-Advantages of the Mixed Economy:
1. A mixed economy distributes goods and services to where they
need to be.
Most mixed economies retain the characteristics of the traditional
economic approach. Those traditions don’t guide functionality because
most people aren’t even aware of their actions. You go hunting, purchase a
fishing license, and go to the grocery store each week. Those activities are
possible because the structure of this approach ensures that goods and
services are where they’re needed for each community.
Even if the government owns or operates vital industries in a country, the
central plan works to the benefit of as many people as possible. The United
States operates in the aerospace, healthcare, and banking sectors quite
often. When the economic crisis hit in 2008, they became owners of the
auto industry.
2. Supply and demand get measured through pricing instead of
regulation.
Instead of creating one price for each item someone requires, the structure
of the mixed economy allows for competition. The state might regulate an
industry, but it is up to the individual players to be innovative. This
competitive drive encourages a system of supply and demand that impacts
pricing. When there are low levels of products or services in high demand,
then the price to acquire them goes up. If the opposite occurs, then the
price goes down.
An excellent example of this advantage is found in the U.S. housing market.
The average price of a home in Seattle, which is one of the most popular
places to live in the country, is now $750,000. The median cost of a
property in Coffeyville, KS is only $59,900.
3. A mixed economy improves production efficiency.
Because of the presence of competition in the mixed economy, there are
fewer chances for organizations to form monopolies. Government
regulations often prevent this outcome, which a purist capitalism approach
would not. That means a mixed economy promotes better production
efficiencies.
Organizations must produce high-value assets cheaply and quickly to
improve their profit potential. A pure market economy shifts private
businesses toward mergers and acquisitions, whereas a purist socialist
approach would place the government in full control of this responsibility.
4. Mixed economies promote control equality.
The private sector is responsible for the activities which produce goods and
services in most mixed economies. Microsoft makes computers for
customers around the world under government regulations instead of being
at a state-run facility. That means the public sector is responsible for the
infrastructure that makes private production possible.
The government handles roads, bridges, utilities, and entitlements. It gives
people and businesses the foundation they need to pursue whatever goals
or dreams they have.
5. Employment opportunities are more readily available.
A purist socialist approach might offer employment options that benefit
everyone, but there is no way to create advancement. Your life will always
be the way that it is. In a purist capitalism approach, a race to the bottom in
wages creates a significant gap between the wealthy and those without
assets to offer.
When private corporations can produce higher revenues in the mixed
economy, then they eventually create more employment opportunities that
support their new activities. It becomes a powerful creator of jobs because it
encourages people to develop new skills to help themselves. This approach
can even preserve more employment options during a recession.
6. It minimizes the role that the state plays in the economy.
The mixed economy attempts to balance the need for private innovation
with the need for the massive supports a government provides. Small
businesses have limited purchasing power, but the government purchases
on a gigantic scale. The state can implement subsidies to help particular
industries and enforce specific policies that encourage desired consumer
behaviors.
This approach allows the mixed economy to balance the benefits of
capitalism and socialism in a way that benefits a majority of people
consistently.
7. The mixed economy provides people with a second chance.
The goal of most modern societies is to allow every individual to succeed in
whatever manner they prefer. A socio-economic network is created to catch
those who might fail in the mixed economy that you wouldn’t find in a
purist socialist or capitalistic approach.
If someone fails in a purist capitalistic economy, then that person faces a
significant risk of entering poverty and never recovering from that outcome.
It is also possible to become poor in a mixed economy, but there is better
access to resources that can reverse that situation.
8. A mixed economy automatically allocates capital to the most
efficient producers.
Competition in the mixed economy encourages producers to seek out
innovative processes. Consumers have the option to choose whatever goods
or services they prefer, but the average person will select the item that
provides them with the highest value proposition. That means the structure
of this approach automatically allocates the highest levels of resources to
the organizations that create the best outcomes.
When innovative producers receive this infusion of capital, it gives them an
opportunity to invest in more companies that perform in a similar way.
This advantage naturally encourages more people to gravitate toward the
best items at the price points they can afford.
9. The mixed economy minimizes the disadvantages of a market
approach.
When a purist capitalistic approach is the preference of an economy, then
vital areas can experience neglect if they aren’t profitable – or don’t make
enough profit to satisfy producers in that industry. The three primary areas
that typically benefit from this approach are aerospace, defense, and
technology. When there is a larger governmental role in the development of
these vital resources, then faster mobilization can occur to protect these
areas. This advantage also creates more opportunities for employment,
higher wages, and vocational specialization that aren’t always possible in
other approaches.
