Text 1. Command and market economy

Within the overall umbrella of the world economy, traditionally, three models of an economy have been used: the command economy (where the central government answers all the economic questions offered), the market economy where government has little interference and laissez-faire is predominant, and the mixed economy.

Individual freedom is one of the hallmarks of the market economy – each person is free to choose how they wish to put their income to use. Adam Smith, hailed as the founder of classical economics, suggested that the sum of individual's self-interest would produce results that corresponded to the overall good of society.

In a command economy, decisions about what and how much to produce, where to locate economic activities, and what prices to charge for goods and services are made by a single, central government agency or authority. In a command economy, the government, not market forces, controls the price of goods including agricultural products.

In a market economy, decisions about what and how much to produce, where to locate economic activities, and what prices to charge for goods and services are determined by laws of supply and demand and the market. Profit drives decisions in a market economy.

The former USSR is an example of a command economy: from 1928 onwards the Soviet economy course was charted at the centre and directives issued outwards from the centre passing downwards and outwards through a massive hierarchical bureaucracy. Stalin's emphasis on centralization, state ownership of the means of production, and centrally planned production and distribution set the tone for the development of the Soviet economy.

On certain levels this economic program met with considerable success. In the 1940s the Soviet state withstood the German onslaught and emerged from the Second World War as a global power. The means of production were entirely owned by the state and all economic activity was centrally planned through the State Planning Commission (GOSPLAN). On the one hand, this permitted the coordination of economic activity and, when necessary, facilitated rapid advancement of particular policies or specific sectors of the economy. During the first Five-Year plan collectivisation of agriculture proceeded at a phenomenal rate.

However, these gains were obtained at the expense of consumer goods. Production of cotton and wool fabric in 1950 only matched 1940 levels and grain production remained below 1940 levels. The Soviet economy rapidly rebuilt its heavy industries those necessary to maintenance of a military industrial complex but chose to do little to meet the needs of its citizens.

Central planning had a deleterious impact on management. Managers of state operated enterprises had no interest in significantly improving output or in considerably surpassing their centrally assigned objectives. The excessive emphasis on central planning discouraged both managerial and technological innovation, as a consequence of this emphasis on steady mediocrity developed. The civilian population constantly suffered from a low standard of living and shortages of consumer goods.

In contrast to centralization, state ownership of the means of production, and centrally planned production and distribution, capitalism relies on private ownership and individual initiative in the marketplace for production and distribution. Individuals pursue their own best interests and this mutual pursuit of individual interest encourages innovation and improvement.

A centralized economy attempts to design and enforce an equitable system of distribution while capitalism asserts that equitable distribution will ensue if all individuals compete on a level playing field. Unfortunately, as was the case with a centralized economy, reliance on the free market results in both successes and failures. The successes, as capitalism rightly claims, relate to innovation. Competition encourages innovation, and capitalism has produced well over a century of dizzying technical progress. At the same time, productivity has also increased at a phenomenal rate. These technological developments can, in large part, be linked to the competitive environment of the free market. However, the failures of capitalism are evident also. Under capitalism, freedom does not include freedom from poverty and rights do not include such simple material factors as shelter and employment. More importantly, there are certain imbalances that make free market and the level playing field myths. People are born with neither equal opportunities nor equal abilities: therefore, they enter the playing field at different levels.

Capitalist societies rely on the marketplace to regulate the distribution of goods. While this encourages competition and innovation among manufactures it also encourages competition among consumers and labours and results in massive imbalances in distribution. The marketplace possesses no inherent morality. In fact, in its worship of competition it is amoral. On the other hand, the Soviet experience clearly demonstrated that state socialism and a centralized economy can be mishandled.

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1. Explain the word combinations, translate them into Russian. Quote the sentences in which they occur.

laissez-faire

hallmark

to charge prices

supply and demand

the course was charted at the centre

hierarchical bureaucracy

centralization

means of production

State Planning Commission

Five-Year plan

consumer goods

military industrial complex

output

centrally assigned objectives

standard of living

shortages of consumer goods

private ownership

pursue their own best interests

equitable system of distribution

level playing field

competitive

imbalances in distribution

1. Answer the following questions and do the following tasks.

1) Point out the main features of a command economy. Analyse its strong and weak points.

2) Point out the main features of a free market. Analyse the strong and weak points of this model.

3) Give examples of modern countries with market economy and command economy.

4) How can you describe the current type of Russian economy? Is it right to assume that this country presents an example of a purely market economy model?

1. Choose one of the quotations below and comment on it.

1) “Property is the fruit of labour; property is desirable; it is a positive good in the world. That some should be rich shows that others may become rich and, hence, it is just encouragement to industry and enterprise.” Abraham Lincoln

2) “When shallow critics denounce the profit motive inherent in our system of private enterprise, they ignore the fact that it is an economic support of every human right we possess and without it, all rights would disappear.” Duncan C. Manzies

3) “One man’s wage rise is another man’s price increase.” Harold Wilson

4) “Invest in inflation. It is the only thing going up.” Will Rogers

5) “In the end, all business operations can be reduced to three words: people, products and profits. People come first.” Lee Iacocca

6) “Business is like riding a bicycle. Either you keep moving or you fall down.” John David Wright

7) “A man without a smiling face must not open a shop.” Chinese proverb.

6. Write an essay on one of the following topics.

1) “The playthings of our elders are called business.” St. Augustine

2) “Whenever you see a successful business, someone once made a courageous decision.” Peter Drucker

3) “The man who minds his own business usually has a good one.” Anonymous

4) “It is a socialist idea that making profits is a vice; I consider that the real vice is making losses.” Winston Churchill

7. Translate into English:

1) В зависимости от того, каким образом решаются основополагающие вопросы экономики относительно распределения и контроля над ресурсами, другими словами, что, как и для кого производить, экономические системы подразделяются на командно-административную, рыночную и смешанную. 2) В странах с командно - административной экономикой ресурсы распределяются правительственными органами централизованно. 3) При свободной рыночной экономике правительство не вмешивается в вопросы производства, распределения и потребления производимых товаров и услуг, все основные ресурсы полностью распределяются через рынки. 4) Современные экономические системы промышленно-развитых стран представляют собой смешанный тип экономики, при котором производство, потребление и обмен товарами и услугами полагается, главным образом, на рыночные механизмы спроса и предложения, но со значительной долей государственного вмешательства. 5) Рынок – это система экономических отношений между людьми, включающая процессы производства, распределения, обмена и потребления. 6) Спрос – это зависимость между ценой товара и его количеством, которое покупатели хотят и могут приобрести. 7) Предложение – это взаимосвязь между ценой товара и его количеством, которое продавцы хотят и могут продать. 8) В результате взаимодействия спроса и предложения устанавливается рыночная цена. 9) Регулирующая функция рынка – самая важная. Большую роль в рыночном регулировании играет соотношение спроса и предложения, а также конкуренция. 10) Внутриотраслевая конкуренция ведет к более эффективному производству. 11) Предпринимательство – это желание и способность предпринимателей реализовывать новаторские решения, связанные с производственной деятельностью и характеризующиеся риском. 12) Рыночная экономика характеризуется частной собственностью на ресурсы и использованием системы рынков и цен для управления экономической деятельностью. В такой системе каждый ее участник волен преследовать свои собственные интересы.