Demerits of Market Economy Market economy has been severely criticized by many economists on the following grounds. (i) Economic Instability: The main drawback of a market economic system is that it does not guarantee economic stability. In the lack of any external control, this economy is subject to the frequent ups and downs in the levels to production, income, employment, prices, trade, etc. As a result, prices, unemployment, etc. may increase and uncertainty may prevail in the economy. (ii) Economic Inequality: Another major defect of market economy is the increase in unequal distribution of income and wealth. The more efficient and cunning producers accumulate large amounts of wealth and property. As a result the gap between rich and poor people widens. Thus, great luxury co-exists with sordid poverty. Many more social, political and other tensions crop up from extreme economic inequalities. (iii) Class Struggle: Another defect of market economy is that it divides the entire society into two classes - the rich and the poor, or the owners (employers and employees) and workers, or haves and haves-not. These two classes always fight with each other because of the clash of their interests. There is always a struggle between those two distinct classes. (iv) Wasteful Competition: There is a wasteful competition in a market economy. A large sum of money is wasted on competitive advertising a product in a newspaper, on radio and T.V., in cinema, etc. From a consumer as well as social point of view, selling costs are sheer wastage because the resources of the society are wasted and consumers have to bear the burden of selling costs in the form of higher prices. (v) Failure of Market Mechanism: In an underdeveloped economy, market mechanism cannot guarantee rapid and sustained economic growth and removal of poverty and unemployment. Free market forces cannot guide private enterprises to invest in the spheres of national importance such as infrastructure, capital goods industry etc. Moreover, saving and investment which are essential for higher growth cannot be raised simply by free market forces of demand and supply. (vi) Monopoly Tendencies: A major defect of a market economy is that the monopoly tendencies are developed in the country. Gradually competition declines and the large firms try their level best to eliminate the rival firms through various means and emerge as big monopoly houses. Labourers are being exploited by the big industrialists and consumers are charged higher prices. (vii) Business Fluctuations: All major countries of market economic system of the world are suffering from the problem of business fluctuations. In the lack of any control, booms and depressions occur very frequently in these economies. The resources of the economy are not fully utilized. (viii) Exploitation of Workers: Another defect of a market economy is that the workers or labourers are exploited by the markets. Therefore, it causes a good deal of human misery and sufferings. The workers are paid less than their marginal productivity and are paid wages just sufficient for their bare survival. In this regard, Karl Marx has pointed out, Market Economy contains the seed of its own destruction.”
Posted on: Sun, 06 Jul 2014 06:56:57 +0000
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