Disadvantages of The Two Extreme Economies: Free Market and Command Economy

In an absolute Free Market economy, certain essential goods and services, e.g., defence, law and order, education and medical care are either not provided at all or inadequately provided by private enterprise because in most cases the profits and benefits to the company are insufficient and not worth their while. Furthermore, monopolies are a common occurrence. They dominate the industry, due to the lack of regulation, and drive small companies out, while preventing or discouraging new competitors from entering the market. The monopoly is therefore able to set prices at artificially high levels and can restrict output to raise prices. Consumers are thus exploited through high prices, poor quality goods and poor levels of service and supply. Nothing can be done about this due to the limitless, unregulated nature of a Free Market; any attempt at preventing this will often be in vane as the monopoly can be so powerful it can manipulate the government as well as the market. 

In a Free Market it is commonplace for wealthy consumers to demand and afford luxury goods. The disadvantage of this is that producers will allocate resources to theses items as the profit margin is greater, but they will neglect the production of more essential items required by the larger, less wealthy social demographic. It is also a given in a Free Market for private firms to ignore social costs. These are costs passed on to the consumer and thus borne by the community as a whole. The most shocking and glaring example of social costs in this context is the cost to the community that results in industrial pollution. Industrial waste products are disposed of in rivers and in the atmosphere, which can result in massive environmental pollution and in turn damage the health of local communities – thus increasing the charges of health services and waste disposal services. 

In a Free Market, underemployment of resources will exist in the industries which are declining due to a drop in demand since there will be a dramatic time lag before the resources can move into the new expanding industries. In the real world, many factors or production are both occupationally and geographically immobile. Localities with declining industries also experience massive increases in social costs in the form of rising delinquency, drug addiction, unemployment, poor health and poor housing.

Probably the worst aspect of a Free Market economy is the fact that it provides no mechanism to ensure all members of society have their basic needs satisfied when they can not afford to pay for them; e.g. food, shelter and health care.