Economic Systems

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Economic System is a way, through which the state allocates its resources and divides the goods and services within a society. There are three main types of economic systems: planned (command), market and mixed. In a planned economy, everything is decided by the state based on what they feel is best for the entire society. The state has control over everything and individuals do not have the power to set up their own businesses. Whereas in a market economy, it is all decided by the concept of demand and supply. The state has little interference in the economy and private businesses are strongly encouraged. Competition is high and jobs are valued meaning that a doctor’s salary is not the same to a garbage cleaner’s salary.

Germany is one such country that has had many changes within its economic system over the years. After World War II, Germany was divided into 4 parts. Each one controlled by France, UK, US and the Soviet Union. The France, UK and US section combined together to form Federal Republic of Germany (West Germany) while the Soviet Union part became known as German Democratic Republic (East Germany). The two countries were separated by the Berlin Wall, which was constructed in 1961. While this wall physically divided Berlin, it implied a divide between the socialist world and capitalist world.

The centrally planned economy of German Democratic Republic followed the same system with that of USSR. The state decided upon the production targets, allocation of resources and even the prices of goods. This system was initially successful but it started to fall behind compared to West Germany due to East Germany’s lack of technological advancement and private enterprise. In 1976, the average annual growth of the GDP was approximately five percent. This was the richest economy among all the socialist states in the world at that time. The Socialist Unity Party’s main intentions for GDR were to transform it into an entirely communist state. This meant...
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