Most countries adopt a mixed economy. A free-market economy contains weaknesses, as does the command economy. As a result, mixing the two economic systems is a reasonable choice. But, whether it is the best, you can try to conclude after reading the points below.
Mixed economic definition
A mixed economy is an economic system that combines the public and private sectors in allocating economic resources. Both share control over ownership, production, distribution, and exchange of goods in the economy. This system overcomes the weaknesses of the free market and the command economies.
The United States, Germany, and France adopt this system. Likewise with Indonesia, Malaysia, the Philippines, and some other developing countries.
Mixed economics allows market mechanisms to work. Demand and supply function and give signals to consumers and producers to change their demand and supply.
This system protects individual property and allows a degree of economic freedom in the use of capital. At the same time, the government can intervene in economic activities to achieve social goals.
The government plays a role in creating healthy competition and economic activity. The ultimate goal is people’s prosperity. Antitrust laws, environmental regulations and product health, macroeconomic policies, and minimum wages are examples of government intervention.
The government also collects taxes. Not only to finance its expenditure but also to provide public facilities and infrastructure. The government also uses taxes to redistribute income among the population through cheap education programs and unemployment benefits.
The government uses planning mechanisms to provide goods and services. Usually, they will operate in strategic areas such as infrastructure, transportation, electricity, health, education, and defense.
The main characteristics of a mixed economy
- The public and private sectors both play a role in economic activity
- Governments and individuals alike own economic resources
- The existence of a joined sector, namely public-private partnerships
- Market forces prevail but under government supervision.
- The government does not have commercial interests, but rather social
- Market forces (supply-demand) and government intervention determine the allocation of resources and prices.
- Profit is the motive of business, and welfare is the government’s motive in providing goods and services.
Among economic systems, in my opinion, a mixed economy is the best. At least, the reason is that many countries choose to adopt it.
Each country has a different inclination. Some countries are more towards a free-market economy such as the United States and Britain. Others are more towards command economies such as China, Venezuela, and Argentina (see Economic Freedom Index on the site www.heritage.org).
Disadvantages of a mixed economy
Mixed economics often leads to excessive intervention by the government. Sometimes, government regulatory requirements can be very detrimental to the private sector. For example, government regulations often favor state-owned companies than private. Tax relief or subsidies for individual companies also reflect injustice in the enforcement of fair competition.
The allocation of economic resources is also relatively inefficient compared to the free market. Capital mobility might not go to its most efficient use. Often, the government limits investment and ownership in a particular sector. Capital controls also hamper the flow of investment into domestic and abroad.
The most controversial of the mixed economic systems is the bailout. Some large companies can receive special treatment from the government because failure can disrupt economic stability.
Advantages of a mixed economy
A mixed economy allows private participation in production. Businesses and consumers have the sovereignty to choose what will be produced and consumed. Businesses are free to compete and innovate to make a profit as long as it does not harm consumers’ interests.
To ensure fair competition, the government also enforces regulations, for example, through antitrust laws. Such rules aim to prevent anti-competitive behavior such as cartels, which are detrimental to consumers. Another example of regulations is product standardization and environmental safety, which seek to protect consumers and the natural environment. The government also plays a role in maintaining a stable economy through economic policies and defense.
The mixed system also allows lower economic inequality than a free market economy. The government takes the role to redistribute income to the public through several programs such as unemployment benefits and other social assistance.
Monopolies may exist, but under strict supervision from the government or controlled by the state (natural monopoly). Also, a monopoly is for strategic sectors such as electricity, where only one company is needed to achieve economies of scale.