What is Mixed Economy? Features, Merits and Demerits

Mixed Economy

Mixed economy emerges with joint characteristics of capitalist and socialist economy. It is the combination of public ownership as well as private ownership. A mixed economy allows the private enterprises the freedom to function and prosper but also permits the government to interfere in the matters in order to maintain economic objectives. The participation of private sector and government interference differs from country to country. India is a mixed economy and encompasses all the relevant features of capitalism and socialism to control and regulate the economy.

Mixed Economy

Definition of Mixed Economy

According to Samuelson___” Mixed economy is that economy in which both public and private institutions exercise economic control“.

According to Pickersgill___” The primary difference between the mixed economy and market socialism is the relatively greater importance of individual decision-making, private property, and the reliance on market determined prices to guide the allocation of resources. The mixed economy differs from competitive capitalism with respect to the share of collective decision-making in the economy”.

Features of Mixed Economy

  1.  Co-existence of Private and Public Sector: Under this system there is co-existence of public and private sectors. In public sector, industries like defense, power, energy, basic industries etc., are set up. On the other hand, in private sector all the consumer goods industries, agriculture, small-scale industries are developed. The government encourages both the sectors to develop simultaneously.
  2. Individual Freedom: Government imposes restrictions to maintain the welfare of the society. Hence, producers have to follow these rules and guidelines. Ex: Government may put restrictions on producing harmful goods. But individuals are free to purchase any product. Hence, in spite of all types of government control, individual have the freedom to choose the occupation of their own choice.
  3. Economic Welfare: The basic aim of mixed economy is to achieve the economic welfare. This can be stimulated by reducing regional imbalances and by providing employment opportunities. The government has also taken various measures towards the upliftment of the society. The monetary and fiscal policies are formulated to regulate the economic activities of private sector.
  4. Economic Planning: The planning commission and Central Government formulate economic plans and direct the functions of public and private enterprises accordingly. The activities of public sector is directly governed by the government whereas several incentives and subsidies are provided to the private sector for working in accordance with the economic targets.
  5. Free and Controlled Economic Development: It is considered as the best alternative against the capitalist and socialist economy. It eliminates all the shortcomings and issues related to the economic development and sustainable growth. It allows freedom of choice and occupation while on the other hand controls the economic activities as well.
  6. Government Intervention: In a mixed economy, the government can interfere to stabilise the economy, especially during economic crises. Ex: during the global crises of 2008, the U.S. and governments of other countries intervened into the economic affairs so as to control the effect of the crises.

Merits of Mixed Economy

  1. Speedy Economic Development: Under this type of economy, government and private enterprises integrate and work together for the economic development. This activities include infrastructural development, social security measures, programmes for the upliftment of weaker sections of the society, etc.
  2. Optimum Allocation of Resources: Maximum utilization of resources is made under mixed economy. The characteristics of capitalism and socialism ensure effective allocation of resources. This can be done by encouraging profit motive, price mechanism, freedom of production and consumption, etc.
  3. Balance between the Private and Public Sectors: A reasonable balance public and private sector is very important to administer the mixed economy. The high rate of economic growth and capital formation can be attained only through the considerable level of consumption and cooperation between the two sectors. However, the performance evaluation of the sectors decides their success and failure.
  4. Economic Planning: Economic planning plays a significance role in the mixed economy. It helps the government to combat with the economic fluctuations and meet out with the economic slowdown and challenges.

Demerits of Mixed Economy

  1. Unsuccessful in Eradicating Economic Fluctuations: Under mixed economy, the economic fluctuations do exists. Inspite of the preventive measures, situation arises due to the imbalance between the public and private sectors.
  2. Inefficient Public Sector: One of the crucial shortcomings of mixed economy is the bureaucratic control of the government over the public sector. This has led to the inefficiency of public sector which resulted in the fall of production activities. Further, it also involves redtapism, corruption, favouritism, bribery, etc.
  3. Inefficient Planning: No planning can be perfect, there are some shortcomings to every complete plan. As a result, some sector or areas remain untouched from the supervision of the government.
  4. Endangers Freedom: The freedom of an individual starts decreasing with the increasing challenges towards the economy. The rules and regulations are imposed on people to control and manage the economic system which may leads to autocracy.

Mixed Economy Countries

  1. Iceland.
  2. Sweden.
  3. France.
  4. United Kingdom.
  5. United States.
  6. Russia.
  7. India.
  8. China.
  9. Hong Kong.