What is a Mixed Economy?
A form of an economic system which comprises the best features of both capitalist and socialist economies is a mixed economy. While capitalism is the free enterprise economy, socialism is the state-owned economy. In a mixed economy, both public and private sectors exist side by side and work jointly for the economic development of the country.
In such an economy, the central economic problems in the private sector are resolved through price mechanisms. Further, the central government takes major economic decisions. Also, some of the decisions depend on the free play of market forces.
Based on the nature and degree of the intervention by the government, there are two types of mixed economies. The first form of mixed economy can be found in developed countries like the UK, USA, etc. In this form, the government aims to control and regulate the private sector by making policies on taxation, public expenditure, labour laws, bank rate, and so forth.
The second form of mixed economy is present in developing nations. Here, the government intervenes in economic affairs by taking an active part in the production activity and not just by formulating policies to regulate the private sector. Hence, the government also produces the commodities for consumption of the society, while regulating the private sector.
Table of Contents
Meaning of Public Sector
The public sector is that sector of the economy which the government owns and operates. Generally, you can find the public sector in those areas where huge capital investment, research and development are required. Also, the profitability is low. So, in the fields of railways, transport and communication, power generation, heavy industries, posts, banking and finance, you can find the public sector.
Meaning of Private Sector
The private sector implies that part of the economy whose ownership and management are in the hands of private individuals. the sole objective of this sector is to make money, i.e. earning profits. You can find this sector in the fields of consumer goods industries, retail trade, textiles, telecommunications, technology, etc.
Examples
Germany, United Kingdom, Sweden, Greece, India, United States of America, etc
Features of Mixed Economy
- Coexistence of both sectors: The primary feature of a mixed economy is that both public and private sectors exist in this system. Both sectors complement each other rather than compete with each other.
- Combined features of capitalism and socialism: A mixed economy is one that combines the good features of both types of economy. This means, on one hand, there exists private property, profit motive, competition, and market mechanism, while on the other hand, there is government regulation, social welfare, economic planning, economic equality and so forth.
- Economic Planning: For smooth and systematic operation and regulation of the economy, economic planning is necessary. It ensures the coordinated functioning of both sectors without any disputes.
- Regulating the private sector: In a mixed economy, government plays a key role in the regulation and control of the private sector. For this, it drafts rules for taxation, subsidies, license, unfair trade practices etc. The aim of the government in doing this is the promotion of the larger welfare of society.
- Price Mechanism: Here, prices of commodities, wages of workers and profit of entrepreneurs are determined by the price mechanism. However, it is subject to certain regulations, i.e. fixation of minimum wages, price control, etc.
- Promotes freedom of individuals and enterprises: In this system, there is freedom of selection of occupation for the individuals and even enterprises are free to take initiative. Moreover, people are free to save and invest, as per their needs. However, freedom is not absolute because certain restrictions are imposed by the government for the welfare of society.
Advantages
- Proper Allocation of Resources: The existence of planning authority ensures that the resources of the economy are utilized in an optimum manner. Not just this, it divides the resources among different sectors to ensure the interest of the economy.
- Economic stability: Mixed Economy attempts to prevent fluctuations in the economy by way of planning and state regulation.
- Market Economy: It keeps the characteristics of a capitalist economy such as private property, competition, profit motive, price mechanism, freedom of enterprise and so forth. The existence of the government keeps a check on these characteristics.
- Faster economic development: It facilitates rapid economic development as it uses the resources of both public and private sectors which leads to the development of the economy.
- No concentration of economic power: It keeps a check on the concentration of economic power. It attempts to curb the monopolistic and exploitative practices of the industries. Further, by implementing a progressive taxation system, the government also checks inequality of income.
- Freedom: In a mixed economy, consumers are regarded as the king, so they are free to choose what they want to consume. Hence, the producers produce commodities as per the preference of the consumers. Further, people are free to choose their occupations.
Disadvantages
- Disagreement between the two sectors: At times, there may be some clashes and non-cooperation between the public and private sectors. And when the two sectors do not cooperate, it is difficult for the economy to function properly.
- Short term: In this economy, there exist both the public sector and private sector. Hence, over time each sector may look for expanding itself by absorbing the share of the other. If the public sector prevails, then the mixed economy turns out a socialistic economy. Whereas if the private sector prevails, then the mixed economy will become a capitalist economy.
- Excessive Regulations: Mixed Economy may result in the implementation of excessive control and regulations. To keep the activities of the private sector in check, the government might impose certain rules and regulations. this may be very inconvenient, and result in inefficiency.
Wrap Up
In a true sense, it is a variant of capitalism. Further, it is featured by the joint existence of both the public and private sectors. Hence, it combines the advantages of both capitalism and socialism.