Tensionbetween Private Interests and Public/Social Issues (Neoclassical,Mixed Economy, Radical)
Tensionbetween Private Interest and Public/Social Issues (Neoclassical,Mixed Economy, Radical)
Today,most countries define their market economies through neoclassicaleconomics. This makes neoclassical economic theory the world’sleading economic theory. Adam Smith, an economist, proposed thetheory. He used two concepts to explain the theory marginalism andperceived value (utility). The theory states that the price of aproduct consists of the material cost plus labor cost. It emphasizeson capital, technology, and availability of labor, which are the mainfactors that influence economy growth (Ferguson,2008).Further, the theory states that at temporary equilibrium level,capital, technology, and labor are appropriately adjusted. Atlong-term equilibrium, the three factors are not involved.
Mixedeconomy, also known as a dual economy, is an economic system wherebyboth public and private enterprises coexist. It features thecharacteristics of socialism and capitalism (Powell,2007).It allows private sectors to enjoy economic freedom, but normally thegovernment interferes with their economic activities to achievesocial aims. Both sectors work alongside each other though theycompete for the same limited resources. The government monitorsresources and redistribute wealth. It imposes taxes in the privatesector and uses that fund to promote social objectives. Unlikesocialism where prices are fixed through central planning orcapitalism where prices are set by demand and supply forces, in amixed economy system, the price may fluctuate and fix other prices.
Radicaltheory, on the other hand, states that if economic systems make asurplus profit, it means that it is an exploitative economy. This isbecause it does not give its employees an opportunity to upliftthemselves from poverty. According to Stretton(2000), this kind of economy cannot last forever, and it is likely tobring social disintegration and economic collapse. It is complex toapply radical theory in the modern economic systems because it doesnot consider physical labor as a crucial element in the productionprocess. This paper analyzes the tension between the privateinterests and public/social issue in the context of the threeparadigms: neoclassical theory, mixed economy theory, and radicaltheory.
Neoclassicaleconomics focuses on income distribution, outputs, and prices in themarket that are determined through demand and supply of the products.One of its prime objectives is to offer efficient allocation ofscarce resources. The theory put emphasis on equilibrium level. Itassumes either private or public sector maximizes it profit/ utility. The government comes between the public and private sectors toaccumulate capital by encouraging foreign direct investment andremoving trade barriers. This enables capital to flow from low tohigh productivity areas. Although the theory creates an economy thatis receptive to capitalism, it does not benefit the whole population(List,2004).
Further,neoclassical economic theory is composed of several assumptions(List,2004).For instance, it assumes every individual has a rational way ofthinking, but this assumption is dubious. All human beings arevulnerable and irrational. Further, the theory assumes that humanbeings use their initial preferences to maximize a situation. Takinginto account that human being are irrational, the question is, how dohuman beings tell their situation will be maximized by theirpreferences?
Mixedeconomy creates conflicts between public and private sectors. Bockman(2011) believes that there is a conflict of interests in sectorswhereby private sectors and government co-exist. Unfortunately, thisis harmful to the economy. In this kind of system, the government hascontrol over the economy whereby it controls most of the basiceconomic activities in the public sectors, and at the same time,controls to a certain percentage the private sector. If thegovernment has total control in the economy, it is complex to have adiversity of products (Powell, 2007). Further, the economy tends tolean less toward individual and private freedom while it leans moretowards public/government control. The government regulationrequirement may be so high forcing some individual out of business.Correspondingly, this may paralyze production features hence, causean economic balance to shift. Also, mixed economy encourages evils ofprivate ownership. Under the mixed economy, private sectors face manyproblems as a result of government loopholes like bureaucratic natureand favoritism that are prevalent in the economy. Ikeda (2002) urgesthat large firm have the ability to influence the government to theirown advantage. Corresponding, the government may compose policiesthat favor them and promote their private interest hence, ignore theinterest of small firms.
Besides,a mixed economy has no definite shape. Normally, some governmentstend to keep most of the economic units under their control whileanother government tends to keep few economic activities under theircontrol. In the long run, there is no balance amongst differentgovernments. The government is the only one that has the mandate todecide the tax amount on particular products. Sometimes, the tax isvery high, and people may be unwilling to pay them. In fact, thistheory faces many criticisms. Socialists also criticize mixedeconomies and urge that it allows market forces, which leads toinefficient and inequality allocation of resources. In addition, freemarket economists also criticize mixed economies and urge that thegovernment has too much intervention. Libertarians, on the otherhand, criticize government as a poor manager in any economy (Ikeda,2004). This is because most people in government sectors arepoliticians who are influenced by political factors.
Amixed economy can lead to market failure. According to studies,whenever resources are not efficiently allocated, there is a marketfailure (Powell, 2007). Monopolies are another cause of marketfailure. Mixed economy creates a conflict of interest between privateand public sectors. This interest is purely self-interested andegoistic interest. Mainly, the conflict is between purely privateinterest and the general interest of profit maximization. This makesmanagers act against the organizational interest when privatebenefits are to their advantage. Similarly, employees also actagainst the organizational interest for their own personal benefits.
Onthe other hand, a radical economic theory does explain how to controlthe process of economic growth. In addition, it does not explain howto redistribute the benefits from a particular process in order toreduce social inequalities. Therefore, the theory makes it difficultfor private and public sector to understand their role, as well astheir responsibilities in wealth creation that is beneficial to themajority. Stretton (2000) urge that even though the mixed economicsystem and neoclassical system divide societies, a radical theorydoes not have a solution to this problem. Furthermore, a radicaltheory cannot be sustained forever due to globalization.Historically, radical theory slows down economic growth and leads toresource conflicts.
Aradical economy is less efficient in a private sector. Basically, ina radical economy plan, the means of production is under privateownership. This makes the market to be a dominant economiccoordination. As a result, the capital accumulation andprofit-seeking enterprises remain an elemental driving force thatdrags the economic activity. In addition, the government has a greatinfluence over the economy through monetary and fiscal policies.Therefore, it caters for the economy downturns, financial crises, andunemployment issues, as well as plays a role in social interventions.It also expects both the public and the private sector to function ina well and coordinated manner. The government also provides servicesand also makes laws and regulations.
Insummary, all the three systems (neocolonialism, mixed economy, andradical) have their own strength and weakness. Therefore, thegovernment should implement strategies that facilitate economicgrowth and at the same time, do not encourage disharmony betweenprivate and public sectors. Based on the studies of principle andperformance of a mixed economy, it is the most preferable both insocialism and capitalism. This is because it maximizes efficiencythat is flexible, practicable, and acceptable to both public andprivate sectors. It is not only an ideal theory but a practicalreality of the economic system. No matter the kind of economy, to acertain degree, government intervention is necessary. Ferguson(2008), urge that government protect private property and minimizeexploitation of monopoly power. Today, most industrial countries usemixed economy. For example, in western European countries, and otherdeveloped countries such as China, the government plays a major rolein the economy.
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Ferguson,C. E. (2008). The neoclassical theory of production anddistribution.CambridgeBooks.
Ikeda,S. (2002). Dynamicsof the mixed economy: Toward a theory of interventionism.Routledge.
List,J. A. (2004). Neoclassical theory versus prospect theory: Evidencefrom the marketplace. Econometrica, 72(2),615-625.
Powell,M. A. (2007). Understandingthe mixed economy of welfare.Bristol [u.a.: Policy Press.
Stretton,H. (2000). Economics:A new introduction.London [u.a.: Pluto Press.