2.4 Mixed Economies and Economies in Transition

Notes

Every modern economy is a mixed economy: it combines market decisions with some government involvement and some tradition.

• Economies can be placed on a continuum from pure command to pure market (laissez-faire). North Korea is near the command end; the United States, Singapore and Switzerland are nearer the market end.
• Laissez-faire is French for "let them do"; it describes the view that government should not interfere in the economy.
• Many European countries such as Sweden have market economies with higher taxes and broader social programs.
• Economies in transition move from command toward market. After 1978, China allowed private farming and businesses and opened to foreign investment while the Communist Party kept political control. After the Soviet Union collapsed in 1991, Russia and Eastern Europe sold state firms to private owners, called privatization.
• Transition can bring growth but also problems such as unemployment, inflation and corruption during the change.