Market and market economy

The concepts of “market” and “market economy” are not identical. As already mentioned, the market in one form or another has existed since then, since which commodity production operates. However, commodity production and the market do not always and necessarily lead to a market economy, although the latter implies a high level of market development. A market economy is a qualitative state, a type of functioning of an economic system based on the universality of market relations in all links and stages of social reproduction (production, distribution, exchange and consumption) and the regulatory functions of state structures. In a market economy, the movement of resources is predetermined by the state of effective demand, and money is the main connecting means of interaction between economic entities.

The effective functioning of a market economy involves a number of conditions.

1. The main of such conditions, arising from the very essence of the market, is economic freedom and independence of economic entities. Each entity has the right to independently choose the type of activity and decide which goods or services and in what quantity to produce, where and at what prices to sell them, taking into account market conditions. Thus, the prerequisites for the fullest realization by the economic entity of its capabilities and abilities are created.

2. A market economy can function effectively, based on various forms of ownership. The implementation of this condition allows, firstly, to identify the greatest efficiency of certain forms of ownership, and secondly, to exercise the right of the individual to choose a certain form of economic activity. In a market economy, all forms of ownership should have equal “citizenship rights”. In this regard, it is hardly possible to agree with those authors who, referring to the practice of extensive privatization in Western countries, are trying to prove the low efficiency of state ownership. This is a one-sided statement, because the history of their development is characterized not only by privatization, but also by periods of accelerated development of state property. It should be noted that the priority of a particular form of ownership is determined by the competitive principles of the market and the economic policy of the state, taking into account the specifics of the socio-economic tasks being solved. In a competitive environment, state-owned enterprises are forced to switch to entrepreneurial behavior.

3. A necessary condition for maintaining healthy competition as one of the fundamental properties of a market economy is the elimination of monopolism in the production and sale of goods. For example, according to the current rules in the United States, none of the largest firms is entitled to hold in its hands more than 31% of sales of their total volume, three – more than 54%, four – more than 64%. If this ratio is violated, the state either restricts the firm’s participation in the market or imposes economic sanctions. For its part, bona fide competition prevents the monopolization of production and sales. Practice shows that for the normal operation of a market economy, it is necessary that each market entity has at least 5-7 competitors, otherwise a situation of monopoly may arise.

4. The functioning of a market economy assumes that market prices are formed under the influence of fluctuations in supply and demand. In the absence of monopolization, the market price, as a rule, does not fall below the cost price and does not rise above the amount of cost and profit, which corresponds to the average standard of profitability. If the profitability of the production of this product is high enough, then competitors are actively beginning to produce this product. As a result, supply increases, demand decreases and the price decreases accordingly. Of course, such processes are possible only in the existing market economy. In the transition period to the market, “soars” of retail prices are inevitable, sometimes very significant.

5. Ensuring the primacy of the consumer. In a scarce economy, the power of the producer over the consumer is inevitable. In a market economy, with the commodity saturation of the market, the struggle for the consumer, the buyer, and production is guided by them, actually begins. To implement this task, a whole science has been developed – marketing, the essence of which is determined by the principle of “selling what, of course, finds sales, and not trying to impose products on the buyer.” Focusing on the consumer requires studying the real and potential needs of the market.

6. Stability of the financial and monetary system. The mechanism of functioning of a market economy should provide for economic methods to strengthen the national currency, overcome the state budget deficit, reduce unproductive expenditures, and create a flexible banking system that would ensure credit and money supply management.

7. Openness of the economy. This condition is realized by granting the right to enterprises and organizations to carry out foreign economic relations and operations in compliance with the established rules. Foreign entrepreneurs, in turn, have the right to act in the domestic national market as not only commodity producers and sellers, but also property owners.

Serious obstacles to the wider inclusion of our economy in the world market system are such factors as the weakness of the export base, the difficult state of the balance of payments, and the inconvertibility of the ruble.

8. A sufficiently complete coverage of the economy by market relations, the full functioning of the commodity, financial and labor markets. As for the Republic of Belarus, so far we can talk about a more or less developed commodity market. The formation of the labor market, and especially the financial one, is taking only the first steps.

9. Developed infrastructure, i.e. a complex of industries and economic services that provide general conditions for production and life of people. A distinction is made between industrial and social infrastructure. The first is all types of transport and the transport sector as a whole, power lines, energy systems, means of transmitting and processing information and other systems, without which normal production cannot be ensured. The second includes the branches of trade, health care, all types of passenger transport and communications engaged in servicing the population, urban communication facilities, public catering and other services.

10. Ensuring social protection of the population. In countries with developed market economies, social protection systems have generally developed and show their high efficiency. First of all, they provide for the implementation of such measures as the organization of rational employment, unemployment payments, a system of compensation and indexation of people’s incomes, maintaining the proper standard of living of low-income citizens, families with children, people with fixed incomes. Where the availability of a good is considered socially necessary, it is common practice to provide subventions to enterprises so that they can keep prices low. If the number of people in dire need is relatively small, charitable actions in the form of direct payments are applied.

11. State regulation of market economy. It includes the following main areas:

stabilization of production through tax and investment policy; financing of scientific and technological progress (policy of scientifically targeted programs); subsidization of socially significant industries (investment policy); equalization of levels of economic development of different regions (regional economic policy); state support for competition (demonopolization policy); stabilization and improvement of the monetary system (financial and anti-inflationary policy); overcoming excessive property differentiation of the population (income policy). the social protection system, which is the main means of mitigating the inevitable negative social consequences of the market organization of production. The existence of a system of social protection of the population and its scale serve as a criterion for the civilization of the market economy in a given country.

A market economy is a special type of economic system where the relationship between production and consumption provides effective demand, and profit is the leading motive of management.

In reality, there are many variants of a market economy that have common fundamental principles and differences from each other.