A mixed economic system is a system in which the public sector and private sector are allotted their respective roles in promoting the economic welfare of all sections of the community.
A mixed economy may be defined as a system of Mixed private and governmentally owned or controlled enterprises, it is one in which business activities are carried on with numerous business forms and arrangements, not just one.
In the capitalist economy, the presence of state ownership was felt due to the presence of cutthroat competition, unemployment, corruption, economic instability, class struggle, exploitation, inflation and so on.
On the other hand, in socialism, excessive government control leads to a lack of individual freedom, centralization of power, Bureaucratisation, red-tapism, misallocation of resources and corruption.
Thus, a new economic system was born that contain the common positive features of both capitalism and socialism. It is known as the mixed economy.
Thus, in the mixed economy, the ownership, control and direction of industries established, control and direction of all the industries established under the private sector are owned by the private industrialists.
In the mixed economy, there is a policy of compromise between capitalist and socialist economic systems.
Advantages of Mixed Economy
A mixed economy is the outcome of the compromise between the two widely different schools of thought – the one strongly pleading for the socialism of all the means of production an entire economic activity en-masse and the other which Champions because of laissez fair par excellence.
The following are the main advantages of a mixed economy:
1. Adequate Economic Freedom
In the mixed economy, adequate freedom is provided in the economic system:
- Consumers are free for the consumption of income.
- Freedom for selection of business according to their interest and qualification.
- Freedom of private ownership and profit in the Limited sense.
In a mixed economy, freedom is given but the government keeps a check on the misutilization of resources.
2. Reduction in Economic Inequalities
In this system to reduce economic inequalities, the government receives income by imposing a tax on the rich and spending the obtained income to make the facility available to poor people.
Due to this, the inequalities in the distribution of wealth remain under control in society.
3. Optimum Utilization of Factors of Production
In a mixed economy, resources are utilized according to a planned manner thus making the best utilization of the factors of production (labour, land, capital, and Entrepreneurship) Better utilization of factors leads to an increase in production capacity, economic prosperity, higher living standards, and employment opportunities.
4. Fastest Planned Economic Development
In a mixed economy, the price mechanism lacks freedom.
Proper Planning for the allocation of resources is done so that maximum economic development takes place.
The presence of the public sector leads to balanced development.
5. Private Ownership, Profit Motive, and Price Mechanism are Present
In a mixed economy, The presence of both private and public sectors leads to an increase in the growth rate of the economy.
The producers and individuals get motivated to work due to the rights of personal profit and ownership.
The government controls these factors and divert them from exploitative aspect to social welfare.
6. Increase in Social Welfare
In this system, Totally economy is controlled and directed by the government keeping in mind the objective of social welfare.
The policies are framed for social welfare only.
Disadvantages of Mixed Economy
The drawback of the capitalist economy is that it gives rise to exploitation, whereas in the socialist economy Bureaucratic, red-tapism, and corruption are present.
The following are the major disadvantages of a mixed economy:
1. Lake of Practicability
Capitalism and socialism are two extreme economic systems which cannot be combined together, According to Schumpeter “capitalism in an oxygen tent” means capitalism and socialism may exist together
Economic planning and price mechanism are failed in a mixed economy.
Lack of coordination exists due to the disparities in motives of private-public sectors.
2. Weak and Inefficient System
The working of the public and private sectors in the mixed economy is totally inverse.
Thus, proper coordination between them is not established. The result is inefficiency in the working of the economy.
Both sectors consequently become competitors rather than supplementing each other for public welfare.
So this system is considered to be weak and inefficient system.
3. Fear of Nationalisation
In a mixed economy, there is always a fear of nationalization.
Due to this fear special interest and motivation do not arise in an entrepreneur’s investment. In democratic countries, The government change after the election.
Thereby the government policies and programmes are changed.
This has an adverse effect on the rate of economic development.
In the mixed economy, the demerits of capitalism and socialism exist.
So neither the planning mechanism nor the price mechanism can work efficiently.
5. No Encroachment to the Private Sector
The public sector is given more importance than the private sector when policies and plans are made.
Special attention is given to the Welfare of the public sector neglecting the public sector.
After viewing the merits and demerits of the mixed economy, Defects like inefficiency and red-tapism are present but on the other hand existence of both the private and public sectors leads to economic development
Effective government policy removes the defects like unemployment, corruption, class struggle, and Centralization of power and leads to social welfare.
