Saturday, 11 March 2017

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Mixed Economy Explained | Definition, Examples, Pros and Cons, Role of Government

The United States of America, the USA, is considered to be the biggest economies of the world. In terms of GDP (gross domestic product), the US economy contributes about 24.5 % of the total worlds product. But, the question arises why are we discussing this?? How does it relates to Mixed Economy? Well in this post we will be looking towards a complete case study scenario to what Mixed Economy is? Mixed Economy Notes, Examples, the countries that follow mixed economy, its advantages, disadvantages and a lot more.
Obviously, the country with the largest national economy must be having something unique than rest of the world’s economies, And to discuss about what kind of economic structure they possess, you are at the right destination! ;)

What is Mixed Economy? Examples, Details and Study Notes

The USA, is a mixed economy. Yeah, neither planned nor free. A mixed economy is a way out between planned economy and free economy. Speaking in economic terms, a mixed economy is a form of economy where the means of productions i.e. land, labor, capital etc., are jointly owned by government and private players or businessmen.  Mixed economy, there is a mix of economic planning & price mechanism (setting of prices of goods and services). Mixed economy cooperate between state (country) and private businessmen. It involves both public sectors and private sectors in taking major decisions related to economy. But, what is public and private sectors?

Mixed Economy and its Relation in Public and Private Sectors

Public sectors is solely controlled & operated by government. Decisions regarding production, distribution or consumption of goods and public sectors is taken by the government. Public sectors include industries meant for public welfare like railways, defense, power, energy, heavy industry, road construction, canal construction etc. these industries do not operate for profit motive but for society’s welfare.
Private sector is controlled by private enterprises. This sector focuses on public welfare along with profit earning. This sector serves the purpose of livelihood for common people. Industries like communication, farming, internal and external trade, transportation etc. falls under private sectors. Also, there are few areas of working where state and private players works jointly; and they are called joint sectors.

Along with private, public and joint sector, co-operative sector is also seen in mixed economy. Co-operative sectors, as the name suggests, is meant for providing co-operation. Co-operative societies are made where people voluntarily join and pool in their resources and provides financial assistance to its members.
Ultimately, in mixed economy, all the sectors works for public welfare.

Role of Government in Mixed Economy

Mixed economy works on a planning done by the state. For the overall development of an economy, government tends to maintain a balance between all the sectors of the society, to achieve the plans & targets set by the government. For this, government frames various economic policies like monetary policy, fiscal policy etc. now, what these policies are we shall discuss them in later articles.
Mixed economy has features of both planned and free economy.  Like free economy, Private enterprises too, have control over the ownership of goods and services in the country, but like planned economy, government keeps a watch over the private players in the use and distribution of these resources, which means, government controls the resources but not completely, and,  private enterprises are free to use resources, but under government regulations.
Government tries to stabilize the economy by controlling the competition among private enterprises, handles price mechanism for necessary products like medicines, restricts monopoly etc.

Pros and Cons | Advantages and Disadvantages of Mixed Economy

 We shall have clearer understanding of mixed economy, as we discuss its merits and demerits, which are as follows.

Merits of Mixed Economy

1.            Competitive market- Competition is the key to development. In a competitive market, private business entities tries to perform maximum to have larger market share. To win an edge over their competitors, entities supply better quality products at low prices. They try to satisfy consumers by supplying demanded products at an affordable rate. This results in variety of qualifies products at lower prices.
2.            Optimum utilization of resources- under mixed economy, both the private and public sector works for public welfare, the resources of the country are properly allocated and consumed, ensuring negligible wastes. Also, under government regulation, inappropriate allocation or use of resources is avoided or penalized.
3.            Freedom of choice- unlike planned economy, mixed economy provides freedom to people to choose their area of work and also rewards them for their efforts. People have free choice to choose the careers of their wish. Businesses can produce demanded products except the ones, who are banned. Also, to establish peace and harmony, laws are made to safeguard the interests of workers & consumers.
4.            Employment & Profit earning- as discussed, mixed economy is the combined work of state and the people. Due to entry of private business entities, mixed economy has helped in generating employment in the country. More and more people are employed and their expertise is used to earn profit and bring social welfare. Business players give their best to satisfy consumers, which ultimately leads to earning of huge profits.
5.            Less income inequality- under mixed economy, government intends to maintain balanced economic growth. It tries to reduce the income gap between the rich and the poor. Policies are formed to achieve overall economic growth. The deprived section of the society is aided with additional financial assistance via banks or subsidies so that both the rich and the poor grows simultaneously.

Demerits of Mixed Economy

1.            Inefficiency of state-controlled sector- with time, it has been observed that the state controlled or public sectors are the laziest sectors of an economy. Public sectors has proved out to be a liability on the country. In the presence of bureaucracy i.e. complex procedures of doing work and major decisions being taken by the state officials and not the elected representatives, public sectors has become inefficient. Also, corruption, overstaffing of personnel in public sector has deteriorated its worth.
2.            Delay in decision making-   mixed economy faces delayed decisions, especially public sector. Government takes decisions in the presence of various laws and policies which results in delay of decisions. And, it acts as an obstacle in the national growth.
3.            Inefficiency of private sector-  although, private enterprises try to put in their best efforts for profit earning as well as social welfare, but, due to over imposition of restrictions on private sector, its efficiency has reduced. Private sector has more rules and regulations imposed by government. Also, private sector is heavily taxed as compared to public sector. Due to differential treatment, private sector becomes ineffective.
4.            Fear of nationalization- government has complete freedom to nationalize or own or say take over any industry for nation’s development. Private enterprises are afraid of such nationalization. They don’t want to share their ownership. To avoid such transfer of ownership, private players do not perform best or use all their resources for public welfare.
5.            Wastage of resources- corruption is the biggest curse to mixed economy. The officials in public sectors use the resources of the country for personal gains. The resources allocated of public development are eaten up by the intermediaries and people are left bare handed.

With the honest and efficient administration of public sectors and with proper motivation and direction to private sectors via policies favoring private enterprises too, defects mixed economy can be removed.
From above merits and demerits, we conclude, along the USA, even India, Russia, Sweden, U.K, France are mixed economies in the world.


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