MARKET ECONOMY

Laissez Faire, Free Market Economics, Command Economy

Market economy is an economy in which goods and services are freely exchanged without obstruction or regulation and where decisions about production and consumption are made by many separate individuals each seeking satisfaction of specific needs and desires.

Market economy is sometimes used interchangeably with ‘capitalist economy’, but this is an error since a cooperatively based economy could also be operated on market principles.

In market economy decisions regarding investment, production and distribution are based on supply and demand where the prices of goods and services are determined in a free price system.

Market economies may include hypothetical laissez-faire, free market, regulated markets and interventionist variants. Existing market economies are mixed economies as they include economic planning or state-directed activity.

Free market economy is almost synonymous with Laissez-faire economy, that is, free market without economic intervention and regulation by government. Free-market economy is often used synonymously with market economy, but this does not preclude an economy from having socialist attributes. Free market economy is the opposite of a controlled market economy.

In reality however, market economies are regulated by societies and governments in many ways, not allowing full self-regulation by market forces.

The Theory of the Market Economy and the Social Foundations of Innovative Enterprise 
William Lazonick, University of Massachusefts Lowell and INSEAD (The European Institute of Business Administration) Economic and Industrial Democracy, Vol. 24, No.1, (2003) © 2003 The National Institute for Working Life
The author argues that the theory of the market economy propounded by western economists is more a hindrance than a help in understanding the difficult economic problems that nations, both rich and poor, now face. The fundamental problem is that western economists who propound the theory of the market economy - including those who recognize that markets often work `imperfectly' or `faill'-lack a theory of economic development that can explain the successful growth of the wealthy economies. The author argues further that a theory of economic development must be rooted in a theory of innovative enterprise. Lacking such a theory, `market' economists tend to see developed markets in labour, capital and products as causes rather than consequences of economic development. The 'market economy' is, of course, a very real phenomenon with great economic and political advantages if it can be achieved and controlled. But, in reality, well-functioning markets are much more the consequences than the causes of economic development. To reap the advantages of a 'market economy', a society must first put in place the organizations and institutions that generate the innovative capabilities that underpin economic development and that make possible the emergence of well functioning markets in capital, labour and products. With these capabilities and markets in place, a society can then turn to the ongoing tasks of promoting the innovation process and controlling the operation of markets to achieve stable and equitable economic growth. Understanding the social foundations of innovative enterprise is, the author argues, critical to the formulation of policies to achieve this end. - eid.sagepub.com/cgi/content/abstract/24/1/9

Market Economy and Consumer Rights: The Impact on Women's Everyday Lives and Employment - Malgorzata Fuszara, University of Warsaw 
Economic and Industrial Democracy, Vol. 15, No. 1, 75-87 (1994) © 1994 The National Institute for Working Life
The transition from totalitarianism to democracy and freedom (and a free market as one of the elements of that freedom) has changed everyday life in Poland. Some changes have affected women rather than men. In some respects, the introduction of a market economy has changed women's life for the better for example as consumers. Women no longer waste many hours each day queuing. In other areas, the changes have led to a deterioration of women's situation and threaten their status in society, such as disproportional unemployment of women, lower rates of participation in the privatization process and loss of certain social services. In other respects the changes have simply done away with the communist myth of gender equality such as the extent of women's participation in politics, executive posts held by women, equal pay, etc. Finally, in some spheres the current changes have not had any impact on women's situation: violence against women, for instance, is still a taboo subject. Changes in many spheres are still necessary in Poland: in legal regulations, in the level of activity of women's organizations, in the social consciousness of both men and women, to mention a few. Without these changes, women's situation cannot be improved. - eid.sagepub.com/cgi/content/abstract/15/1/75

Ideological Basis of the Market Economy: Attitudes Toward Distribution Principles and the Role of Government in Western and Eastern Germany - EDELTRAUD ROLLER 
Edeltraud Roller, Wissenschaftszentrum Berlin fr Sozialforschung (WZB).
European Sociological Review 10:105-117 1994 © 1994 Oxford University Press 
The establishment of market-economy structures in the former GDR raises the question to what degree a market economy culture exists among East Germans, i.e. the existence of orientations and behavioural dispositions that are congruent with market-economy structures. This question is analysed on the basis of surveys conducted in East and West Germany within the year following unification in October 1990. The empirical analyses show that immediately after unification the East Germans already supported the achievement principle of the market economy to the same degree as West Germans. At the same time, they harbour higher expectations regarding the role of government, expectations which are more congruent with a planned economy. Accordingly, the economic culture in East Germany appears to be a mixed culture comprised of elements of both market and planned economies. Additional analyses indicate that the plannedeconomy elements in this economic culture probably stem from system-internal experiences whereas the market economy elements stem from system-external experiences. - esr.oxfordjournals.org/cgi/content/abstract/10/2/105

