THE Market economy it is an economic system created within the development of capitalism and its basic premise is the centrality of the market in the economy, through the reduction of the roles played by the State. It is, therefore, an affiliation of the ideals advocated by the economic liberalism, who preaches the call minimum state.
One of the bases for consolidating the market economy it is the predominance of private property, that is, the existence of the smallest possible number of state-owned companies. Thus, if the State has a large number of companies, it must sell them or transfer them to the private sector, in a process known as privatization. In Brazil, privatizations took place throughout the 1990s, during the governments of Fernando Collor, Itamar Franco and Fernando Henrique Cardoso.
In order to regulate the economy, according to Market Economy guidelines, there is no need for State intervention, as the market is self-regulating. Such regulation takes place based on the principles of free competition and of the law of supply and demand.
THE free competition is the idea that, when there are several companies on the market in the same sector, producing or selling the same product, prices should be the same possible, as competition prevents each dealer from setting the value of his goods at a level that customers refuse to purchase.
already the law of supply and demand, despite the name, is not a law, that is, it is not provided for in the legislation. It is a kind of “informal rule” that is at the base of the market's support. She advocates the idea that a product in large quantities on the market and with low demand tends to lower its prices. On the other hand, when there is high demand and low availability, prices tend to increase. Summarizing:
OFFER greater than DEMAND = REDUCTION IN PRICES
OFFER less than DEMAND = RISE IN PRICES
However, this basic structuring of the Market Economy presents some structural problems, which gives strength to its opponents and strengthens its criticisms. The first major flaw lies in the fragility of the premises of free competition and the law of supply and demand. In many cases, companies in the same sector or product organize themselves into cartels, which, in practice, lead to the standardization of prices in order to avoid major losses during competition. Despite being considered irregular, this practice is quite common throughout the world. Sometimes, there is no organized cartel, but an average price regulation, which varies by very few cents from one company to another.
A second problem concerns other existing strategies to circumvent free competition, which have become very recurrent since the emergence and consolidation of Financial Capitalism (which also came to be called Monopolistic Capitalism), which led to the emergence of large companies, many of them multinationals.
When a company of smaller size or power starts to gain market share in a certain area or region, multinationals (as well as large local companies) invest shares in these smaller companies or buy them in full, assuming the monopoly or oligopoly of the economy, both locally and internationally. regional. In other cases, companies in the same segment come together to avoid the losses of fierce competition, in a practice known as trusts. An example of this is the merger between the beverage brands Skol, Brahma and Antárctica, which together currently make up AMBEV. Although there are price differences between brands, you don't notice (except in occasional promotions) big distinctions between their respective prices.
Thus, according to the main criticisms directed at Market Economy, it becomes practically impossible to compete with large multinational companies in certain sectors. Often, these companies take advantage of their economic greatness to price their products below the cost of their production in a given region just to control the market and destroy their competitors. Once that goal is accomplished, they go back to elevating values. In other cases, big brands use their political powers to influence state decisions that benefit them.
Finally, a third problem of the Market Economy is the excesses committed by companies against their workers. In order not to be left behind in the dispute for a market, some companies seek to reduce their costs as much as possible, including those for labor. In this way, it becomes common to pay very low wages, in addition to the maximum exploitation of workers who, often, they have multiple functions and end up doing the function that, in theory, should be performed by several people.
Despite all the criticisms and challenges, Market Economy is predominant in the contemporary global economy. The State, in this case, starts to control the economy as little as possible, operating only to contain the excesses of the market and to guarantee the non-occurrence of crises that affect the dynamics economic.
By Rodolfo Alves Pena
Graduated in Geography
Source: Brazil School - https://brasilescola.uol.com.br/geografia/economia-mercado.htm