Mixed Economy

 

                                                Mixed Economy

A mixed economy refers to the economic system where the economic activities are directed by both private individuals and the government. It reflects the characteristics of both market and planned economy. According to Professor Samuelson,

“Mixed economy is that economy in which both public and private sectors cooperate.”

How does the mixed economic system work:

A mixed economic system carries the characteristics of both the planned and market economies. In planned economies, the government regulates the market and controls the strategic industries. Examples of countries with planned economies are Cuba, North Korea, and the Former Soviet Union.

In the market economy, prices and supply-demand of goods are controlled by private individuals with key industries owned by private enterprises. Examples include the United States, England, and Japan.

In a mixed economy, both these economies co-exist. Here private individuals control the capital and demand-supply of goods with the government regulating the market with subsidies and taxes.

Advantages of Mixed Economy:

A mixed economy allows Capitalism and Socialism to co-exist. Capitalism sets prices through equilibrium between supply and demand on private goods. On the other hand, Socialism sets prices through planning where the private sector fails and allows for greater freedom and an equal share of control for the private individuals and also gives rise to private ownership. It ensures that the government can correct the negative externalities. It can control the generation of income inequality and redistributing wealth to the households located at the bottom of the income distribution.

Due to competition, between both private and public sectors, there will be greater efficiency, production, initiative, and innovation. Also, there is increased consumer sovereignty as the goods are produced as per the consumer's wish.

Mixed economies protect the people from poverty as they enjoy the financial rewards of hard work and entrepreneurship. It also creates employment opportunities as both public and private sectors grow.

It gives importance to the promotion of social welfare where both private and public sectors work for the welfare of people. Individual rights are protected as people have the freedom to buy any commodity.

Here both sectors work for the efficient use of resources. The public sector works for social benefit while the private sector makes the optimum use of these resources for maximization of profit.

Here is competition as well as cooperation between the two sectors which are conducive for achieving a high rate of capital accumulation and economic growth. The government can allocate subsidies to escalate the development of certain industries which leads to improvement in the development of firms, to boost their growth, and to give it competitiveness.

                                      

Disadvantages of Mixed Economy:

Despite their best intentions, mixed economies are a burden on the price mechanism. Whenever government intervenes in market prices, it causes misallocation of resources and deadweight losses. Government activities benefit directly to a concentrated, organized group at the expense of a poorly organized firm. They also tend to have continuously changed rules and regulations of trade.

Also, there is unhealthy competition between the private and public sectors. There is no freedom to private sectors in a mixed economy. This is because the government regulates private industries through its various regulations and licensing. Due to government regulation and control, the growth of private sectors may be less than expected which may lead to unemployment and uncertainties.

Similarly, as both sectors co-exist, the government would possess the right to own and nationalize any firm. This means that private entities would have to work under the fear that their businesses would be nationalized or taken over by the government.

The private sector grows under the various restrictions imposed upon it by the state and is taxed heavily, while the public sector is given subsidies, incentives, and preference over others in the supply of inputs. Thus, a sense of bitterness and non-cooperation develops between the two sectors leading to instability. The private sector does not get full freedom, hence it becomes ineffective leading to ineffectiveness in the public sector as well. Also, both sectors suffer due to a lack of efficiency.

In this economy, it is very difficult to find a balance between wealth equality and market freedom which results in a lack of social mobility and wide-scale poverty. The government might limit company size because of rules regarding anti-trust laws and monopolies. Without any proper measures, the entrepreneurial spirit might be destroyed.

Conclusion:

In the light of all the above it can be concluded that a mixed economic system is the best way to tackle the basic economic problems but with minimum government intervention as private entities are reluctant to operate in an industry that the dominated and regulated by the state. This minimum state intervention is required to avoid the formulation of monopolies in the private sector and to protect consumer interests.