Economics studies the economic activities of human beings.Similarly political,social and administrative activities of mankind are studied by political science, sociology and public administration respectively.That is why these disciplines are called as humanities as all of them study human activities.Economic activities include profit,loss,livelihood,occupation, wage,employment etc.
The relation between economics and the economy is that of theory and practice.While economics is a discipline studying economic behaviour of human beings,an economy is the real picture of things which emerge after follow up of some theories dealt with in the economics.
Economy is economics at play in a certain region.Region is best defined today as a country, a nation- the Indian economy, the Russian economy etc.
Many countries selecting same tools and remedies to to fight the same problems might have similar or dis similar results during a given period. Why ?
Basically , economic theories are expectations of human behaviour about their economic activities and as human behaviour depends greatly on many factors the results are likely to vary. So is the case with other disciplines of humanities such as sociology ,psychology etc. It is not possible to study reality completely as reality is vast , unorganised and chaotic.
Economics is nothing but modifications in the past theories on the basis of contemporary results and experiences of economies.Economics has developed out of real life practices and it is from the practice to theory.
What is the focus of economics ?
If we take an overall picture , its essence has been very simple - the betterment of human life on earth.
Improving living conditions of the humanity at large is the ultimate goal of economics.
The three models of economic systems.which we see coming up are basically the different stages in the evolutionary process of our experiments which define a better way of organising an economy.
Capitalistic economy:
The decisions of what to produce, how much to produce and at what price to sell are taken by the market, by the private enterprises ,with the state having no economic role. USA and other parts of Europe during1800s followed this model.
State economy :
This form of economy came in reaction to the prevalent popular economic system of capitalism and proposed just the opposite.The decisions related to production, supply and prices were all suggested by the state only.USSR and China followed this model.
Mixed economy:
While John maynard keynes , the english economist at cambridge university was enquiring into the causes and cures of the great depression , he questioned the capitalist economic system being practiced through Euro America. He suggested the capitalistic order to assimilate the goals of socialistic economy. Governments started producing and supplying some basic goods and services known as pubic goods to guarantee minimum level of nutrition ,healthcare,sanitation,education, social security there by giving people more spare money to create demand for the goods and services which were part of the market. Capitalism redefined itself by including some useful traits of state economy thereby giving rise to mixed economy.
As Keynes has suggested the capitalist economy to move few steps towards socialistic economy,
Prof.Oscar Lange suggested the state economy to include some of the good things of the capitalist economy.
In 1985,China ,which is the ultimate example of a state economy started its preparation towards a market economy and announced its 'open door policy' ,the first experiment in 'market socialism'.
The world by the late 1980s was having neither a pure example of capitalistic economy nor a pure example of state economy. The long standing debate as to whether the market economy or the state economy was the better was solved for all time to come.
The economic system of india was a mixed economy in pre -1991 years as it is in post 1991 years but the composition of state market mix has gone for a change in the future.
There are three possible roles for the state in the economy:-
1) As a REGULATOR of the economic system.
2)As a producer and supplier of private goods and services( here state earns profit as a private enterprise)
3)As a producer and supplier of 'public goods' or the 'social goods'(drinking water,sanitation,health care etc)
On the issue of regulating the economy there is no debate.But the selection of other two functions of the state in an economy made the real difference.
The economic system which selected both the roles 2 and 3 for the state under monopoly we call them state economies.
The economic system which left both the roles 2 and 3 to the private sector we call them capitalistic economies.
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Mixed economies had at least kept one economic role fixed i.e 3( supplying public goods)
The responsibility of producing and distributing private goods could be well handled by the private sector as it is a profit fetching area.The state should not burden itself with this responsibility. But in the absence of private sector many countries in the world gave this responsibility also to the state.India is one among them.
But as the private sector became capable, in some countries this responsibility was given up by the state in favour of the private sector and better development has been possible.In this sense ,India delayed this process while in indonesia,malaysia, thailand and south korea the state did give up this responsibility allowing the entry of the private sector as a result of which more development took place.in those countries.
SECTORS OF AN ECONOMY:
The three sectors of an economy are primary sector, secondary sector and tertiary sector.
Primary sector : All those economic activities where there is direct use of natural resources as agriculture,forestry and fishing.
Secondary sector: This sector is called the manufacturing sector which uses the produce of the primary sector as its raw materials.
Tertiary sector: It includes services such as education,banking, insurance, transportation etc.
Depending upon the share of the particular sectors in the total production of an economy and the ratio of the dependent population on them for their livelihood , economies are given different names.
Agrarian economy:
If the share of primary sector is 50% or more in GDP of an economy.At the time of independence India was such an economy but now primary sector contributes to only 18% of gdp whereas 60% depend on the primary sector.Thus in monetary terms india is no more an agrarian economy but dependency ratio makes it so.
Industrial economy:
If the share of secondary sector is 50% or more in GDP of an economy, it is an industrial economy.
Western countries went for early industrialisation and became developed economies.
Service economy:
If the share of tertiary sector is 50% or more in GDP of an economy, it is a service economy.First lot of such economies in the world were the early industrialised economies.India emerged as being one of them when for the first time its tertiary sector contributed more than 50% to its total value of its output.But one paradox remained there i.e: maximum dependency for livelihood remained on primary sector.
India has been basically the first case which directly had either over 50% of its GDP coming from the primary sector or the tertiary sector - an agrarian economy shifting directly to the service economy. It means India jumped the stage of being a fully developed industrial economy.
Without the full expansion of its industrial capacity , directly emerging as a service economy has created tougher macro and micro challenges in front of the policy planners of the Indian economy.
Reference : Indian Economy by Ramesh Singh.
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