In a free market economy, the law of supply and demand, rather than a central government, regulates production and labor. Companies sell goods and services at the highest price consumers are willing to pay, while workers earn the highest wages companies are willing to pay for their services. A purely capitalist economy is a free market economy; the profit motive drives all commerce and forces businesses to operate as efficiently as possible to avoid losing market share to competitors.
Command economies are marked by communist and socialist tendencies. The government controls the means of production and the distribution of wealth, dictating the prices of goods and services, and the wages workers receive.
Free market economies and command economies exist more as abstract concepts than as tangible realities; almost all of the world's economies feature elements of both systems. For example, while the U.S. allows companies to set prices, and workers negotiate wages, the government establishes parameters, such as minimum wages and antitrust laws, that must be followed.
What are Free Market Economies?
Based on the 2019 Index of Economic Freedom, Hong Kong, with its extremely low tax rates, minimal regulations on businesses and highly capitalist system of economics, ranks as 90.2.% economically free, which is the highest in the world. Singapore ranks second and is 89.4% free. The country imposes no tariffs and there are few restrictions on investments. Singapore also features strong private property rights.
New Zealand, which ranks third at 89.4% free, also has very low tariffs and strong private property rights. The government provides businesses with lots of flexibility and does not constrict them with overly complicated regulations or licensing procedures.
Switzerland and Australia round out the 2019 top five, having 81.9% and 80.9% free economies, respectively.
The U.S., featuring the world's most advanced financial markets, is 76.8% economically free, as of 2019. This number had decreased in recent years but is;up 1% over last year. While certain U.S. industries generate more government scrutiny than others, private companies, rather than the government, control most sectors. The country also practices free trade with much of the world.
The five countries with the least-free market economies in 2019 are North Korea, Venezuela, Cuba, Eritrea and the Republic of Congo,