THE FREE MARKET ECONOMY

PAST, PRESENT AND FUTURE

PREPARED FOR

ABU YOUSUF MD ABDULLAH, PHD

PROFESSORINSTITUTE OF BUSINESS ADMINISTRATION

UNIVERSITY OF DHAKA

INTRODUCING THE TEAM

Muhtasim SarowatRayedZR-61

H. M. Ifteker Mahmud

ZR-20

InamuzzamanIfan

ZR-37

AymanRahmanZR-29

GROUP 6

WHAT IS THE FREE MARKET ECONOMY?

A free market economy, which in its purest form is also known as a laissez-faire economy, is an economy in which all resources are owned by individuals. The decisions about the allocation of those resources are made by individuals without government intervention.

WHAT IS THE FREE MARKET ECONOMY?

THE PROFIT MOTIVE

MINIMALGOVERNMENT INTERVENTION

COMPETITION ADAPTABILITY

CHARACTERISTICS OF FREE MARKET ECONOMY

THE HISTORYBEHIND FREE MARKETS

12TH

CENTURY

Feudalism is the dominant economic system. Land and

property is owned by nobles, and the serfs work the lands in

exchange for a keep.

Mercantilism becomes important along with colonialism. Trade imbalances exists between nations, and their imperial rulers, so that one nation

prospers at the cost of others.

The first banks are founded in Europe. Muscovy Company, the first English joint stock

company, is founded in 1555.

A BRIEF TIMELINE

15TH

CENTURY

15TH – 16TH

CENTURY

18TH

CENTURY

Capitalism takes off with the ascendancy of political and

economic liberalism due to the American Revolution.

The Industrial Revolution spreads all over the world. For the first time, all levels of society are benefitted by

the new economic system.

A BRIEF TIMELINE

19TH

CENTURY

BENEFITSOF FREE MARKETS

GREATER INNOVATION DUE TO COMPETITION

GREATER ECONOMIC GROWTH

GREATER ECONOMIC FREEDOMS

Spurs companies to develop better products

at lower costs, offer consumers more choices

Economies of scale and free trade has boosted

production and increased employment

Eg, U.S. exports support over 12 million jobs in America.

Incentivizes stakeholders such as entrepreneurs,

investors and financiers to take an active part in business and help the

economy grow.

BENEFITS OF FREE MARKETS

PITFALLSOF FREE MARKETS

Market failures occur when there is an

inefficient allocation of resources in the

economy.

One reason this happens is because sometimes

individuals' sole pursuit of self-interest leads to

results that can be improved upon from a societal point of view.

P1

P2

Marginal Social Benefit

Marginal Private Benefit

Supply= Marginal Public Cost= Marginal Private Cost

Pri

ce

QuantityQ2 Q1

Welfare Loss

MARKET FAILURE

EXAMPLES OF MARKET FAILURE

HOUSING AND FINANCIAL ASSET BUBBLE

Due to information asymmetry, mortgage brokers misled home

buyers into bad mortgages.

Losses in housing values alone exceeded $8 trillion.

CLIMATECHANGE

The environmental costs of production are not accounted for by oil firms, leading the price of fuel to

be lower than it should be.

Climate change has so far accumulated $40 trillion worth of

environmental damage.

Not just the percentage of total income, but the actual incomes of the lower and middle income groups fall as the rich get richer.

INCOME INEQUALITY

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

Bottom 90% Top 10% Top 5% Top 1% Top 0.1%

U.S. Average Income, 2014

CAUSES OF INCREASING INCOME INEQUALITY

THE RICH CONTRIBUTE TO FOREIGN RATHER

THAN DOMESTIC GROWTH

THE RICH ARE LESS LIKELY TO SUPPORT

PROVISION OF PUBLIC GOODS

WAGE COMPETITIONLEADS TO REDUCED

INCOME

Endless consumerism, which is a product of the free market system, has contributed to huge excesses in production as

firms fight over every piece of market share.

CONSUMERISM

By 2020, the number of smartphone users is set to cross the 6.1 billion mark.By then, the vast majority of the existing users will have bought several new phones each.

These smartphones are manufactured in Chinese factories, many of which have been accused of using child labor in poor working conditions against

abysmal wages.

CONSUMERISM

WHAT LIES AHEAD IN THE FUTURE?

CAPITALISM WILL EAT

ITSELF

CAPITALISM WILL BE AROUND

FOREVER

REPLACED BY SOMETHING

BETTER

1 2 3

FUTURE OF FREE MARKET ECONOMY

A POST FREE-MARKET FUTURE

A number of theories have emerged about how capitalism might be replaced by a new economic system

PARTICIPATORY ECONOMY

1 3

A worker’s effort is to be determined by

their co-workers.

Consumption rights are then rewarded according

to the effort ratings.

The worker has the choice to decide what

they consume using their consumption rights.

2

In a Participatory Economy economic rewards would be offered according to need, the amount of which would be determined

democratically by the workers’ council.

PARTICIPATORY ECONOMY

SOCIALISM

An economic system based on public or cooperative ownership of the means of production where production is

carried out to directly produce use-value.

PLANNED SOCIALISM

Economic planning substitutes markets for allocating the

factors of production and for coordinating the economy.

MARKET SOCIALISM

Market Socialism mixes cooperative ownership of

inputs with market competition and efficiency.

SOCIALISM

ANARCHISM

A political philosophy that advocates self-governed societies based on voluntary institutions.

Anarchist schools of thought can differ fundamentally, supporting anything from extreme individualism to

complete collectivism.

ANARCHISM

ECONOMIC DEMOCRATISM

Opening up the decision-making process to a larger group of public stakeholders that includes workers,

customers, suppliers, neighbors and the broader public.

ECONOMIC DEMOCRATISM

DEMOCRATICSOCIALISM

Democratic socialism is a political ideology that advocates political democracy alongside social ownership of the means of production, with democratic management of enterprises

within a socialist economic system.

DEMOCRATIC SOCIALISM

BERNIESANDERS

Advocate of Democratic Socialism

Revolutionizing the mind of young voters

THE BERNIE FACTOR

DENMARK2nd lowest poverty rate in the world

Most free labor market in Europe

NORWAY1st place in the Human Development Index4th highest per capita income in the world

SWEDEN4th most competitive economy in the worldOne of the first liberalized energy markets

01 02 03 04 05

Free Markets have lead to

greater innovation and

economic growth

Pitfalls of free markets include market failures,

greater inequality and consumerism

Free Market System took

root in the 15th

Century and Flourished with

the Industrial Revolution

In the future, Capitalism may

continue indefinitely or be replaced

with something else

There are many theories as to what the new system might and should be

TAKEAWAYS

THANK YOU!