The types of economic systems that people engage in differ greatly between societies. There is a common mistaken belief that all economies are the same and that there is no way to distinguish between socialism and capitalism. But this is not true. The differences are much closer to what we see between North America and Europe than the differences between Europe and Japan. One of the major differences is that in Europe, the welfare state is nearly as large as the size of the economies of the United States and Japan.
The types of economic systems that occur are also related to the types of societies that they exist in. A society that has a very strong social safety net for its citizens and strong protectionist policies for its national boundaries can be considered to have a welfare state economic structure. A society that has very free trade policies and very laissez fairer policies can be considered to have capitalism. A society that allows both the creation and the sharing of technological advancement and the ability to save and capitalize on these technological advances can be considered to have socialism.
The main difference between socialism and capitalism is the type of ownership of the means of production. In capitalism, the ownership is communal while in socialism it is common only among a group of individuals. In communism, ownership is shared by the entire community or state. The types of economic systems that people engage in differ vastly, because the ownership of the means of production is not limited to a group of individuals.
The types of economic systems also vary greatly based on the types of social organizations that are present within the society. Markets that are characterized by a bargaining economy are generally capitalism. Labor markets, on the other hand, are typically socialism. Markets that are characterized by a free market but with a very regulated labor market are usually socialism. The reason for this is that socialism controls the distribution of resources and in the case of labor markets, the distribution of workers as well.
Markets with very limited government intervention and with a strong protectionist culture are characterized by what economists call a classical market system. Classical market economic systems include England, France, Germany, Japan, Sweden, the Scandinavian countries, Canada, New Zealand and the United States. In a classical market system there is little or no role for the government. Individuals and employers determine prices through competition. There are also no taxes or tariffs to force the prices up or down.
Mixed markets, on the other hand, include a mixture of capitalism and socialism. In a mixed market economy, some constraints are placed on the behavior of employers and employees through regulation and the existence of the law. However, the degree of control is not as great as in a pure capitalism. Mixed market economic systems also include Latin America, India, Singapore, South Africa, and others. In order to understand how different economic systems interact, it is useful to compare the performance of mixed economic models.
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