Gender Mainstreaming and Gender Equality in the New (Market) Economy: An Analysis of Contradictions - Diane Perrons, Social Politics: International Studies in Gender, State & Society 2005 12(3):389-411.
Abstract: Gender mainstreaming now forms part of many national and supranational policies and is mandatory in development projects such as those financed by the EU structural funds and by the World Bank. Yet gender equality remains elusive. Recent studies have highlighted institutional barriers or resistances to gender mainstreaming. This article takes a rather different approach by developing a conceptualization of the new economy that highlights the market tendency toward widening gender and class inequalities. The implication of the analysis is that effective gender mainstreaming would require a broader and more holistic conceptualization of the economy in order to secure greater gender equality. The theoretical argument has relevance to countries seeking to develop knowledge-based economies. The policy discussion relates to the European Union, and the specific empirical illustration to London. This multi-scalar approach reflects the way that different policy frameworks and local situatedness mediate the global neo-liberal trajectory in different ways. If the current efforts to transform the European social model by more neo-liberal economic policies succeed, these UK findings may reflect the shape of things to come in Europe and perhaps elsewhere. - sp.oxfordjournals.org/cgi/content/abstract/12/3/389

Eucken's 'Social Market Economy' and Its Test in Post-War West Germany 
The Economist as Social Philosopher Developed Ideas That Parallelled Progressive Thought in America - By Siegfried G. Karsten, American Journal of Economics and Sociology, Volume 44 Issue 2 Page 169 - April 1985
Abstract: Walter Eucken's paradigm of a "social market economy" and "Ordnung" provides a framework for a functional free-market mechanism, which not only accommodates development and change, but which also assures human dignity and freedom, as cornerstones of the Kantian moral universe. Eucken places special emphasis on the integration of economics with "order" and "Justice," in a synthesis of negative liberty and positive freedom and of Rawls' and Nozick's theories of justice. Adam Smith's laissez faire economy does not assure a competitive economy, he holds, and will evolve into monopolistic practices, interventionism, and distortions of price relationships; but "structural" and "regulating" principles will facilitate a functionally competitive economy with a compatible social policy, characterized by a flexible price mechanism and stable policies. This "social market economy" would provide goods and services efficiently and also eliminate poverty and the maldistribution of income and resources. - blackwell-synergy.com

Social Security Reform in China's Transition to a Market Economy 
Peter Saunders & Xiaoyuan Shang, Social Policy and Administration, Volume 35 Issue 3 Page 274 - July 2001
This paper begins by describing the origins of a social security system that was based on a series of institutional splits that resulted in the development of a fragmented system characterized by inequity and incomplete coverage. The entitlements embedded in this system have proved difficult to revise in the light of changing circumstances and the pressures associated with economic transition, demographic change and the newly emerging problems of open unemployment and urban poverty. These developments, particularly the latter, are creating new demands on a system already struggling to adjust to structural problems of coverage and financial soundness. A series of extensive reforms in the areas of pensions and unemployment insurance and a rationalization of administrative arrangements and responsibilities have been introduced over the last two decades, but further reform seems inevitable as external pressures and policy priorities change. A key goal of the reform process has been to transfer responsibility for social security from enterprises to the state, but the system still suffers from a series of serious financial problems. Despite the extensive reforms that have already been introduced, these problems and the structural imbalances underlying them will require further action. The most important of these imbalances relate to the split between the nature and role of social security in the urban and rural sectors, the role of the commercial provision and its relationship with the state, and the extension of programmes aimed at poverty alleviation. - blackwell-synergy.com

Inconspicuous Consumption - Work-Rich, Time-Poor in the Liberal Market Economy 
Oriel Sullivan, Ben Gurion University, Jonathan Gershuny, University of Essex
Journal of Consumer Culture, Vol. 4, No. 1, 79-100 (2004) © 2004 SAGE Publications
Addressing the relationship between consumption behaviour, leisure time and the market, we seek a solution to the problem of the maintenance of consumption expenditure in economies where leisure time is shortest for those who have the most to spend, a contradiction particularly characteristic of societies belonging to the politico-economic regime type identified as ‘liberal market’. In contrast to ideas of conspicuous consumption based on display, we present a concept of ‘inconspicuous consumption’ relating to an imagined future use of purchases already made. Expensive leisure goods that symbolize a wished-for self-identity or lifestyle are purchased by high-income earners with little leisure time. From the point of view of the production sector, the purpose is achieved and a sale is made. However, the purchased goods remain ‘in storage’at home as symbols of a potential but unrealized and, in the meantime, unrealizable future. We illustrate different modalities of the practices of inconspicuous consumption and distinguish it from other consumption practices. - joc.sagepub.com/cgi/content/abstract/4/1/79

