Economics Principles & Practices

Chapter 18: Comparative Economic Systems

Chapter Overviews

Chapter 18 deals with comparative economic systems and the transition to capitalism, which is one of the remarkable phenomena of this century.

Section 1 examines the spectrum of economic systems, which range from communism to socialism to capitalism. The features that distinguish the three are the ownership of resources, the allocation of resources, and the role of government. The systems range from those with almost total government control to those with almost no government regulation.

Section 2 explores the rise and fall of communism, which is a both a political and an economic framework. In the early years, the Soviet Union made great strides with forced labor and collective ownership of resources under the direction of the Gosplan, the central planning agency. As the economy matured, however, problems with central planning emerged. President Gorbachev tried a policy of perestroika, or restructuring, by introducing some reforms, but the economy collapsed in the early 1990s.

Section 3 discusses the challenges the former communist systems face as they try to move toward capitalism. These challenges include the privatization of capital resources, the shift of political power from the Communist Party to elected officials, and learning to live with the new incentives of a capitalist economy. Other countries throughout the world have also been moving toward capitalism, but the transition is seldom smooth and not all countries are expected to make it.

Section 4 examines the many shades of capitalism that exist, in countries such as Japan, the "Asian Tigers"—Singapore, Taiwan, Hong Kong, and South Korea—and even Sweden. Rapid economic growth in Asia was interrupted by a financial crisis that began in 1997, but most economies were recovering by late 1999. The recession showed that many nations, especially Japan, needed further restructuring of their economies, including the introduction of more transparency—in order for growth to resume. Likewise, Korea needs to weaken the ties between the chaebol and the ruling political parties. Capitalism has many faces and, since World War II, many nations have moved toward capitalism with varying degrees of success.