Cambridge International as and a level Economics Ebook

partnership with the private sector.
Over the past 35 years, the strength of the public sector in 
the UK has been substantially reduced, not only through 
privatisation and deregulation but also through a policy 
of non-intervention when private companies experience 
fi nancial diffi
culties in their markets. Controversially, 
successive governments have made little or no attempt 
to stem the demise of car manufacturing in the UK as, 
one by one, former British-owned companies have been 
rationalised by their new owners from the rest of the EU, 
the USA and South East Asia.
Elsewhere, there have been similar trends. One of 
the most dramatic has been the restructuring of the 
economy of the former Soviet Union (
perestroika
as it is 
sometimes called). Under President Gorbachev’s reforms, 
small private businesses could be set up in the service 
sector (for example cafés, retail shops, garages and taxi 
hire) and workers could form their own cooperatives to 
market and sell surplus production from monolithic state 
manufacturing companies.
Th
e US economy is also an example of a mixed economy, 
somewhat contrary to common perception. For example:
■
the government at all levels is an important employer and 
provides basic services, such as education and various 
types of medical care
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Chapter 1: Basic economic ideas and resource allocation

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■
government agencies regulate and control the 
provision of some essential services, such as energy, 
telecommunications and transportation
■
indirect support is given to various strategically important 
companies.
Th
ese are over and above the expected provision of 
external defence and internal security services.
It is not easy to explain the importance of a 
government’s role in any particular mixed economy. In 
most cases the only real explanation is that it is usually a 
case of diff ering political philosophies. 
Figure 1.4
 provides 
a largely normative assessment of where particular 
economies fall in terms of the relative strengths of market 
and planned systems of resource allocation. In all cases, 
except arguably North Korea, countries are moving 
towards giving the market mechanism an ever-increasing 
role in their economic structures.
In more recent times, the experience of the newly 
industrialising countries (NICs) is interesting. In terms 
of allocative mechanisms, some, such as Singapore and 
Hong Kong, opted for a strong focus on the market to 
allocate resources and through this have created an 
economic situation where enterprise can be encouraged 
and rewarded. Other South East Asian ‘Tigers’ have 
placed more emphasis on central planning, while 
China’s phenomenal growth over the past decade has 
been based on the controlled management of the economy 
within a global context and more recent emphasis on 
freer markets.
Th
e new Baltic Tiger economies of Central Europe – 
Estonia, Latvia and Lithuania – have re-orientated their 
economies to foreign investors. In this way, they hope 
to achieve forecasted growth rates of around 5–7% 
per annum. Th
ese are very much in line with those 
experienced by their Asian Tiger counterparts, yet 
signifi cantly higher than those experienced in the past by 
more developed economies. However, global recession has 
had a signifi cant impact on these aspirations.
TOP TIP
Virtually all present-day economies are mixed – the role 
and importance of the market is, however, variable.