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markets. In their pure form, there are two extreme possibilities: the
command economy and the laissez-faire economy.

The command economy is controlled by a central government

that owns state enterprises, and sets production targets, prices, and
incomes. In recent years, command economies have not done well the
economies of the former USSR and Eastern Europe have collapsed
and undertaken a painful transition to a market economy with varying
degrees of success. While countries such as Poland have been recording
real growth since 1992, others, such as Albania and Romania, have not
enjoyed much foreign investment and remain in dire straits. China
has undertaken a series of reforms that have freed its markets dramat-
ically some cities in China, such as Shanghai, are capitalist boom
towns while retaining a large degree of government involvement.

The ``pure'' laissez-faire economy is where the government has no

participation at all. Individuals and companies buy, produce, and sell
as they wish, and the outcomes are a result of countless individual
decisions. Supporters of free market systems argue that they encourage
efficiency, because an inefficient producer will be driven out by better
competitors, and that the consumers have great power because busi-
nesses will respond to their demands. Prices will adjust themselves
automatically as supply and demand fluctuates.

Laissez-faire has problems too, however. It can be demonstrated that

inefficiencies can and do exist. Without government involvement there
can be many injustices, and it is a feature of laissez-faire that there are
recurrent episodes of unemployment and inflation.

Although most economists agree that some government intervention

is desirable, there is a perennial debate about how, and how far, it
should go (see Chapter 8).

WAYS OF CLASSIFYING ECONOMIES

There are nearly 200 sovereign states in the world, each with its own
economy. The International Monetary Fund (IMF), the United Nations
(UN), and the World Bank all have different ways of classifying the
world's economies, reflecting these organizations' own agendas.

The most widely used system in business is the IMF's, which classifies

nations into three groups: