Disadvantages or Demerits of Market Economy

Market economy has been severally criticized by many economists on the following grounds:

• Economic Instability

The main drawback of a market economic system is that it does not guarantee economic stability. In the lack of any external control, this economy is subject to the frequent ups and downs in the levels to production, income, employment, prices, trade, etc. As a result, prices, unemployment, etc. may increase and uncertainly may prevail in the economy.

• Class Struggle

Another defect of market economy is that it divides the entire society into two classes- the rich and the poor, or the owners (employers and employees) and workers, or haves and haves-not. These two classes always fight with each other because of the clash of their interests. There is always a struggle between those two distinct classes.

• Wasteful Competition

There is a wasteful competition in a market economy. A large sum of money is wasted on competitive advertising a product in a newspaper, on radio and T.V., in cinema, etc. Form a consumer as well as social point of view, selling costs are sheer wastage because the resources of the society are wastage and consumers have to bear the burden of selling costs in the form of higher prices.

• Failure to Market Mechanism

In an underdeveloped economy, market mechanism cannot guarantee rapid and sustained economic growth and removal of poverty and unemployment. Free market forces cannot guide infrastructure, capital goods industry, etc. Moreover, saving and investment which are essential for higher growth cannot be raised simply by free market forces of demand and supply.

• Monopoly Tendencies

A major defect of market economy is that the monopoly tendencies are developed in the country. Gradually competition declines and the large firms try their level best to eliminate the rival firms through various means and emerge as big monopoly houses. Labors are being exploited by the bog industrialists and consumers are charged higher prices.

• Business Fluctuations

All major countries of market economic system of the world are suffering from the problem of business fluctuations. In the lack of any control, booms and depressions occur very frequently in these economics. The resources of the economy are not fully utilized.

• Exploitation of Workers

Another defect of a market economy is that the workers or labors are exploited by the markets. Therefore, it causes a good deal of human misery and sufferings. The workers are paid less than their marginal productivity and are paid wages just sufficient for their bare survival. In this regard, Karl Marx has pointed out, "Market Economy contains the seed of its own destruction."

In brief, a market economic system gives more importance to the private ownership of property, competition, consumer's sovereignty, and least government interference in the economic activities. But at the same time, it contains certain evils too. Many welfare states have taken certain measures to curb these evils through certain welfare measure. In this way, the role of government is also increasing.