Legal Forms of Business

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Types of Managed Economies

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There are three main ways of managing economies. An economy may be planned, unplanned, or a combination of the two. These types of management have shaped governments and the lives of people in countless ways. Much of 20th-century history can be viewed as a competition between those who believed in planned and unplanned economies.

In a planned economy, a government decides which goods are to be created and sold. The rulers of that government set priorities for all producers of wealth, and laborers must follow those rules. China has a planned economy, and the Soviet Union had one when it was a nation.

In an unplanned economy, the government does not determine the goods that are to be created or how they will be sold. This does not mean, however, that the government is not involved in the economy. It may make laws to protect the safety of workers, to stop the sale of harmful products, or to limit the amount of pollution from a particular industry. However, the government overseeing an unplanned economy does not generally tell people what they should produce, buy, or sell. The United States is one country with an unplanned economy.

Unplanned economies may sound like they cannot be managed, but this is not so. They are managed, just not by governments. Control over the economy rests with the marketplace. This term refers to the entire arena of economic activity, where goods are created, bought, and sold. The United States and many other countries believe that the marketplace can regulate itself. This type of economy is called a free-market economy, or capitalism.

A combination of planned and unplanned economies can be found in places such as Japan. In these partially planned economies, governments encourage certain industries to create goods, and they assist certain industries with money acquired through taxes.

Businesses – Organization and Size

Business decisions and policies influence the nature, structure, and goals of society. This makes the motives and actions of business firms the subject of ceaseless scrutiny and debate.

How are business firms organized? Why are some of them large and some small? Before we go on to answer these questions, a definition of a business firm will be helpful:

A firm is a business organization that brings together and coordinates the factors of production – capital, land, labor, and entrepreneurship for the purpose-supplying goods or services.

Business firms may be classified in various ways. One way is to group them according to their products. Firms that turn out similar or identical products are said to be in the same industry. Thus, General Motors and Ford Motor Company are in the automobile industry. But General Motors also produces trucks, buses, and diesel locomotives, among other things. Therefore, it would be correct to say that General Motors is also in the truck industry, the bus industry, and the diesel locomotive industry. Indeed, most large companies make more than one product.

Another method of classifying firms is by their legal form of organization. Three types of organizations are particularly common: the individual proprietorship, the partnership, and the corporation.

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