In a traditional economy, the goods and products a society produces is shaped by the beliefs, customs and traditions present. Basically, it’s considered an underdeveloped economy as primitive tools are made use of for the harvesting and hunting of food. This kind of economy is mostly found in rural regions with high levels of subsistence farming.
There are three characteristics that define a traditional economy:
1. It is based on agriculture, hunting, gathering, fishing or a combination of the aforementioned techniques.
2. It is shaped by traditions.
3. It can use barter instead of money.
Given such characteristics, those who live with this kind of economy look to be living in poverty despite having their daily needs. Several of those who operate under traditional economies are found in emerging markets or Third World Countries.
Usually, this kind of economy is found in Africa, Asia, Latin America and the Middle East. That said, there are instances of traditional economies in regions other than those previously mentioned.
It is widely believed that all economies started out as traditional economies. It’s also accepted that a traditional economy that chooses to evolve will transform into a market, command or mixed economy.
Traditional Economy Characteristics
Traditional economies center around a family or tribe. As such, it’s fairly easy to make use of traditions gained from the experience of elders to guide future generations on how day-to-day life is lived. The traditions also serve as the basis for making economic decisions.
Usually, nomadic hunter/gatherers compete with other groups for natural resources. Trade isn’t that common given that these groups normally consume and produce the same things. Although that doesn’t mean that trades can’t be made. Some non-competing groups prefer to trade, for example, those who rely on hunting alone may opt to trade with those who rely solely on fishing.
Traditional Economies Today
Several indigenous tribes in the Arctic region, in North American and eastern Russia maintain a traditional economy. These communities depend on fishing and hunting caribou for their existence.
There are others, like the Saami, who manage reindeer herds. Although people in this kind of community don’t earn much from their efforts, their relationship to managing the herd defines their legal status, culture and the policies of the state towards the individual.
List of Pros of a Traditional Economy
1. The distribution of resources is well known
Custom and tradition form the backbone of traditional economies. This just means that everyone knows their role in production, and as such, knows what they are going to receive.
2. It is more sustainable
A traditional economy doesn’t require the use of modern conveniences in order to produce food and products. As a result, they are less destructive to the environment. Also, most of the time, people just catch need to harvest or farm the right amount to ensure their family gets fed. For example, they only catch enough fish to feed their family, which is different in modern economies which rely on finding more to meet demand.
3. It fosters togetherness and cooperation
The competition in this kind of economy is very low. Everyone knows what their roles are and as a result of that, less fighting is expected. So rather than compete with one another, people normally help each other out. They all have the same goals for survival which means that work load among members is equally divided.
List of Cons of a Traditional Economy
1. It is dependent on Mother Nature
Even advanced economies with farming in place suffer when Mother Nature doesn’t participate. Every weather disturbance can lead to a loss in crops which then results in a loss of income and therefore no profits earned for hard work performed during the season.
The same can be said for traditional economies as they too need crops and other resources to keep their families from starving. A bad season or two has a detrimental effect on traditional economies as hunting and gathering gets affected. Even worse, they most likely don’t have a social program that can help tide them through the next good season.
2. It can be detrimental for the environment
Relying on the environment can be both a blessing and a curse for those in traditional economies. While they may not employ the procedures present in modern societies, they too are causing damage to the environment when farming, fishing and other activities are taken up a notch.
For example, in Haiti, two-thirds of the population relies on subsistence farming for their livelihood. They are largely dependent on wood as their primary source of fuel. As a result, forests have been stripped of trees. And when there aren’t much trees, the community and the forest itself are vulnerable to natural disasters.
3. It is not subject to change
Tradition plays a huge part in traditional economies, and as such people living in this kind of communities are reluctant to change. They are so deeply rooted to their traditions that they resist any form of change or growth. As a result, the growth of their nation is hindered.
4. It can get overpowered by larger economies
Traditional economies are small-scale operations, and they are constantly at risk of losing the natural resources they rely on t more larger economies. Modern inventions have made some people too greedy to think about the consequences of overdoing things, and as a result, we mostly forget that there are smaller communities who rely on the resources we crave.
One good example of this is the diamond mines in Africa. They have been over-mined resulting in pollution and bringing chaos to African nations. By being too focused on profit, some people neglect the fact that they are interrupting the way of life of the communities they have invaded.
5. It doesn’t promote a healthy way of life
A lot of those living in traditional economies don’t have access to health care which then results in limiting their life expectancy. For instance, a baby who doesn’t get the needed treatment ends up adding to the relatively high mortality rate in situations like these. As a result, there is a shortage in population growth compared to other economies.
This puts communities at a disadvantage when they have to protect themselves against invasion of their lives.