Economic Systems

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EconomicSystems

EconomicSystems

Thesuccess of the new economy will be dictated by the strategies thatthe government will adopt. In a bid to compete successfully with Mr.Lucius Lux the economic development agenda will be segmented into twophases, in the first phase of economic development a planned economysystem will be developed while in the second phase a market economysystem will be allowed to thrive. The first phase will be made up of6 years while the second phase will comprise of the remaining 24years. The development model adopted is meant to steer development inthe right direction and after that allow the market forces to takeeffect.

DevelopmentPhase 1

Aplanned or command economy is entirely controlled by the government.A good example of a planned economy is communism. The core objectiveof the government directing the growth of the economy is based on theneed of setting a strong foundation for future growth. In this casemarket forces have little to no role in production decisions. Sincethe two halves of the planet have equal resources, the objective isto ensure that my economy prospers in terms of quality and reliableproducts and services. Further, I will be ensuring that my governmentenhances the production of cost effective products or services whileat the same time competing on the premise of quality and reliability.

Inthe initial stages of the first phase of development, the governmentwill catapult the development of additional resources to fit theproduction of quality services. Through incentives and subsidies, thegovernment will lure its citizens to invest in production of goodsand delivery of services. For example, in a bid to boost developmentof skills and knowledge, the government will seek to add additionallearning institutions by dedicating about 100 acres of land in everycity. It is in these portions of land that learning institutions willbe developed by both the government and private investors. Anyprivate investor who will volunteer in the development of learninginstitutions must ensure he/she has been licensed by the governmentand provides the standards required. Thus, in a bid to facilitate thegrowth of learning institutions, the government will develop 60% ofthe institutions while 40% will be built by the private sector. Inthe entire process, the government will ensure close supervision ofprivate organizations. The additional learning institutions willensure that the economy produces reliable and qualified humanresource which will be the driving engine of growth and development.

Further,my government will initiate the development of manufacturing andprocessing firms in the economy. Essentially, a 10% increase in thenumber of processing and manufacturing firms will be significant inensuring that there is sustained development in the long run.Similarly, based on demand and supply in the market, the governmentwill set price ceilings. The essence is to ensure that demand andsupply is effectively controlled in the market. From the perspectiveof demand and supply, the government will find the profit maximizingoutputs by establishing where marginal revenue is equal to marginalcost. Based on the intersection of the two curves (marginal revenueand marginal cost curves), the price of goods in the market will beformulated. Typically, profits can be maximized as long as marginalrevenue is greater than marginal cost. However, in the case of thegovernment, there will be no interest in maximizing per unit profitowing to the need of creating and maximizing social welfare.

Theadoption of a command economy will ensure that the governmentinstigates and facilitates the development of additionalinfrastructure geared towards creating a balanced economy. All partsof the economy ought to develop equally. For example, the governmentwill ensure that manufacturing firms are located in specific regionsof the economy. The same will apply to all organizations. Thearrangement will trigger equal economic development and opening uprural areas. At the same time, the policies will ensure thatrural-urban movement is curbed as all sections of the economy will beopened-up for development. Equal development will facilitate movementof goods from one section of the economy to another. For example,areas harboring manufacturing plants will transport either rawmaterials or finished products to areas with processing plants.Similarly, commercialized sections of the economy will offer anenvironment for retail of products and financial transactions.Clearly, a balanced economy will facilitate creation of jobs andrevenue generation in the short run and long run periods.

Througha planned economy, the government will be able to avoid instances offull monopoly control. Monopolistic economies are major hindrances tocreation of jobs, income generation and overall development. Thus, itis significant for the government to avoid the development of puremonopolies. At the same time, accessibility to basic necessities willbe facilitated through a command economy. The key argument is that ifmore people are employed, they will be able to afford basic needs,children will learn, more income will be generated, consumption willbe high, and banks will flourish. With a strong financial system,economic growth will be sustained. A planned economy will be held forthe first six years. After the elapse of the first six years, thegovernment will resort to a market economy.

DevelopmentPhase II

Thesecond development phase will be characterized by a switch from aplanned economy to a market economy. In the next 24 years, theeconomy will be founded on the principles of a market economy. In abid to fully switch from a planned economy to a market economy, thegovernment will commence the privatization all of its corporationsthe economy. Privatization will ensure that the government keep-offsof from controlling the market having already established a reliablefoundation for the progress of the economy for the next 24 years.

