Economy n. the state of a country or region in terms of the production and consumption of goods and services and the supply of money
If you were asked your favourite political catchphrase, what would it be? There are so many to choose from. Politicians love distilling their messages into sound bites, clichés, for easily-digestible consumption. Many have been worthy of record in the annals of history.
If you’re British, patriotic and of a certain age, it might be that famous, stirring World War Two injunction to ‘Keep Calm and Carry On’. Or, more recently, Gordon Brown’s complacent, considering what was coming, economically, down the track (note ironic use of clichéd phrase there), ‘Britain will not return to the boom and bust of the past’. Or if you’re American, perhaps it could be ‘The buck stops here’ on Harry Truman’s paperweight. Or the slightly misquoted ‘It’s the Economy, Stupid’, attributed to Bill Clinton’s advisor James Carville during the presidential campaign of 1992. (It’s misquoted because originally there was no ‘it’s’.)
It’s certainly a measure of its central importance to politicians and political systems that The Economy so often looms large in the roll-call of famous political utterances. And it’s true that all political systems are defined by how they run their economies – and therefore how they order their societies. How many sorts of economic system are there? Well, the short answer is: many. Many because there are myriad permutations of the four basic ones: Traditional, Command, Market and Mixed. Although Mixed, by definition, is a mixture of all or any of the other three, so you might say there are only three basic ones really.
The oldest, the first one to develop in human society, is the traditional economic system. Many modern economies in less ‘developed’ countries of the world, particularly Africa, still operate largely in that way. They’re mainly concerned with locally produced goods and services, usually provided on a relatively small scale, that relate to a country’s customs and traditions. Hence the name. The participants will generally be small farmers, artisans or other individuals. There’ll be few or no big companies, thank you.
These economies are often hobbled by a lack of resources in their own country, or can’t access them from other, more resource-rich and powerful like the Gulf States because they themselves aren’t rich enough. So traditional economies generally can’t produce the same output or wealth-generating surpluses that more developed economies can. It’s a very unjust situation.
But on the other hand, the smaller scale and lower output of traditional economies is sometimes more sustainable, less wasteful and – provided it doesn’t pollute – less environmentally degrading than systems that operate on a bigger scale. And idealistic environmentalists and some radically left thinkers think that, apart from those aspects of a country’s infrastructure that are best organised large-scale (like road or rail networks) small is better. The radical economist EF Schumacher, famous for his influential 1973 book Small is Beautiful certainly thought so.
By complete contrast, in a command economy, all (as in totalitarian communism) or at least a large part of economic activity is centralised and controlled completely from above, usually by the government. Many countries (although not all; oil-rich North America is a notable exception) that have huge amounts of natural resources tend to have command economies to regulate the exploitation of their bounteous asset. Economic production is planned and controlled, ideally for the greater good, rather than left to The Market to decide things.
In the perfect world dreamed of by the radical political left, this would be the best and fairest set up – if the government was liberal and benign – with little opportunity for individual selfishness and greed. In reality, as most communist experiments have found, it doesn’t quite work out that way. Huge wealth isn’t necessarily generated, what there is, isn’t shared around fairly, there’s less flexibility and adaptability to change and freedom suffers. Speaking in capitalistic terms at least, the only successful fully command economy has been China, but it comes a long way down the league table of ‘good’, free societies.
And then there’s the market economy, best exemplified by countries like America. These systems allow no government involvement in the economy; they rely solely on the law of supply and demand. But having presented the United States as a prime exemplar of laissez- faire, even that country has laws to prevent monopolies and ensure reasonably fair trading. An example of that is John D Rockefeller who, although he became fabulously rich, wasn’t allowed to completely monopolise the American oil industry.
Theoretically – and often in practice – market economies produce (at least in good times) high growth and prosperity. But they aren’t very good at sharing it equitably either. The ‘trickle down’ process, whereby if the ‘wealth creators’ at the top of the pile are handsomely rewarded some of the wealth will find its way to those below doesn’t always work. That’s certainly been the case over the last decade since the 2008 financial crash; a few people have continued to become even richer whilst the majority have seen their incomes stagnate.
Market economies ensure separation of economy and overbearing government control. But they also enable individuals, firms and corporations to become extremely rich and also extremely powerful, as in the bad old days of unbridled Victorian capitalism. You’ve only got to look at the major corporations in America (particularly) and other developed countries where the weighting on the capitalist/socialist scale is heavily towards the former to see this. Big Business funds and helps elect, by donation, right-wing governments sympathetic to the creed of the knowing-best Market.
The National Rifle Association in America both donates to and lobbies the Republican Party, influencing policy on and minimising gun control with no regard for the social aspect. And although it vigorously denies it, the immensely wealthy Facebook has enormous power to influence public discourse and elections. A British information technology firm is accused of supplying the personal data of thousands of people to the Trump election campaign, and at the time of writing this, Facebook is being called to answer for itself to the British government
But in practice, most developed economies are in the Mixed category, in varying degrees. They would certainly describe themselves as such. Theoretically, they combine the best of both worlds: the high wealth creation of the market economy and the social equity of the command model. Think of a country represented as a sort of out-of-focus pie chart, with its proportions of the three basic types of economy being colours – say green for Traditional, red for Command and Blue for market. The colours merge into each other. A less-developed country will have mostly green with small amounts of the red and/or blue, but a much more developed one would have little or no green and probably, in the case of countries like America or Singapore, mostly blue.
And then there’s the factor of taxation. The more socialistically-inclined Nordic countries have higher tax takes to fund higher levels of socially-provided services such as healthcare or welfare; a more inherently right wing, big state-hating country will have lower taxation and encourage self-reliance.
Here’s another graphic to illustrate: a horizontal band, a spectrum of blue and red and mixtures of the two, with blue at the extreme Market end and red at the extreme Command, with various gradating hues of violet and purple in between. Whereabouts on that spectrum do you think your country would lie? Speaking as a Brit (although, in defiance of Brexit, I’d rather identify as European), with the current government running things, I’d place mine as slightly to the blue side of the centre point.
Whether or not you think your country has its economic priorities right – whether you believe in striving for as equitable a society as possible or Greatness of (supply country name), whatever that means – is of course a matter of personal perception and opinion. With the tyranny of the, nowadays, often-populist majority, we tend to get the politicians and economic systems we deserve.
To quote another popular British cliché about economic matters: when people demand higher public services but go rather quiet when the subject of paying for them is put, political journalists trot out the line, ‘We expect Scandinavian levels of public service with American levels of taxation [to fund them]’.
To come off the fence of objectivity and (another cliché alert) nail my colours to the mast: they have a point, I think.