10. A mixed economy protects the minority against the whims of
the majority.
The expanded role of the state in the mixed economy when compared to
pure capitalism provides more protection for the minority in daily
activities. Regulations prevent companies from exploiting their workers or
creating unsafe working conditions. People cannot get together to oppress
others or influence pricing schemes because there are protections in place
that force them to separate.
You don’t need to be the most innovative or competitive to find success in
the market economy. Companies and individuals are still at risk if others
have better production methods, but there are still options for disruption.
11. It equalizes the levels of control found in the economy.
In purist capitalism, the producers are in full control of goods and service
acquisition. The purist socialistic approach places the government in this
position. It is only in the structures of a mixed economy where both of these
elements come together with cohesiveness. This fusion generates a need to
coordinate responsibilities within the marketplace to help it continue
growing. That means there is an equal level of distribution.
12. People become the driver of economic success.
When a purist socialist approach is the economy’s preference, then a group
of people or organizations work together to meet the needs of everyone.
Instead of private ownership, everything is mutually owned in some way.
Communism takes this idea to an extreme by putting everything into the
hands of the state. The purist capitalist will have everyone pursue the
highest levels of competition and innovation possible.
The mixed economy allows people to drive it forward by following their
private self-interests. Each person and organization can pursue whatever
incentives they prefer to carve out their desired existence. The government
can regulate these activities, but the structures often prevent the state from
stopping a personal pursuit toward happiness.
13. The mixed economy rewards the hardest workers.
If you are highly productive in a mixed economy, then you have an
opportunity to create your own definition of success. Even if an employer
doesn’t recognize these efforts, you can become an entrepreneur to create a
self-employment resource that generates the income you want. The power
to work or not is in your hands, and you have the option to chase after
whatever goals you prefer. That means you can work a job that gives you
more family time, focus on a high-income situation, or find part-time
employment so that you can pursue a hobby.
The producers who create the highest profits eventually rise to the top. This
advantage creates capital generation, leading to better pricing schemes.
14. Encouragement to Private Sector.
The most important advantage of mixed economy is that it provides
encouragement to private sector and it gets proper opportunity to grow. It
leads to increase in capital formation within the country.
15. Freedom.
In a mixed economy, there is both economic and occupational freedom as
found in capitalist system. Every individual has a liberty to choose any
occupation of his choice. Similarly, every producer can take decisions
regarding production and consumption.
16. Optimum Use of Resources.
Under this system, both private and public sectors work for the efficient use
of resources. Public sector works for social benefit while private sector
makes the optimum use of these resources for maximisation of profit.
17. Advantages of Economic Planning.
In the mixed economy, there are all advantages of economic planning.
Government takes measures to control economic fluctuations and to meet
other economic evils.
18. Lesser Economic Inequalities.
Capitalism enhances economic inequalities but under mixed economy,
inequalities can easily controlled by the efforts of government.
19. Economic Development.
Under this system, both government and private sector join their hands for
the development of socio-economic infrastructures, Moreover, government
enacts many legislative measures to safe guard the interests of the poor and
weaker section of the society. Hence, for any underdeveloped country,
mixed economy is a right choice.
-Disadvantages of the Mixed Economy:
1. It can leave the less competitive members of society without
support.
The mixed economy can take on all of the disadvantages that other
approaches generate since it is a mix of capitalism and socialism. That
means its primary problem involves the members of society who cannot
reach the same levels of innovation or competition. When the marketplace
has too much freedom, then these at-risk individuals and companies might
find themselves without any support from the government.
This disadvantage creates a system where the wealthy get more, and the
poor get less. As people gain more power over others, they work to
consolidate their positions so that they don’t lose them. It creates a wealth
curve where the Middle Class struggles to exist.
2. The mixed economy doesn’t eliminate the possibility of
monopolies.
When the government can still centrally plan in specific industries while
operating in a mixed economy, then there can be problems with oligarchies
or monopolies forming. This issue often happens in the defense industries
that support the armed services. When subsidies become necessary to help
people afford goods or services, then it creates more debt for the state to
manage. This process slows economic growth in the long-term perspective
that short-term gains cannot manage.
3. A mixed economy often produces high taxation
responsibilities.
The state is responsible for public-sector services that make the
marketplace accessible to consumers and producers. That means it needs
financial support that comes from thee two entities. The most common
method of achieving this result is through taxation. The mixed economy
will tax companies and individuals at different levels, with more
government involvement often dictating a higher level of responsibility in
this area.