Inthe second phase of development, the government’s main aim will bethe continued development of infrastructure to meet the requiredstandards for growth. More roads will be built and maintained by thegovernment, security will be enhanced, new policies and regulationson competition will be adopted, and traditional policies discarded.In this stage, the government will be aiming for a freely operatingenvironment which is only steered by the demand and supply forces inthe market. The government will leverage on the already establishedfoundation to harness a competitive and effective economy in theremaining 24 years.

Ina bid to enhance the growth of a free market economy, the governmentwill focus on the following fundamental areas as a measure ofbuilding on future growth:

  • Property rights

  • Freedom of private corporations

  • Profits and prices in addition to incentives

  • Competitive markets

PropertyRights

Afterprivatization of all governmental corporations, the next step for thegovernment will be to build a strong and reliable property rightsframework. For the past six years, the economy has been planned orcommanded by a central government, there is a chance that propertyrights framework does not capture fundamental clauses that will buildon a free economy. In this retrospect, the government will seek tohave new clauses on property rights. Essentially property rightsdenote the social institutions managing and protecting propertyownership in terms of their use and disposal. The primary propertyrights that both citizens and private corporations can hold include:

  • Real property

  • Financial property

  • Intellectual property

Ina capitalist market economy, the right of private property is anintegral component of growth. Businesses cannot grow if they are notprotected whenever they come up with a new product or acquirephysical resource in their name. In fact, major corporations in themodern society have succeeded because they have been able to leverageon property rights. In such a new economy, technological,manufacturing, processing, and mining companies must be protected andtheir interests covered in a property right law. Property owners willhave the ability to freely sale or use their products or services andin this way they will generate income and pay taxes. The overallimpact is that the government will have increased revenue sources asbusinesses and individuals make use of their property rights. Asincome increases the economy will grow owing to the impact of incomeon the economy.

Itis crucial for the government to enforce property rights, otherwiseincentives to use these properties will be weakened in the long runand potential gains will be lost. The resultant impact is that theeconomy will not grow as anticipated. As much as the use oftechnology is making it hard to enforce intellectual propertypolicies, the government needs to ensure that it does its best tocushion private investors from a lawless society. Private investorswill be given a platform to voice their concerns on areas that theywould feel that their rights are infringed and the government willpursue all legal channels to foster continued protection of therights of both individual and corporations in the economy.

Freedomof Private Corporations

Freedomof private investors is another section that the government willaddress in a bid to reach its target after 24 years. There is astrong connection between freedom of corporations and propertyrights. Freedom of corporations denotes a situation where businessesand individuals have the liberty to engage in economic activities oftheir choice. The government will no longer make decisions on behalfof its people. Entrepreneurs will have the power to set up theircompanies and produce goods or make investments in shares or bondswithout restrictions from the government. The government will notprevent purchase of raw materials from any part of the economy.Companies that will prefer building their foundations in rural areaswill be allowed to do so as roads to such parts of the economy wouldhave been developed.

Thesignificance of freedom of corporations or investors in general isthat the private sector will have the capacity to invest in what theydeem as profitable and diversify their products or services based ondemand and supply requirements in the market. In this stage, alllicensing systems will be loosened. Relaxed policies will ensure thatthere is increased competition within the economy and this willfacilitate the development of quality products and exploitation ofthe available resources. In fact, the greater the competition, theeasier it will be to put inflation under check and attain higherindustrial growth in the long run.

Profitsand Prices

Successof an economy is anchored in the ability of people to make profitsand adequately save. In fact savings directly affect an economy. Thisis clear from the GDP formula (GDP = C+ I + G + (X-M)). However, inthis situation, X-M is eliminated because there is no trade allowedbetween the two economies. Thus, the remaining areas of considerationinclude: consumption, investments, and government spending. If thesethree segments are adequately addressed, there is no doubt that theeconomy will flourish in the next 24 years and overtake that ofcompetitors (the other half of the planet). Thus, in retrospect toprofits and prices, the government will offer incentives tobusinesses and individuals to save in form of wages and interests. Itis also important to note that businesses will not be motivated toproduce goods and services if they have to face risks of losses andthe government must work to provide security in the economy. In anyeconomy, profits are generated when products are produced andconsumed in the market. The profits majorly depend on the prices setand the resultant costs incurred.