The top leading capitalist countries like America, England, France, and Sweden actually have a capitalist mixed economy.
In India, the mixed economy is the basis of economic development
Features of Mixed Economy
The following are the main features of the Mixed economy
1. Co-existence of Public and Private Sector
In a mixed economy combination of some factors of socialism and capitalism leads to the social and economic development of the country.
2. Separate Existence of both Public and Private Sector
The public and private sectors play a vital role in the development of the economy.
3. Division of Economy
India is the best example of a mixed economy.
The economy can be divided into four forms the public sector, the public and private sector, the private sector and the cooperative sector.
4. Social Security
Special attention is given to government social security schemes.
The government provides social security by providing old age, unemployment allowance, insurance against accidents or death etc.
5. Profit Motive and Price Mechanism
The private sector operates its economic activities with the objective of earning profit but with the view of public welfare, the government controls the direction of the price mechanism through its price policy.
6. Private Ownership
It is important but it is diverted towards public welfare.
7. Economic Planning
In it, economic planning is adopted for economic development.
Both sectors function the fulfilled their fixed aim.
Importance of Mixed Economy
After studying about the capitalist and socialist economies many developing countries have opted for a mixed economy.
Thus, the question arises why a mixed economy?
The answer to this question is the mixed economy is the economic system where both the private and public sector works together.
So we need this economy to abolish the demerits of the capitalist economy and achieve the goal of a socialist economy.
The following are the importance of a mixed economy:
1. Rapid Economic Development
In a mixed economy, both the private and public sectors work together to attain Rapid economic development.
The public sector controls the areas of road, electricity, irrigation, public services, and defence which are considered as the infrastructure of the economy where is production done by the private sector.
So, the goal of rapid economic development was attained.
2. Economic Equality
The unequal distribution of wealth and income should be abolished.
Thus, in a mixed economy existence of the public sector leads to public welfare.
The government had taken steps to reduce inequality by levying progressive taxation, nationalization of units, social security and welfare programmes.
3. Industrial Peace and Labour Welfare
The exploitation of labour leading to strikes, and blackouts, take place due to differences between the present amount of workers and management whereas, in socialism, labour control is present.
In the mixed economy, The labour of both the individual worker and the working collective is integrated into the process of production itself into the aggregate social labour is an indispensable component. labourers are free from exploitation.
4. Avoidance of Central Authority and Monopoly
In the liberal mixed economy. The presence of the public sector does not lead to the centralisation of authority in the hands of capitalism.
Government interference in the price policy keeps the prices of products and services under control.
5. Economic Freedom
Private profit and ownership lead to development whereas freedom of consumption leads to consumer sovereignty.
In a mixed economy, both of these factors act as controllable factors.
Entrepreneurs use their resources for providing maximum benefits to consumers.
6. Democratic System
In a mixed economy, all the decisions such as the division of economic activities between private and public sectors, determination of policies, aims and objectives, and distribution of resources are taken by the public representatives.
Thus, the mixed economy is conducted by the democratic method and tendencies of monopoly and dictatorship is not found in it.
Thus, the existence of a mixed economy leads to an increase in production, labour welfare, price mechanism, Public Distribution System, decentralization of economic power, organized planning, democratic freedom, and economic freedom.
Forms of Mixed economy
In developing countries the forms of a mixed economy are:
1. Public Sector
In the public sector, the ownership and management of the resource are done by the government.
Here, Private property and the profit motive have no place.
2. Public Cum-Private Sector
In this sector, a partnership exists between the private and public sectors.
The co-existence of the private and public sectors is done for the Welfare community and social upliftment.
Ownership, management, and control are also done on a partnership basis.
3. Private Sector
Ownership, management, and control of the enterprise are in the private hands.
The private sector enterprise is based on self-interest and the profit motive.
Individual initiative is provided in full scope.
4. Cooperative Sector
A Cooperative sector is a voluntary association of persons with Limited means who have joined together to satisfy their common needs through a democratically controlled business organization.
In developing countries, the Cooperative sector is given due importance.
Mixed Economy Countries
The mixed economy is adopted by many developing countries of the world. India is the best example of a mixed economy.
In the mixed economy, the private and public sectors are closely related and both work as constituents of a unit.