From Private Businesses to Government Control: The Different Economic Systems of the World

You’ve probably learned about different economic philosophies in history class, whether that be socialism, capitalism, or communism. These economic philosophies influence what economic system countries instill into their doctrine and how each nation runs their economy. Since different beliefs do exist, countries can differ from one another when it comes to economic systems. In fact, there are three types of economic systems mainly used throughout the world: market, command and mixed. All of these vary greatly, but each has their own pros and cons.  

Market Economy

Capitalism is an important sector of thought when it comes to market economies. Capitalist thought, originating with economic philosopher Adam Smith, focuses on the individual. Private businesses and individuals own and control the means of production and property under capitalism. The production of goods and services is based on supply and demand, and businesses are driven by the idea of profit. There is little to no government intervention and the economy is completely run by the people. A market economy is based on the concepts of capitalism and emphasizes free markets. Production, pricing, costs, and quantity of goods are all dependent on the relationship between consumers and businesses. As businesses have complete freedom and the government has very little say, market economies are essentially profit-making economies. 

Market economies, while created to be for the people, have pros and cons. To start off with the positive effects, market economies can stimulate innovation and entrepreneurship. Under market economies, anyone is free to start a business and sell goods or services and anyone can become a successful business owner and yield a high income. There is profit to be made in market economies, and the government cannot stop you. Additionally, since the production of goods and services is based on supply and demand, the wants and needs of both consumers and businesses, there is a better allocation of resources and products. If the government were to allocate a certain amount of resources, not taking into account what people want or what businesses can handle, resources would not be as efficiently used. 

However, not everyone can become a successful business owner in a market economy and not everyone has the means to own a business. As capitalism is rooted on the foundation of private property, there are a select few in capitalistic societies that can own businesses and enjoy high incomes. For example, some inherit private property that is passed down from generation to generation, something that is rare for most families. In other cases, individuals do not have the financial means to purchase property and start a business. Therefore, the majority of the population makes a living by selling their labor to businesses and make an average or below-average income. Why is that? As stated before, businesses in market economies are driven by profit. Paying wages to workers is a cost that capitalists have to pay. To decrease this cost, many producers pay lower wages to reduce labor costs and workers are exploited.

The freedom that people have in market economies to become wealthier and pursue different business ideas does not apply to most people because not everyone has the means or resources. Thus, market economies allow for a large gap between the wealthy and poor. Income gaps generally get larger as time passes, and the rich get richer while the poor are getting poorer. Also, since the government is not involved, there are not many economic reforms or social aid programs that exist to help lower-income individuals. 

Fig. 1. Increase in income based on household income brackets in the U.S.; Trisi, Danilo, et al. “A Guide to Statistics on Historical Trends in Income Inequality.” Center on Budget and Policy Priorities, 11 Dec. 2024, www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality.

Command Economy

On the other side of the spectrum are command economies. Associated with communism, command economies give governments complete control over the economy. Communism is a political economic ideology that emphasizes replacing privately-owned sectors with public ownership. A concept that was created by Karl Marx, he aimed to create a more equal and just society in which billionaires and homeless people did not coexist. He wanted a completely classless society in which everyone had the same means and resources. To achieve this, he believed that production and the flow of goods and services needed to be under public control through the state or government. Command economies practice this concept. Under command economies, the government controls all economic activity and production rather than private businesses through supply and demand. 

Like market economies, there are benefits and disadvantages to command economies. One of the biggest advantages is less inequality and more security. The basis behind command economies is ensuring that every single person has the stability and resources to lead a satisfying life. No one is supposed to have too much or too little in command systems. As the government dictates what is produced and how much of something is produced, the government also dictates where someone works and how much someone is paid. Governments in command economies are not concerned with making the most profit possible, so less workers are exploited and it is more common to see people being paid equal wages. As a result unemployment rates in command economies are usually lower than in market economies. In general, command economies prioritize the common good over profit-making incentives. 

