Economic Systems

School of Higher Commercial Studies
Level: 1st year preparatory classes

Teacher: BELMEHDI Fella
Economic systems
An economic system, or economic order, is a means by which societies or
governments organize and distribute available resources, services, and goods
across a geographic region or country. Economic systems regulate the factors of
production, including land, capital, labor, and physical resources. The role and
significance of the participants like government and private entities vary with
the types of the economic systems. There are many economic systems such as
traditional economy, capitalism, socialism, communism and mixed economy.
However, which are the advantages and disadvantages of each one of them?
First of all, a traditional economy is seen in a country that holds on to its

history, customs, beliefs, and traditions. In traditional countries, most of the
population is employed in the economic activity of their ancestors and the
production is aimed at self-sustenance, i.e. they consume whatever they produce
and trade is minimal. That is why, it is an economic system based on barter
system. Barter is an act of trading goods or services between two or more parties
without the use of money. In essence, bartering involves the provision of one
good or service by one party in return for another good or service from another
party. For example, Brazil is a mixed economy driven by state regulations and
market demand. However, a large population of the Amazon rainforest in Brazil
still makes a living by producing the same goods which their ancestors did. They
even exchange these goods for other commodities with their neighbors.
Applying this type of economic system can keep the traditions and
customs alive and preserve skills and art within respective communities, tribes
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and families. Moreover, it will be little conflict among individuals because there
is little competition, individuals roles are clearly defined and the system is well-
understood by the participants. On the other hand, this economic system does
not allow growth and development, changes are slow and individual’s roles are
determined at birth. Furthermore, People may suffer from starvation due to food
shortage if there is a lack of agricultural, hunting, or fishing produce.
Secondly, Capitalism, as we are aware, is an economy where resources

and firms are privately owned in free markets. Normally, this usually involves
some government intervention to regulate certain aspects of the economy and
protect private property. Several advantages are included within a capitalist
economy. In this economic system consumers have more choices; they can
purchase whatever they want at any quantity they desire. There is also a great
variety of goods and services with low prices since competition brings down
prices. This system allows growth and innovation and is adjusted easily to
changes. In addition, it is not difficult to start and maintain a business; the
capital will flow where it gets the greatest return. However, it has many
disadvantages too. First, in a capitalist economy there is unequal distribution of
wealth, the means of production and distribution of goods and services are
owned by just a few members of the society, the wealth of an entire nation could
be controlled by just a few wealthy individuals and families. Moreover, this
economic system does not always provide the basic needs of every one in
society which leads to poverty. In this case, it makes it difficult for government
to provide adequate social services. It also rise the idea of becoming as
profitable as possible, as a result, businesses usually reduce quality and cut
corners to maximize profit.
Thirdly, Socialism is a system in which every person in the community

has an equal share of the various elements of production, distribution, and
exchange of resources. Such a form of ownership is granted through a
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democratic system of governance. It is characterized by the social ownership of
the means of production for the society. The good thing about socialism is the
absence of exploitation and the rejection of discrimination. Indeed, each person
does what he is good at or what he enjoys best. If there are jobs that should be
done and there is no one to perform them, a higher remuneration is provided.
Natural resources are protected for posterity. Therefore, socialism creates a
society that focuses on economic equality and reduces poverty. The bad thing
about socialism is the fact that it does not reward entrepreneurial ventures or
competitiveness. Consequently, a socialistic system does not encourage
innovation as much as capitalism. The society expects cooperation and not
competitiveness and people who are competitive in the community are viewed
in a negative light because competitive individuals tend to find ways to cause
social unrest for personal gain.
Fourthly, the term “communism” was derived from the Latin word
meaning “universal” or “common”. As an ideology, it encompasses social,
political and economic attributes which aims to create a society of equality
devoid of social classes, money and state. Its goal is to provide education and
health care to all citizens with an ideology of common ownership. Despite its
good intentions, however, there are pros and cons to a communist society. One
of the greatest advantages of communism is that it embodies equality because it
will be no social classes in society and all the resources of the country like
property are under the control of the government. It also makes health care,
education and employment accessible for citizens and does not allow business
monopolies. One of the setbacks of communism is its being too controlling on
the lives of the people. Since it is a classless society, everyone is equal in social
status and no one is above the other. This can also be a disadvantage since
people will feel they are at the end of the road because there is no room for
personal improvement. In Cuba, for example, all medical professionals,
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medicines and hospitals are controlled by the government. The fees of these
professionals are regulated by the government and they cannot demand for
higher fees. Another setback of communism is the fact that entrepreneurs cannot
expect to make more money than the others. As opposed to a free market
economy, the command economy which is practiced by most communist
countries ties the hands of business people. Consequently, it is hard to get rich in
these countries.
Finally, a Mixed economy is a combination of a private individual or free-

market and some planned system to regulate the economy by the government.
Basically, there are two types of mixed economic systems; one is where the
economy is controlled by the private sector or business owner and there is very
little control and regulation from the government. Another type of mixed
economy is where the government sets its own industries, factories and invests
on its own, and manages all the business or sometimes it works also as a joint
sector with private owners. There are many benefits of a mixed economy that
are helpful in maintaining economic balance where both public and private
sectors can survive because a mixed economy offers better options for not only
private business growth but also public sectors to manage the economy without
loss. Moreover, resources are allocated efficiently to where they are needed the
most in the private sector. Hence, customers’ needs can be better met. However,
mixed economy has an unclear government control. In fact, if the economy is
given too much freedom, disadvantaged groups will not receive sufficient
support from the government. If the economy sees excessive government
intervention, enterprises will be discouraged to produce efficiently. It is crucial
for a mixed economy to find a balance. Besides, the mixed economy does not
eliminate the possibility of monopolies.

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School of Higher Commercial Studies

Level: 1st year preparatory classes

First of all, a traditional economy is seen in a country that holds on to its

Secondly, Capitalism, as we are aware, is an economy where resources

Thirdly, Socialism is a system in which every person in the community

Finally, a Mixed economy is a combination of a private individual or free-

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