressure from competitors and eventually the efficiency decreases.

For eg: If we visit a private hospital , the staff is very efficient over there. They work 247 and make the processes very fast as they know that there is alot competition because there are several over hospitas as well but in case of public hospitals it does not follow, they waste alot of time because they have no competition and eventually the people have to get treated themselves over there so they wait.

3. INNOVATIONS: As there is a huge competition, it becomes important for the companies to bring innovation in ideas in order to stand in the market, so the private owners tend to be very innovative but in case of command economy the innovations are zero as there is no competition to the government.

For eg: Private banks keep on introducing new products in order to maintain their respect and name in the market but the public banks have already gained so much fame that they do not feel like innovating.