Economic Systems and Economic Growth

In a planned economy, state monopoly ensures that economies of scale are exploited. However, state monopoly could not commit to reward its workers. Anticipating this, individuals will exert less effort. In a market economy, competition among firms ensures that higher effort from workers will be rewarded. However, competition means that economies of scale are not fully exploited. Per capita output growth is generated by continuous adoption of new technologies substituting labor for capital. Growth rate in a market economy is higher than that in a planned economy when the incentive to exert effort is relatively more important.