Mixed Economy: Characteristic and Features

Did you know all the economies of the world are in essence mixed economies?

 

Capitalism and socialism are two both ends of the spectrum. In the real world we take the middle road. Combining features of both the capitalist and the socialist economy. We have arrived at a mixed economy.

 

 

What is a Mixed Economy?

 

A mixed economy is a system that combines aspects of both capitalism and socialism. A mixed economic system protects private property and allows a level of economic freedom in use of capital, but also allows for governments to interfere in economic activities in order to attain social aims. 

 

Mixed economies, according to neoclassical theory, are less efficient than pure free markets, but proponents of government intervention argue that the fundamental conditions for efficiency in free markets, such as equal information and rational market participants, are impossible to attain in practice. 

 

A mixed economy is basically a system that combines characteristics of market, traditional and command economies. It basically combines the merits and demerits of three different types of economies i.e- market, command and traditional economies. It proves to be the most flexible type of economy. 

 

In today’s time most of the economies are mixed economies as globalization makes it difficult for command or traditional economies to avoid becoming a mixed economy. One major reason is that leaders of the countries realize that their people are best served with the amalgamation of international trade.

 

According to the theory of comparative advantage. A country’s overall growth is possible only when there is export and import taking place. Export of its best produced product and import of products from other countries. Saudi Arabia is the largest oil exporter in the world. 

 

The United Nations is the best example for a mixed economy. The U.S developed an economic system by having a large private sector and a free market that enabled ample competition and employed efficiency and innovation to produce products. 

 

(Read more about types of economies - Capitalism vs socialism economy)

 

 

Characteristics of Mixed Economy

 

As the mixed economy shares a blend of free market and a command economy. It shares the features of both some of the main characteristics of the mixed economy are :- 

 

1. Mixed public - private sector

 

A mixed economy comprises both a public sector comprising government institutions, and a private sector comprising private businesses. 

 

Private sector basically includes small industries, consumer goods, and agriculture run by private companies, on the other hand the public sector includes basic services like water and energy along with military defence, law and order etc. 

 

2. Economic freedom

 

The citizens of the country have the freedom to choose their occupation and can establish their own business with private property in a mixed economy. 

 

There are certain boundations wherein the government can intervene in between if there is wealth inefficiency or any practice that is causing a negative effect on the overall economy of the country. 

 

3. Profit motives

 

The profit incentives of the capitalist economy are maintained in which companies, private entities, and individuals earn profits through selling of goods and services. 

 

However public regulations ensure and prevent too many assets from being concentrated to one person or cooperation. Similar would be the case in monopoly. 

 

4. Social welfare intervention

 

Government has the right to intervene in the mixed economy in order to assist citizens for health care, unemployment, social security, child care, food stamps etc. This is known as a welfare state, or a system that guides citizens with centralised programs.

 

(Recommended blog - Economic Effects of Social Security)

 

Features of Mixed Economy

 

Some of the features of the mixed economy are as follows: 

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Features of mixed economy

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1. Coexistence of all sectors

 

All three sectors, i.e- public, private and joint sectors coexist together in harmony. The joint sector is operated by government and private companies, with a minimum of 51% ownership belonging to the state. 

 

2. Cooperative sector

 

The cooperative sector also exists in the mixed economy. The main objective of formation of this sector is so that the government can provide financial assistance to cooperative societies involved in warehousing, agricultural, dairy industry etc 

 

3. Freedom and control

 

Under a mixed economy individuals have freedom to produce goods and services, hold property, choose their occupation and choose or demand for products and services according to their needs. 

 

But to ensure there are no monopolistic practices and dicrimination taking place the state maintains some controls.

 

4. Economic planning

 

Central planning authority is present in a mixed economy. All sectors under the economy follow the economic plan of the state to achieve various targets and objectives. The plan serves as a ground basis of guidelines for economic growth and prosperity of the nation. 

 

5. Social Welfare

 

One of the main aims of a mixed economy is social welfare. It aims to reduce the wealth gap in the country and aims at reducing inequalities in our societies. The major aim is to eradicate unemployment and reduce the level of poverty. At the same time it also helps in the economic growth and development of the society. 

 

By now, we have understood the concept, characteristics and features of a mixed economy. Now let us compare some advantages and disadvantages of the same:- 

 

Advantages of a Mixed Economy

 

A mixed economy has the benefits of both a market and a non-market economy. 

 

1. It gets products and services to where they're needed the most. It provides for the measurement of supply and demand through pricing.

 

2. It gives the largest profit to the most efficient producers. This implies that customers receive the most bang for their buck. 

 

3. It promotes innovation in order to address client requirements in a more creative, cost-effective, or efficient manner.

 

4. It gives cash to the most inventive and efficient producers automatically. They may then put the money into additional firms like theirs.

 

5. A mixed economy also helps to mitigate the drawbacks of a market economy. Defense, technology, and aerospace might be overlooked in a capitalist economy. Faster mobilisation to these priority regions is possible with a bigger government engagement.

 

(Suggested Read - Pricing Strategies)

 

 

Disadvantages of a Mixed Economy

 

1. A mixed economy might inherit all of the problems of previous economic systems. It all depends on whatever aspects of the mixed economy are highlighted.

 

For example, if the market has too much freedom, it may leave society's less competitive members without government assistance.

 

2. Government enterprises are likewise hampered by central planning.  The military sector might become a monopoly or oligarchy system financed by the government. This might raise the country's debt, stifling long-term economic progress.

 

3. Successful companies may persuade the government for further tax cuts and subsidies. The government may overprotect the free market to the point of underregulation. Businesses that were too large to fail, for example, may be bailed out by the government if they went bankrupt.

 

4. A mixed economy mixes the command and market economies, as the name suggests. As a result, it is guided by the pricing mechanism as well as central economic planning. 

 

Private and public ownership determine the means of production. Market factors, on the other hand, determine pricing, demand, and supply. The government steps in to prevent monopolisation and prejudice from occurring.

 

(Suggested Read - Elasticity of Demand)

 

 

Conclusion

 

In conclusion, a mixed economy refers to a balanced economy wherein it is a combination of all the sectors in an economy. Mixed economies characterise economies all over the world. 

 

Capitalism and Socialism are the two extremes of the spectrum. A mixed economy is created when the characteristics of both ends are merged.