Patterns of Transition from Plan to Market Martha de Melo, Cevdet Denizer, and Alan Gelb 
The transition from a planned economy to a market economy involves a complex process of institutional, structural, and behavioral change. This article develops an index of economic liberalization and analyzes its interaction with growth and inflation, using data from twenty-six transition countries for 1989–94. The article reveals two paradoxes of transition. First, the attempt to maintain output by subsidizing enterprises results in larger declines in output than occur under a policy of reducing subsidies. Second, price liberalization results in lower inflation than occurs under a policy of continued price controls. 
Strong common patterns exist among countries at similar stages of reform. The common legacy and the associated changes that result from initial disruptions in the socialist economic coordinating mechanisms and subsequent liberalization measures go a long way toward explaining the transition experience. Because strong interactions between liberalization and stabilization are likely, stabilization becomes a priority for the resumption of growth. - wber.oxfordjournals.org/cgi/content/abstract/10/3/397

Price-War Dynamics in a Free-Market Economy of Software Agents 
Jeffrey O. Kephart, James E. Hanson, Jakka Sairamesh (IBM Thomas J. Watson Research Center) 
Abstract: We envisage the evolution of the Internet into a free-market information economy in which billions of software agents exchange a rich variety of information goods and services with humans and amongst themselves. This will inevitably occur as agents assume an ever more pervasive and responsible role in electronic commerce. Even more fundamentally, the proven ability of the free-market economy to adjudicate and satisfy the conflicting needs of billions of human agents suggests it as a decentralized organizational principle for billions of software agents as well. However, given that software agents can make decisions several orders of magnitude faster than humans, and are vastly less flexible and complex, it is quite conceivable that an agent economy would behave in ways that are entirely alien to us. It is thus legitimate to ask: Is a free-market information economy inherently capable of facilitating the interactions of billions of software agents, and if so what are the minimal requirements on the infrastructure of such an economy and on the agents that populate it? 
Our research goal is to answer this question by analyzing, simulating and prototyping a series of increasingly more realistic agent economies. Our first efforts have focused on some basic self-organizing and dynamical behaviors that we have observed in model economies, including one consisting of news filtering sources, brokers and consumers. Elsewhere we have reported the ability of the news filtering economy to exhibit spontaneous specialization on the part of sellers, to the benefit of all players in the economy. Here we describe a phenomenon to which agent economies appear highly susceptible: price wars. In particular, we discuss their often quite disastrous nature and their effect upon individual agents, the conditions under which price wars occur and why, and some possible remedies. - alife6.alife.org/abstracts/PR47.html

Incomes in Planned and a Market Economy: The Case of the German Democratic Republic and the ‘Former’ Federal Republic of Germany MARC SZYDLIK, Harvad University, Department of Sociology William James Hall, Cambridge
European Sociological Review 10:199-217 1994 © 1994 Oxford University Press 
This paper examines the extents and determinants of earned income inequalities in the German Democratic Republic and the ‘former’ Federal Republic of Germany. In both systems income differences can be distinguished on the basis of individual and structural inequalities as well as according to organizational and economic structures. Nevertheless, different theoretical explanations must be used, in particular regarding structural inequalities. In the FRG, economic structures are mainly based on the market position of the firms. In the GDR, however, they refer to the firms' importance for the national economy and their bargaining positions in relation to superior institutions. The organizational structures in the Federal Republic of Germany can be characterized, for example, by the workers' affiliation to the Firms' core or periphery, by firm-internal career-ladders, and by the specific qualification-based bonds between employers and employees. Examples for the GDR are informal rules and bargaining positions in relation to superiors. 
The empirical analyses (OLS estimates and residual variance analyses with the data from the German Socio-economic Panel East and West) show that in both systems individual productivity-relevant characteristics are responsible for the main part of the income differences. Nevertheless, women's incomes are—independent of the system—much lower than those of men (both the overall and the gender-specific differences are smaller in the GDR than in the FRG). Furthermore, structural variables like industry, firm size, and job requirements are important determinants of income differences in the GDR as well as in the FRG. This is the case for both women and men. In contrast to the GDR, however, organizational structures are more and economic structures are less important in the FRG. - esr.oxfordjournals.org/cgi/content/abstract/10/3/199

