[Market Economy in Your Pocket] Understanding and Misunderstanding the Market Economy

A market economy is an economic system that respects each citizen’s property rights and guarantees freedom in economic activity. Freedom must be ensured in all economic activities, including starting a business, trading, and commerce. However, freedom is not license. If one has made a choice freely, then taking responsibility for the outcome is also part of a proper market economy.

Economic freedom leads entrepreneurs to discover new methods of production and management, and as a result, new jobs are created. Competition also pushes firms to provide inexpensive, high-quality products. As a result, each citizen’s productivity rises, and so does income. In other words, a market economy brings prosperity.

For a market economy to function well, government intervention in private economic activity must be minimized. Regulations should be reduced, and taxes that are not truly necessary should also be scaled back. Government intervention in the private sector should be limited to a minimal scope, such as protecting citizens’ property, maintaining law and order, and providing public goods such as roads and parks.

There are times when government intervention is needed to correct market failure, but even then, caution is required. For example, firms with high market share are often regulated as monopolies or oligopolies. But if a firm gained a high market share by providing consumers with inexpensive, high-quality products, that should be seen not as market failure but as the result of the market working successfully. That is how other firms, too, will be encouraged to strive to provide inexpensive, high-quality products. The best anti-monopoly policy is to allow anyone to establish a business freely.

The phrase “the poor get poorer and the rich get richer” should also be used with caution. There is no place like a market economy when it comes to providing opportunities to earn money for those who work hard. Before the 1960s, the vast majority of the people were so poor that their survival was under threat. What rescued us from poverty was the market economy and the economic growth it generated. There are poor people even in a market economy, but that does not mean the poor get poorer while the rich get richer.

A market economy does not solve every problem immediately. But there is no doubt that the market economy is a system more prosperous and fairer than any other system humanity has experienced.

Original title: [주머니 속의 시장경제] 시장경제의 이해와 오해

Author: Center for Free Enterprise (CFE)

Date: 2005-08-01

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=23&idx=10649