A Market Economy – What, How and Why

The recent hubbub about granting ‘market economy status’ for China has promulgated quite a debate. The concept of distinction between a market economy and a non-market economy was first embedded during the time when transition economies were considering their role on the global trade platform. It all started with the introduction of anti-dumping investigations and laws thereof; the distinction between a non-market and market economy status lies in the process of determination of prices. When the prices are determined by demand and supply in the market and not (thoroughly) by government intervention, the economy is a market economy. Normal value of goods is arrived by government intervention, in a non-market economy. There is a chance that prices may be distorted due to this intervention. However, this is just for the sake of definition. The really difficult part is to know that for an economy to transition to (into) a market economy from a non-market economy, there are several changes or transitions to be experienced and witnessed. Transition towards a MES requires a lesser political hand and a more social and economic hand. However, without a strong political development, neither social nor economic reform is possible in the long-run. Therefore, more than economic challenges, political challenges come to play during such transition. And then there are issues that accompany transition. Some notable consequences of transitioning to a market economy are new levels of inequality, regional imbalances, unemployment/employment, environmental issues like increased levels of pollution, rapid energy consumption, neo-political empowerment, and others alike.

The fear of ‘market failure’ is always imminent when there is a nouveaux transition. To counter market failure and the potential outcomes as stated above, both government intervention and market strategies may be followed. One of the main objectives of a transition is (ideally), not just making the economy independent, but also making it sustainable in the long-run. A combined, innovative approach that addresses several of these issues comprehensively, may be a plan.

The goal of a market economy is inclusiveness and equality, and therefore, self-sustenance. A better way to put it would perhaps be, a market economy is ‘where one gains without the other losing’. Nevertheless, one of the looming demerits of such an economy is that there is a chance that there are imbalances of wealth, opportunities and performance.