According to Friedman & Friedman (2002) view a socialist society is not necessarily a democratic and therefore it sometimes tends not to guarantee individual freedom. Likewise, a capitalist economy is also not democratic but it has some perquisites for democracy. Economic freedom therefore means freedom of exchange which is common in a free-market system like the one present in the U.S. Capitalist countries such as the U.S operate in a free-market economy. This is where the market is practically controlled by the supply and demand forces. The government in this case plays a neutral role, it neither limit nor promote the market operations. The non-market systems on the other hand comprises of a regulated market. A good example of non-market system was the Soviet Union market. Here the government regulates the supply and prices of commodities in the economy. This economic system therefore has both political and economic freedom, which means that there is absence of man’s coercion on his fellow men. Here the market is left to regulate supply and demand of goods and services. A free-market system separates political and economic power and in most cases the market power is left to dominate the economy.
But with a non-market economy, there is no any clear distinction between economic and political power. A good example of such economy was the one exercised by the communist Soviet Union. Here, the state which possesses political power also holds the economic power of production of goods and services in the economy. According to Friedman’s argument, a collectivist economic like the one used by the Soviet Union tend to interfere with individual freedom. This is because the political leaders mainly decide on what is to be produced and how much will it be sold, instead of satisfying consumer needs and preferences (Sowell, 2010).
This is however not the case in a capitalist economy, where firms produces to meet customer’s needs. Individual freedom is also guaranteed in a free-market economy since he or she gets to choose what he or she want out of the many varieties in the market. Since with economic freedom, many firms get to join the market and thus trigger competition. Prices of the commodities also falls as firms seek to compete and this favors the low income earners who have a lower purchasing power. With a free-market economy the rich and high income earners also gets to enjoy classy and expensive goods and services as the producers customize them to suit the needs of every stakeholder in the economy. Such market encourages specialization and division of labor which in turn improves quality of goods and services in the market.
It is true that the price of good and services significantly helps in determining the consumer demands. It is therefore a signal sent to the producers who consequently invests to satisfy the market needs. In a free market economy, the pricing systems are mainly established by the vast transactions in the market, whereas the political decrees control the economy in the non-market system. Free market system encourages privatization of the production units since it is the only way efficiency in production can be guaranteed. In the non-market system, the state is the main producer and supplier of basic necessities in the market. We therefore have state owned production units which is responsible for producing what the consumers need. A monopolistic market is therefore created where only one firm gets to produce and supply a certain commodity in the market. Various analyses to support and against the two market systems have continued to be observed. But it is important for us to understand that the two market system describes the ways of allocating goods within the economy.
The purchasing power and supply and demand forces however determine who produces what and who gets what in the free-market economy. And on the non-market system the state dictates who gets what and who produces what. A free-market economy advocates for a free entry and a free exit of the good and service providers, a move which encourages competition. A competitive market on the other hand enhances efficiency in production which is advantageous to the consumers. And in order to effectively compete amongst a limited number of consumers, firms tend to lower the prices of goods and services.
There is a great challenge in the coordination the economic activities more so where large number of people is involved. This is because wastage of time and resources tend to increase in the state owned enterprises which consequently lower production in the economy. The voluntary cooperation of individuals in non-market economic system tends to be hard since the benefits are usually less compared with those in capitalistic economy. In a free-market economy producers get to produce a wide variety of goods and services since the economy is geared to meet customer’s needs which keep on growing. The market therefore gives the consumer a variety to choose from when making their purchases. Likewise, the competitive nature of the market makes it possible for the producers to respond quickly to the people’s demands. Firms and industries are also able to invest more on research and development programs which leads to better and efficient means of production. All these benefits are only available in the free-market economy as it encourages entrance of many players in the economy. It is however not the case when it comes to the non-market system since the state assumes all the production responsibilities (Thomas, 2010).
A competitive capitalism is believed to bring out proper coordination of individuals without coercion. The selling of both goods and labor in a capitalistic economy is therefore unforced since employees are well protected and employers operate with specified set standards. This is unlike the voluntary model described in non-market economic system where political channels tend to use force to ensure conformity (Barnett, 2005). Due to this a capitalist economy is said to be more accommodative in meeting social needs, unlike the socialist economy which is rigid and not adaptive to changes. Government should not participate in forcing individuals to do what they would otherwise not do, but instead, they should prevent both political and economic coercions in the market. The government should establish good monetary policies which encourages economic growth, but should not limit the investors who wish to become players in the economy. By granting such freedom, more production firms and business enterprises will be put up to bring essential services closer to the people.
Although the two systems are aimed at ensuring overall economic growth of a country, capitalistic economy tend to have a higher growth compared to the non-market economy. This is because, efficiency in production is very vital to the economic output. Specialization and division of labor which is commonly present in an open market economy tends to increase efficiency in production. Free trade in the U.S also encourages specialization, as investors mainly tend to produce goods and services which they have a comparative advantage on. Free market system also improves efficiency in resource allocation which leads to higher productivity and total domestic output. The lengthy bureaucratic procedures in the state owned production firms on the other hand lower their productivity. And this was the reason for the collapse of communist economy in Russia (Nell, 2010).