The market economy unchecked: Another version of fundamentalism? A polemical tribute to Stafford Beer - Leonard A.
Source: Kybernetes: The International Journal of Systems & Cybernetics, Volume 33, Numbers 3-4, 2004, pp. 538-546(9)
Abstract: A case is made that the market economy imposes constraints and makes demands that mirror the rigidity of fundamentalist religions and that this makes answering one fundamentalism with another more likely. The denial of the world's complexity, the dismissal of the suffering of those not among the select and the obliviousness to other perspectives that characterize fundamentalist economics or religion, create a dangerous situation for all. Systems models and tools, created by Stafford Beer and many others, provide practical means to address complexity and to achieve a fair balance of stakeholder needs and interests. - ingentaconnect.com

Summary Report of the OECD Emerging Market Economy Forum on Electronic Commerce
Abstract: The OECD Emerging Market Economy Forum on Electronic Commerce was the latest in the series of major international conferences organised by the OECD on the theme of electronic commerce and the global digital economy.
The first Conference, 'Dismantling the Barriers to Global Electronic Commerce', took place in Turku, Finland in 1997. The second, at Ministerial level, 'A Borderless World: Realising the Potential of Global Electronic Commerce', in Ottawa in 1998, produced Ministerial Declarations in several key areas, an Action Plan for the OECD and reviewed self-regulatory actions undertaken by the business community. The third, the 'OECD Forum on Electronic Commerce', at the OECD in Paris in late 1999, took stock of the first year's progress after Ottawa and highlighted the areas where much remained to be accomplished.
Among the emerging themes at that meeting was recognition of differences in access between and within economies (known as the 'digital divide') and the need for the OECD to build upon its outreach to non-member countries and to all stakeholder communities. The 'regulation versus self-regulation' debate changed, with the growing sentiment that an integrated approach to develop an effective mix of the two approaches was more appropriate, and that the policy formulation process should be more inclusive. - oecd.org

The Economics and Politics of Transition to an Open Market Economy: Colombia - Summary 
Colombia is somewhat unique in this series, in that it was never a centralised, communist state. Nonetheless, it does share some of the characteristics of the centralised socialist economies since the reins of power remained in a small clique which denied access to other parts of the society. Reforms have taken place, but they have been undertaken in a climate of resistance by vested interests and militancy on the part of those who stand most to benefit from reform. This book explains how these forces related to each other and how the conflicts were resolved - or not, as the case may be. The lessons for other countries in the region and for emerging economies in general are far-reaching. - oecd.org

Market economy, health economy? [Article in French] - De Wever A., Faculte de Medecine, Ecole de Sante Publique, Ecole de Commerce Solvay, Institut de Pharmacie, Laboratoire d'Economie de la Sante, U.L.B.
After the definition of the economy and its different types, we have to stress the political economy which integrates pure economy and society. The economical science will gradually introduce the health economy of which the definition urges to seek for a better distribution between public and private means to do more and better for the public health. The market economy is different from the state economy. She is principally conducted by the supply and demand law. The consumer's behaviour in a competitive market has some characteristics which favour the balance of this market. The healthcare market put also a health supply and demand forward but not with the same values. The needs, the supply, the consumption and the consumer's behaviour are different in this particular market which quickly evolves and progressively goes closer to the market economy. Is the healthcare an economical good or duty? The choices' criteria and the priorities are changeable. The role of the valuation studies in health economy is to try to clarify them and to favour a better use of the limited resources to the unlimited needs. - ncbi.nlm.nih.gov

The transition from Soviet system to market economy as a cause of instability in the Estonian coastal fisheries sector
Markus Vetemaa, Redik Eschbaum & Toomas Saat - University of Tartu, Estonian Marine Institute, Vanemuise 46, Tartu 51014, Estonia,
Abstract: This study analyzes how overall changes in political and economic life during the last decade have affected the Estonian coastal fishery of the Baltic Sea. At the beginning of the nineties, the opportunity to export fish to the European market emerged. Opening of this new market resulted in rapidly increasing pressure on fish stocks. Some of the most important coastal fishery resources were over-fished because of high export market demand coupled with insufficient resource management and ineffective control and enforcement mechanisms. The costs associated with fishery have grown much more than the first-buyer prices. Additionally, dynamic development of the Estonian economy has resulted in substantial increases in earnings in other economic sectors and therefore the relative wealth of fishermen has steadily declined. This has resulted in increasing social problems. In conclusion, countries in transition may encounter serious difficulties in the fisheries sector, arising from privatization and economic reforms, which may affect the fisheries even years after the establishment of new ruling principles.

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