Advantages and disadvantages of the market. Market Economy in Russia

Most countries of the world are building a national economic model on market principles. Many states managed to develop a powerful, competitive economy. Others are in the transition to it. How does the free market function? What is the role of the state in its development?

What is a free market?

According to a common definition, a free market is a system of relationships based on self-regulatory processes between the actors producing goods and services and those who buy them. Its main elements are cost, demand, supply. The ratio of the last two components predetermines the parameters for the first.

The market forms the corresponding type of economy, which is usually opposed to the planned system of organization of the national economy. In it, in turn, such parameters as price, supply and demand, largely govern the state.

Pros and cons of a market economy

What are the advantages and disadvantages of the market, as well as the corresponding economic system? Experts consider the pluses:

- high efficiency in the aspect of distribution of public resources;

- adaptability of the economy to volatile external factors;

- the urgency of introducing scientific and technical developments;

- opportunities for self-employment, entrepreneurship;

- the response of the economy to the needs of society.

There are also disadvantages. The shortcomings of the market include:

- excessive consumption of natural resources in many cases;

- risks of a social nature (unemployment, crises);

- the speculative bias of many firms.

At the same time, with the adequate intervention of the state, these disadvantages are largely nullified. In many countries, the above points to the market shortages are rather nominal. A model in which power structures are involved in market processes is often referred to as a mixed economy. In practice, it is used in most modern states. Free market in its purest form in any country in the world today, analysts believe, is not present.

Market and state

Consider how the state can behave in a market economy. Intervention by the authorities can be carried out at two main levels. The first is institutional. Within the framework of it, the state conducts mainly a tax and monetary policy, which in many respects intersects with the international aspects (which is almost exclusively in the prerogative of the authorities). The second level is the involvement of the state in the sphere of economic activity. That is, when the authorities in some or other spheres "replace" the business. In which segments of the national economy does the state play the most significant role? Experts identify the following:

- Credit market and banking;

- international trade;

- education, health, public order.

In a market economy, the role of the state at the first level is mainly reduced to optimizing the distribution of capital. On the second - to stimulate the fulfillment by the subjects of economic activity of certain social functions, in some cases - the regulation of supply and demand. How does all this happen in practice? Consider the corresponding aspect.

The state as a regulator

At the institutional level, the exclusive prerogative of the state is taxes (and associated fees - duties, payments to social funds, etc.). Raising and lowering the corresponding rates, canceling them or introducing new ones, the authorities thereby regulate the distribution of capital between the private sphere and the budget.

Another sphere of the absolute competence of the state is monetary policy. Power structures, mainly in the person of the Central Bank and the relevant executive bodies, are responsible for issues of money issuance, establishment of key lending rates, issue bonds in the foreign market, etc. And this is also a mechanism for redistribution of national capital.

The state as a business structure

The second mechanism is the state's participation in economic activity as if it were a business unit. As well as private organizations, state enterprises (those in which the authorities own the majority share in shares or authorized capital) produce goods, provide services, pay taxes.

In a sense, state structures take advantage of the market, such as, for example, the ability to compete with other business units. The practical importance of this mechanism can be, as an option, in encouraging private enterprises to comply with social standards. A simple example is banking. It is known that the largest credit and financial institutions in Russia based on the structure of their capital are state-owned. Accordingly, the government, when applying certain standards in its business policy, involuntarily stimulates private banks to repeat them or offer competitive alternatives. How?

Social standards of the state

This may concern, for example, the level of pay. If state-owned banks raise salaries for employees, then private credit institutions will be forced to do the same. Similarly - the level of service. If people in the state bank are better served than in the private bank, he has no reason to apply on occasion to the second. As a result, the level of service will increase everywhere. Above we noted that the benefits of the market include building a mechanism for social protection of citizens. In the case of state intervention, this aspect can be traced most clearly.

Structure of market economy

What is the structure of a market economy? Mainly, it is determined on the basis of the essence of the leading activities of the subjects in it, as well as the features of the relationships between them. Let's consider both that, and another. The market economy in Russia and most other capitalist countries in the world is represented by the following set of subjects:

- individual entrepreneurs and private organizations;

- state-owned businesses;

- hired employees who, in fact, sell their labor as a service;

- banks;

- consumers (households).

In turn, each of the above types of subjects is classified into a large number of subtypes. For example, entrepreneurs and private organizations, as well as state-owned businesses, operate in different segments:

- industry;

- trade;

- services.

In turn, each of the segments is also subdivided into specific spheres.

What are the conditions under which the functions of a market economy can be fully implemented? Experts call the following.

