Free Market Economies:
Free market economies are those that operate with lower intervention and regulation by the government. These are usually seen to be capitalist economies as there will be minimal ownership of capital assets by the government and prices will solely be determined by supply and demand.
Each year heritage1 releases a ranking of economic freedom that considers a range of factors from rule of law, government size, regulatory efficiency and how open the markets are.
In 2022 there were only 7 countries that were considered ‘free’:
The United Kingdom ranked 24th with the USA ranking 25th, and the 2 worst rankings were North Korea and Venezuela. Anything within the lower tier is considered ‘repressed’. It is important to note that China was ranked 158th out of 177th despite being the second-largest economy.
In theory, in a perfect free market economy there is a greater motive for profit as prices are determined by businesses being competitive rather than there being government regulation in place, there is also lower taxes due to the reduced government spending. A country that has a lower tax burden will therefore be more favourable in a wider range of areas, from financial freedom to foreign investment.
Countries like China have capital controls in place to prevent such measures, they heavily reduce foreign investment into the country and prohibit direct ownership of assets in the country if you are foreign without a Chinese passport. They also operate many of their largest industries like banking and Oil. Of the 5 largest banks in the world, 4 of them are Chinese state-owned owned all with assets larger than JP Morgan, and collectively control over 20 trillion USD~ of assets. Showing the significance of the state in China.
A country like the USA or the UK imposes significantly fewer restrictions and regulations on both consumers and businesses than a command economy country like China. However, there will also be a range of regulations that protect the wide majority of citizens such as safety standards, pollution controls, whistleblowing laws, monopoly laws as well as the protection of intellectual property. In China, many monopolies are operated by the government, whereas the UK and USA would regulate with the aim of increasing investment and competition. Also, companies are protected for their efforts to innovate in their industry through patents, trademarks and copyrights that they believe should apply internationally. There has been controversy in the past where Chinese businesses have stolen intellectual property from US businesses without having to spend anything on R&D.
Free Market Economies are also more likely to cause wealth inequalities due to the range of human natures and the rates of different areas of work being determined by supply and demand. There is usually a correlation between risk and reward, someone who goes out of their way to start a business usually has a higher earning potential than someone working. But not everyone will choose a high-paying job, or even to start a business. This freedom to be able to take on risks is the main difference between a free market and a command economy.
China is aiming to implement its common prosperity plan where there will be significant taxes on business owners and high earning individuals
in order to provide a ‘common prosperity’ throughout the country.
