Collectivism is also known as communism. It refers to an economic system that creates a system that does not recognize the achievements or the efforts of an individual, but the collective gain by the whole society (Terence 2002). Some of the countries with this form of economy are Cuba and the People’s Republic of China.
South Korea has adopted the capitalistic economy, otherwise known as free market. In this form of economy, the government empowers investors to put up businesses as they find fit in the market. In this case, the laws of demand and supply control market entry. South Korea is a good example of countries that have adopted this form of economy. It has been termed as an economic tiger, and further as among the few developed countries, that will grow their economy further in the next ten years. It has encouraged innovation and manufacturing industries, which has seen the rise of global electronic and motor giants like Samsung and Hyundai respectively. With this kind if investment, the government is able to obtain taxes and other revenues, while the investors in these companies continue to sell their products and enjoying their profit (Terence 2002). Traders are liberal and control their businesses as the market changes.
Several issues determine the performance of an economy. For instance, a quick look at the figures in the table shows that South Korea is doing better economically than North Korea. The growth rate in Gross Domestic Product (GDP) is one of the factors that determine the economic performance. In the years 2010 and 2011, the two countries had different performances. North Korea’s growth rate shot from a negative growth, to a growth of 0.8% (Korea Economic Institute, 2008). The South Korean economy deteriorated from 6.3& to 3.6% within the same periods. Though that of North Korea was improving, it did not reach that of South Korea according to the data available. Another measure to determine the performance is GDP per capita, which refers to the average amount of money every citizen earns in a year. In 2010 and 2011, the figures were much higher in South Korea, standing at $30,800 and $31,700. Thirdly, unemployment is another measure for economic performance. North Koreas figure stood at 12.2 million (Korea Economic Institute, 2008), while that of South Korea stood at 25.18 million (Trading Economics, 2012). This shows that there is lower unemployment in South than in North Korea. With these figures, which have been taken for the same years, South Korean economy is arguably doing much better than that of the North. However, these are not the sole measures of the economic performance.
Collectivist economy has different drivers from free markets. In some cases, quality is not a big factor in the performance of a product in the collectivist market. However, this is not the case in a market economy, which is run by the law of demand and supply. Poor quality goods may survive in the collectivist economy because the government regulates and controls the entry of suppliers into the market. This could favor a poor product to prevail in a market at the expense of better products. Also, in this form of economy, there is little innovation due to lack of competition and urgency, leading to overstaying of old technologies in the market.
Innovations refer to the process where people develop new values with an aim to meet the needs of the customer, or diversifying on the existing needs (Namung 2004). They also improve the efficiency of a particular product in solving the needs of the customer. They are critical in a free market economy, such as the one used in South Korea. Their importance is prompted by the fact that the law of demand and supply mainly drives these markets. Further, there is no restriction of entry into the market; hence, there is high competition among the suppliers, while the buyers remain constant. With the high level of competition, suppliers ensure that they continually improve their products in order to ensure that they meet the demands of the buyer, while ensuring that their prices remain competitive. The improvement of the quality of a product, while ensuring that their prices remain low can only be achieved through innovation.
The two forms of economy have a similar trend, especially in the 1990s where they both hit their lowest points. They had a very unstable trend and neither of them could escape the Asian crisis. One main difference is that while the North Korean economy has remained in the negative side of the graph, while that of the South Korea is mainly on the positive side (Trading Economics, 2012). This shows more stability in South Korean economy as opposed in the North Korean market. The form of economy that a government uses leads to the trend of growth and development. However, other external factors would not depend on whether a government follows a communism or socialism form of economy. Such factors include the economic depression that faced most Asian countries in the late 1990s. Such depressions led to the trends as observed in both North and South Korea, which had declining growth rates. The positive rate, though changing, in South Korea suggests that the economic system in the country could be better than in the North.
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Planned economies are those that are planned and controlled from a central point (Terence 2002). A good example is that of North Korea. One of the advantages of this form of economy is that they totally focus on the needs and welfare of the citizens. Further, they ensure that there is no unhealthy competition which could overall harm the economy. They also ensure that there is no unrest in the different industries. In North Korea, for instance, there is a high number of people in the agricultural sector, thus ensuring that some industries do not suffer as many people rush to other industries (Korea Economic Institute, 2008). Finally, this form of economy is healthy ion ensuring that the quality of life of the citizens is well maintained.
The disadvantages of this method include lack of freedom of choice by customers, since there is little freedom, and controlled supply (Terence 2002). In addition, a small change in a sector may lead to damaging shortages because the system is very bureaucratic thus takes a lot of time to implement. Finally, this system kills the private sector, thus reducing employment opportunities through innovation.
Mixed economies are those that are incorporate both the private sector and the government in the provision of goods and services (Terence 2002). One of its advantages is that they can accommodate any form of business, either in capitalist or socialist nature. Secondly, this system ensures that there in equal distribution of income hence a stable economic growth, both in the per capita GDP or in the GDP growth rate. Further, this form of economy allows innovation and development of businesses by any citizen, thus allowing more creation of jobs and improvement of the welfare of the people within a country. Such an economy allowed South Korea to become an economic tiger, which was realized within a short period.
This form of economy has a few disadvantages as Terence (2002) explains. First, they reduce the use of resources, because resource mobilization is geared towards providing goods that are beneficial to a society, instead of goods that benefit the economy. Secondly, the private firms often face favoritism by the government officials, thus creating uneven business environments.