Ownership factor

The Institute of Private Property is a criterion that many analysts recognize as key. Any product, trademark, brand (that is, what, in fact, generates capital) should be in the possession of the entrepreneur. Only in this case he can feel a full-fledged player of the private market. An additional criterion related to property is the availability of legislative mechanisms for its protection. This is important from the point of view of the sustainability of the economic system. In some countries that historically implemented the transition to a market economy, private property was present, but the mechanisms for protecting it were not very good, due to poor legislation. Actually, this is the next criterion.

Legal acts

The functions of a market economy can be fully realized only with adequate legislation. One of the aspects that reflect the significance of this criterion, we have outlined above - the protection of private property is necessary. Another, requiring precise legislative regulation, is a civil-law relationship.

Businesses conclude contracts - with other enterprises, with citizens, with international players. The quality of cooperation depends on how comfortable the content of the relevant agreements can be for entrepreneurs, based on legislation. Security is also a significant factor (a businessman should feel that the fulfillment of the terms of the contract by the other party is supported by legislative provisions).

Market infrastructure

The third component is the market infrastructure. This is a pretty capacious concept. Typically, experts include in it such mechanisms as, for example, the banking system, the lending institution, stock exchanges. That is, private enterprises should have equal access to infrastructure resources for the sale of goods and services.

All these three criteria are not a complete list. However, all of them at least proved their applicability in the historical aspect. Those countries that made the transition to a market economy, in particular those that were members of the former social bloc, organized the appropriate transit from one system to another, working in these three directions.

Market and competition

One of the key features of a free economy is competition. It is she, as many economists believe, predetermines many of the advantages of the market, which we identified at the very beginning of the article. If there is competition in any segment, then it is highly likely to predetermine fair prices for the corresponding goods and services, their quality, manufacturability, social orientation, etc. If it does not exist, then it is quite possible that entrepreneurs will establish monopolistic prices for Its products and services, which can also be of poor quality.

There is another interesting point of view regarding competition. It assumes that the low level of competitiveness in these or those segments is good. Why? The fact is that this gives businesses the opportunity to bring to the market completely new goods and services. It is not so much to occupy an empty niche, how much to stimulate the emergence of new, previously not existing. In highly competitive markets, in turn, businesses are mainly concerned with reducing costs, profitability, in order to withstand competition with opponents. And so the innovative aspect can be given not so high attention. At least because the enterprise may not have the means to implement some new operating time.

There is such a term as "perfect competition". What it is? What are the advantages and disadvantages of the perfect competition market ? Let us consider this aspect in more detail.

Perfect competition

Considering the advantages and disadvantages of the market, we touched upon this issue as a speculative focus in the activities of enterprises. What does it mean? The main thing is that firms are not striving to improve their business model, but to build mechanisms for increasing capitalization, and moreover, in the shortest possible time, at any cost. With perfect competition, this opportunity for entrepreneurs is practically reduced to zero. Why?

It is assumed that with perfect competition in the market simultaneously there is a very large number of players in one segment. That is, producing the same goods or providing the same services. As a rule, the profitability of each of the businesses operating in such an environment is not high. At the same time, it is quite easy for new entrepreneurs to enter such a market - it "warms up", there is demand. However, there are practically no opportunities for speculation. In order to extract more profit, it is necessary not so much to improve the model of managing financial flows, how much to work on improving the quality of goods and services, to improve interaction with suppliers and contractors in order to reduce costs.

Is there a limit to the excellence of competition?

Perfect competition is not only the indicated advantages. And there are shortcomings of the market functioning within the framework of such mechanisms. They mainly affect the social aspect. If in one or another segment of the economy there is perfect competition, then, first, it is highly likely to signal sufficient saturation of the market from the point of view of jobs. People who have recently acquired a profession in demand may experience difficulties in finding a job. This factor is closely correlated with another - the salary. With perfect competition, as a rule, it does not grow. Simply because companies do not have the opportunity to increase it - all free funds are channeled to improve the product or service.

Aspect of saturation

Thus, we have considered both advantages and disadvantages of the market of pure, or perfect, competition. At the same time, it should be noted that its alignment is a process rather natural than regulated. Sooner or later, any segment of the business is saturated with players. For example, in the early years, the market economy in Russia was characterized by a very low level of competition, high in many cases with prices and, as a result, high profitability of enterprises. Now in many segments the situation is different. Businesses became more, prices stabilized, profitability of organizations decreased. At the same time, in many cases the quality of goods and services also increased. In general, the world economy, world markets - if we talk about the states in which there are conditions for the functioning of a free economic model - I develop within the framework of similar patterns.