Perfectlycompetitive businesses are primarily price takers. If these firms areable to cut their operating costs, they stand in a better position ofmaking larger profits. Minimization of costs is a strategy adopted bybusinesses and individuals as a measure of maximizing returns. Insuch cases, the government has no role to play rather than help inthe reduction of costs by enhancing the development of roads,relaxing policies and enhancing security so as investors do not haveto worry about these factors. The working nature of the pricingsystem ensures that firms market their prices to willing and ablecustomers. Scarce products will obviously attract higher prices asopposed to freely available products or services and this explainsthe profitability incentive for firms to invest in the exploitationof scarce resources.

Ina bid for the government to encourage profit generation and continuedgrowth in the economy, there must be a relaxation in tax laws.Organizations will be allowed to keep a higher percentage of theirprofits. The resultant impact will be high income which means moreexploration which in turn means higher employment rate and increaseddemand in the market owing to increased spending. As more people getemployed, the general income in the economy increases. Citizens withhigher disposable income margins will demand more products orservices and companies will be compelled to increase the supply oftheir products. The cycle will continue to a point where bubble pointwill be attained and demand will drop again as income reduces in theeconomy. The aim of the government is to ensure that there is athriving environment for continued increase in income.

CompetitiveMarkets

Ineconomics, market is described as an association of buyers andsellers with an aim of exchanging goods or services. Communicationbetween buyers and sellers in a market can take place via phones,mails, social media, or other communication links like the physicalcommunication channel. However, in the modern society, communicationis primarily by the use of the internet and this explains why thereis a need to invest in building such communication channels. In fact,in a free market, corporations can invest in provision ofcommunication services, and this is where such companies likeFacebook, CNN, Google, and Yahoo come in. Just like other companiesthat thrive in the production of goods, communication companiesmaximize their profits by delivering a service. In order for suchcompanies to arise in the economy, the government must set in placemechanisms to allow the growth of such companies. For example, thegovernment will not restrict or curtail communication channels, itwill provide security in communication infrastructure, and it willreduce taxes in the field at the start.

Witha reliable communication channel, businesses can then connect withtheir customers and showcase their products or services. On mostoccasions, customers will go for the low cost products however,there are those who go after quality instead of cost. Sincecommunication channels like social media offer an essential platformfor customers to exchange insights about certain products orservices, potential buyers will settle on specific products andservices from a long list of services and products showcased in themarket. Although, both the customers and sellers will have reliablecommunication platforms, it does not mean that they will be able todictate the prices of goods or services. In fact, in this case aperfect competition market prevails. Under perfect competition, firmsproducing goods or services are in no position to influence theirprices they are only price takers. Each business in this case mustbe ready to accept the prevailing market prices and this explains whygovernment intervention will not be adopted in the second phase ofdevelopment.

Conclusion

Owingto the abolition of trade between the two economies, it is imperativeto develop a self-sustaining economy within 30 years. In a bid toattain long term success, the growth strategy will be segmented intotwo phases: Phases I and II. The primary objective of Phase I will beto ensure that there is a credible and reliable foundation tofacilitate future growth. In this stage, planned economy will beadopted and pursued to compete with the mixed economy adopted by theother second half planet. However, this will not guarantee success inthe long run as it is marred by multiple challenges linked toinflexibility and this explains why it is only embraced in the firstsix years of the 30 year deadline.

Thesecond phase is characterized by a free economy and in this phase thegovernment will privatize all of its corporations and allow theprivate sector full responsibility of controlling the market. Theonly role of the government in this stage is to create incentivesthat will catalyze production. Competition between businesses willensure that production, demand, and profits are increased within thenext 24 years. Relaxation of taxes, avoiding licensing restrictions,increased security, and offering reliable and friendly financialsystems will act as incentives that will spur development in the longterm. Increased profits will foster increased employment rates and inturn facilitate increased demand of products in a cyclic manner inthe next 24 years.