Mixed Economy

Topics: Planned economy, Economics, Capitalism Pages: 11 (3271 words) Published: March 23, 2015
Introduction to mixed economy.
What Is Mixed Economy?
According to Amadoe (2015), mixed economy can be defined as “An economic system that features characteristics of both capitalism and socialism. A mixed economic system allows a level of private economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. This type of economic system is less efficient than capitalism, but more efficient than socialism.” In mixed economy private sector run most of the business and government intervene in certain areas by imposing regulations and spending on public sector. In reference to Investopedia (2015), in mixed economy, public sector provides services like defence, power and other basic goods required and private sector is responsible for providing consumer goods, agriculture and other small scale industries. It also allows private sector to own property but government should ensure that profit and property are distributed equally. According to Seth (2013), most of the major economies today are mixed because of globalization. To carry out international trade and serve to the needs of people it’s important for government to give some control to free market forces. Mixed economy can be classified into two categories;

1. Capitalistic Mixed Economy
In these economy governments main obligation is to ensure rapid growth without allowing concentration of economic power in the few hands. In capitalistic mixed economy government doesn’t intervene in any manner and tenure of factors of production remains under private control.

2. Socialist Mixed Economy
In this economy factors of production remain under government control. The forces of demand and supply are used for basic economic decisions. However, whenever and wherever demand is necessary, government takes actions so that basic idea of economic growth is not hampered.

Socialist mixed economy can be divided into two parts;
a) Liberal Socialistic Mixed Economy
In this economic system, the government interferes to bring about timely changes in market forces so that the pace of rapid economic growth remains uninterrupted. b) Centralised Socialistic Mixed Economy

In this economy, major decisions are taken by central agency according to the needs of the economy.

Few countries with mixed economy are; Iceland, Sweden, France, the U.S, the U.K, Cuba, Russia and China but degree of government involvement varies. For example, in Western Europe the government generally has a stronger role, while in North America the market is more influential.

There are many advantages and disadvantages of mixed economy. The advantages of mixed economy are; Ownership of business and industry are in the private sector tend to be more efficient because private firms will innovate and reduce cost to increase profit. It also enables people to enjoy financial reward for hard work and entrepreneurship which eventually creates equality and prevents absolute poverty. It also helps government to regulate areas where there is market failure; regulation on the abuse of monopoly, taxation and regulations for goods with negative externalities.

Disadvantages of mixed economy are; it will be difficult for government to understand the degree of intervention, its criticized by socialist for allowing too much market forces, leading to inequality and an inefficient allocation of resources and it’s also criticised by free market economist for allowing too much government intervention.

How entrepreneurs practically benefited through mixed economic traits in centrally planned economies. China’s economy moving towards a mixed economy.According to Kornai (1992), it is said that China remained a poor country nevertheless it practised a centrally planned economy where the rationale behind is mainly related to extensive focus taken on quantitative achievement by bureaucracy which gave minimal incentive to private...

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5. Infoplease. (2015). Russia. Retrieved from: http://www.infoplease.com/encyclopedia/world/russia-economy.html
6. Investopedia. (2015). Mixed Economic System. Retrieved from: http://www.investopedia.com/terms/m/mixed-economic-system.asp
7. Kornai, H. (1992). China’s Centrally Planned Economy. Retrieved from: file:///C:/Users/user/Downloads/02-Ch02%20(2).pdf
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