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What is a Mixed Economy | Features, Advantages and Disadvantages

In this article, we will know What is a Mixed Economy and what are the Features, Advantages and Disadvantages of mixed economy. In the twentieth century, the capitalist economy gradually disappeared and was replaced by the socialist economy. Today, with the exception of a few nations in the Americas and Europe, most nations of the world have abandoned the capitalist economy and embraced the socialist economy.

What is a Mixed Economy | Features, Advantages and Disadvantages

But over time, the socialist economy, like the capitalist economy, began to show many flaws. This gave rise to the concept of a new economy that combines the merits of both capitalist and socialist economies and gives birth to a mixed economy.

The concept of mixed economy is a modern concept. This concept gained special recognition after the global recession of 1929-33. Economist J. M. Keynes strongly advocated a mixed economy. The mixed economy has come into being as the middle ground between capitalism and socialism.

What is a Mixed Economy

No one seems to have a universally accepted definition of a mixed economy. Capitalist and socialist are the two major economies. An economy is a combination of two economies. In a mixed economy, both capitalist and socialist economies try to avoid their faults by taking advantage of them.

Mixed economy is the golden mean between capitalist and socialist. In a mixed economy, capitalism has individual freedom on the one hand and social control in socialism on the other. In a mixed economy, industry is divided into three parts.

(A) Public sector – In a mixed economy, some industries are owned by the government. Considering the national interest, some industries e.g. Industries such as arms, ammunition manufacturing, electricity and nuclear power, iron and steel, aircraft and rail transport, etc. must be in the public domain. Therefore, the management and ownership of such industries is with the government.

(B) Private Sector – Some industries are privately owned. The production and distribution of this industry is privately owned. There would be no government interference in it.

(C) Joint Sector – In a mixed economy, some industries are jointly owned by the government and private capitalists. The capital required for such industries is provided by the government and private capitalists. But the government itself provides 51% (more than half) of the capital to maintain its dominance in management.

Features of a Mixed Economy

The concept of mixed economy is a modern concept. This concept gained special recognition after the global recession of 1929-33. Some of its features can be explained as follows.

(1) Coexistence of public and private sector

In a mixed economy, both the public sector and the private sector exist. Industries that are important in the national interest are set up in the public sector and some industries are allowed to remain in the private sector to promote individual entrepreneurship. Thus, in a mixed economy, the public sector and the private sector work side by side. Also, some industries are set up in partnership with the government and private capitalists.

(2) Pricing and government intervention

The pricing system works effectively in the private sector. The prices of goods produced in the private sector are determined by the balance of supply and demand. However, from time to time the government controls the prices of goods by interfering in the price system of the private sector. E.g. If the prices of essential commodities like grains, textiles, sugar etc. go up drastically, the government fixes the prices of those commodities and distributes the commodities to the people at those prices.

(3) Government control over the private sector

In a mixed economy, the private sector is given full opportunity for growth. But it is up to the government to monitor whether the sector is functioning properly. If some industries in the private sector are not functioning properly, then those industries have to be taken over by the government for the benefit of the society.

(4) Consumer sovereignty

Consumer sovereignty is as important in a mixed economy as in a capitalist economy. This is because producers have to consider consumer preferences, fashion, etc. when making decisions. The only difference is that the sovereignty of capitalism has many limitations. E.g. The government can impose restrictions on the consumption of drugs like alcohol, marijuana, opium etc.

(5) Low levels of economic inequality

In a capitalist economy, economic inequality is acute, while in socialism, economic inequality is minimal. In a mixed economy, however, there is economic inequality. But its proportions are low. This is because in a mixed economy, on the one hand, there is an attempt to reduce the income of the rich by levying taxes at a progressive rate, and on the other hand, there is an attempt to increase their income by providing various facilities and concessions for the welfare of the poor. Therefore, economic inequality is less pronounced.

(6) Objectives of welfare state formation

Creating a welfare state is one of the goals of a mixed economy. In a welfare state, the maximum welfare of the people is to be achieved. For this, special emphasis is given on economic development in the country, full employment, increase in living standard of people, housing in economic inequality etc. In a welfare state, the responsibility for the welfare of the people falls on the government. So the government often has to intervene in the private sector.