However, command economies can limit people’s creativity and innovation. Unlike market economies, people are not free to pursue whatever they want in the name of entrepreneurship. The government controls all aspects of production and the laws of supply and demand are disregarded. They dictate what products are created and the quantity of it, so there is no competition or profit to be made through entrepreneurship and creating something new. Thus, command economies can become very inefficient, as stated earlier. When inventors do not have the incentive of profit, they are less motivated to create. Although it is possible for people to invent new products in the name of improving the world, if there is no income or revenue involved, it is not likely. Additionally, since the government generally has control over where someone works, many people do not have the ability to “chase their dreams” and work in their desired fields. This in itself dampens creativity and individuality. 

Moreover, although command economies are supposed to be for the greater good, it can turn ugly very quickly. As the government is given total economic control in these nations, command economies can pave the path for dictators to take control. In command economies, individual freedoms are limited and centralized power is much stronger. It becomes very easy for dictators to take control as people have little to no individual financial power and the government can control people’s livelihoods through this authority. 

Mixed Economies

Somewhere in the middle of market economies and command economies, you can find mixed economies. Mixed economies are a mix of capitalism, communism, and socialism. Taking ideas from all of the different economic philosophies, mixed economies involve private business as well as government intervention. Like market economies, private ownership and property is allowed, and individuals can venture into the world of entrepreneurship. However, like command economies, governments are involved in the economy and help regulate businesses. 

In normal mixed economies, prices of products and the quantity that is produced is controlled by supply and demand and businesses are driven by profit. However, the government can intervene if the economy is not in order. For example, governments in mixed economies can give subsidies, which is essentially a payment, to certain businesses or industries to help them produce more goods and services to meet the economic equilibrium of supply and demand. Additionally, to ensure that consumers or producers are protected, governments can enact price floors or ceilings. Price floors raise prices above market equilibrium price to help businesses earn more revenue, and price ceilings are placed below market equilibrium price to allow consumers to afford more goods. 

Fig. 2. Price ceiling and price floor imposed on market equilibrium; “Reading: Inefficiency of Price Floors and Price Ceilings | Macroeconomics.” Lumenlearning.com, Lumen Learning, 2025, courses.lumenlearning.com/suny-hccc-macroeconomics/chapter/reading-inefficiency-of-price-floors-and-price-ceilings/.

Economic policies aren’t the only thing governments have the ability to enact in mixed economies; they also can help lower-income citizens through social welfare programs. Something that is not present in pure market economies, social welfare systems that help with medical insurance, food security, and housing are common in mixed economies and are usually paid for by taxes. 

While government intervention is generally a positive thing in this case, there are some drawbacks. Similar to command economies, any government regulation of any type, whether that be regulations, subsidies, or price control, can make markets less efficient because there is less competition in some cases and resources are not allocated in the most effective manner. Furthermore, if mixed economies have a vast amount of social welfare programs, this can mean higher taxes for people. Taxes are needed to pay for these programs, and many individuals are split on whether or not they want a portion of their income to go to social welfare. 

What the World Looks Like Today

The economic system used most regularly in the world today is mixed. There are some countries that are considered command economies, such as North Korea, Cuba and Iran, but pure market economies or pure command economies are very hard to find. Most countries use some sort of combination of market and command. For example, the United States, the United Kingdom, Germany, France, Japan, China, and Russia are all mixed economies. However, there are some differentiations between them. Some economies that are mixed are more market-leaning, which means they prioritize private business over government intervention. There are others on the command end of the spectrum that utilize government intervention more than private financial sectors. The United States, most European countries, and Japan are market-leaning, while China and Russia are command-leaning. 

If you analyze the people, institutions, and governments of the world, you will find different beliefs in every place you look. Economics, an intricate field, is the same thing. It is filled with a thousand different ideologies and theories. While one country might believe a market approach is better fit for the economy, another might think command is better. Economics is not one-note and is different for every person and institution. 

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