(7) Restrictions on monopolies

In a capitalist economy, the monopoly of the capitalists is likely to be established, while in socialism, the monopoly of the central power is likely to be established. In a mixed economy, however, such a monopoly is unlikely at all. This is because the government can break the monopoly by imposing many restrictions or occasionally entering the field of production.

(8) Adoption of financial planning

In a mixed economy, planning is used to bring about economic growth of the country and the private sector as well as the public sector has to be involved in the implementation and success of the plan.

(9) Protection of private enterprises

The government strives for the full development of private industries in the country. To protect domestic industries from foreign competition, the government imposes heavy taxes on imported goods.

(10) Existence of co-operative sector

In a mixed economy, the co-operative sector exists along with the public and private sectors. The co-operative sector is valued in a mixed economy as an important tool for economic development. As a result, the co-operative movement has made great strides in the areas of consumption, production and distribution.

Advantages of Mixed Economy

Further advantages are found in a mixed economy:

(1) Rapid economic inequality

The development of developing nations requires a great deal of capital. It is not possible for the government or the private sector alone to raise such a huge amount of capital. The involvement of both the government and the private sector in a mixed economy makes it easier to raise capital and facilitates economic growth.

(2) Freedom from exploitation

In a mixed economy, the right wage system is adopted in the public sector and the private sector is forced to pay accordingly by approving the minimum wage law in the private sector. This liberates the workers from exploitation.

(3) Freedom from monopoly

The existence of both public and private sectors in a mixed economy makes it impossible to create a monopoly, and even if such a monopoly is established, the government can end the monopoly by imposing various legal restrictions. This protects consumers from exploitation.

(4) Increase in production and employment

In a mixed economy, production takes place in both public and private sectors. Production is mainly for profit in the private sector. As a result, production naturally increases and employment also increases.

(5) Development of infrastructure

In a mixed economy the means of communication like railways, roads, telephones etc. are developed. This leads to availability of basic services required for industrial development.

(6) Decrease in economic inequality

In mixed economy, various taxes like income tax, property tax, death tax, etc. are levied on the rich class at progressive rate, while free education, dispensaries, unemployment benefits, retirement benefits, pensions etc. are provided to the poor. This reduces economic inequality.

(7) Encouragement of trade

Indigenous industries are protected in a mixed economy. The government provides various facilities and concessions to the domestic industries to increase the consumption of domestic goods in foreign markets. As a result, exports increase and foreign trade increases.

(8) Research and training

In a mixed economy, the government is responsible for the economic development of the country. Therefore, culture encourages new research to improve the quality of goods as well as reduce production costs. Establishes a new research institute for this purpose. It also provides training to skilled workers in various industries across the country.

Disadvantages of Mixed Economy

Further disadvantages are found in a mixed economy:

(1) Economic inequality

Given the existence of the private sector in a mixed economy, it is not possible to establish income equality. Private capitalists give a small share of the income of the industry to the workers and the rest of the huge share goes to them themselves.

(2) Inefficient management

Management of public sector industries is entrusted to government officials. These officers are government servants. They have no experience in industry or management. Therefore, they are not able to carry out the management tasks of the industry efficiently and responsibly.

(3) Encouragement of corruption

In a mixed economy, the government controls private sector industries. Therefore, private capitalists bribe government officials to get their work done.

(4) Waste of equipment

Government sector industries are run under the guidance of government officials. These officers have no incentive to profit. Therefore, these industries are not run efficiently. Often a large amount of money is spent on necessary and unproductive activities like opening ceremonies. It is a waste of resources.

(5) Exploitation of workers

In a mixed economy, the government controls the private sector, but many capitalists exploit workers in violation of the law. Therefore, even today, the employer-labor struggle continues and the workers often have to resort to strikes for their demands.

Despite the above flaws in the mixed economy, the mixed economy is an important tool for rapid economic growth by establishing social justice. The example of India can be given in this context.

India has adopted the path of mixed economy since independence and this is the path that has brought economic development to the country.

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