Social services and infrastructure needs are benefits that everyone enjoys,
but a high tax rate can also become a disadvantage. People need to see the
benefits of this kind of investment. If they believe that the state is wasting
their money, then there is less motivation to find employment.
4. Organizations have restrictions in their overall size.
As the world shifts toward more of a global economy, today’s companies are
becoming beginner than ever in terms of market value. Apple, Amazon, and
Microsoft are all above the $900 billion level, with Alphabet close behind at
$863 billion as of 2018. Apple is also the world’s most profitable company,
earning a net income of $59.4 billion that year. These figures are higher
than some small countries.
Even with these size considerations, the market economy prevents
additional growth from occurring. Companies can scale upward by
themselves, but they cannot control the entire market to create monopolies.
The government ensures the marketplace continues to receive competition
so that an appropriate value proposition continues to be available.
5. The state has the power to change its mind in a mixed
economy.
The mixed economy serves at the luxury of the government. Officials have
the opportunity to change their minds with this approach, sliding it toward
a purist state if that is their preference. This disadvantage is especially
prevalent in the countries where operations occur under an uncodified
constitution. Canada, Saudi Arabia, New Zealand, Israel, and the United
Kingdom operate on a set of laws, principles, and agreements rather than a
single constitution.
When there isn’t a direct set of expectations that govern the economic
processes, it is much easier to change them to create personal advantages.
6. The mixed economy encourages people and agencies to go into
debt.
One of the most prominent dangers of the mixed economy is
overdevelopment. This disadvantage occurs in the centralized planning of
the public sector most often, but individuals and companies can also fall
into this debt trap. Government-run industries can hastily turn into
subsidized mergers that require massive spending. The state then shifts
budget resources from other segments to settle those charges, creating new
obligations in a never-ending cycle.
This disadvantage is how the U.S. manages its overall debt. The current
national debt surpassed $23 trillion for the first time in November 2019.
Almost $400 billion in interest payments, about 50% of the defense budget,
gets paid annually because of this issue.
7. It can encourage companies to become top-heavy.
When the recession hit the United States in 2008 because of the real estate
market and other factors, it became apparent that some companies had
become so integral to our economic state that they were too big to fail. This
problem doesn’t apply only to American businesses. Several international
firms are also systemically important based on their total assets.
You’ll see names like Mizuho, Deutsche Bank, Credit Suisse, Bank of
America, Goldman Sachs, Citigroup, and Wells Fargo on that list. The
mixed economy creates this situation when there isn’t enough regulation in
the marketplace to control growth. If a recession occurs, then individual
consumers end up being responsible for their needs and the survival of
these institutions.
8. The mixed economy encourages special interest activities.
The synergy between the government and operating producers creates a
market where each lobbies the other. Successful organizations can lobby
the state to receive more tax breaks, subsidies, and other financial
considerations. This process can lead to a company taking on more risks
than the free market would allow, creating problems that eventually need a
fix.
The government can lobby businesses to perform in specific ways through
contracts. By creating specific employment and revenue generation
opportunities, the state controls the way some businesses behave in the
economy. Both approaches rely on those with the most money and
influence, so it can be challenging for others to have a say in the legislative
process.
9. Private protections don’t need to exist in a mixed economy.
The mixed economy will usually protect private ownership, but this
approach doesn’t always occur. Before the privatization efforts in the Soviet
Union took place in the 1990s, it was essentially illegal to own property or
enterprises. The government emphasized national control over all
production except for human labor, leading to the development of about
45,000 state enterprises.
Even when privatization does occur, the government can take it back.
Russia took control of strategic sectors once again by gaining a controlling
interest in private businesses. Their efforts to take VSMPO-Avisma and its
titanium production was one of several examples that happened between
2004-2007.
10. Un-stability.
Some economists claim that mixed economy is most unstable in nature.
The public sector gets maximum benefits whereas private sector remains
controlled.
11. Ineffectiveness of Sectors.
Under this system, both the sectors are ineffective in nature. The private
sector does not get full freedom, hence it becomes ineffective. This leads to
ineffectiveness among the public sector. In true sense, both sectors are not
only competitive but also complementary in nature.
12. Inefficient Planning.
There are no such comprehensive planning in mixed economy. As a result,
a large sector of the economy remains outside the control of the
government.
13. Lack of Efficiency.
In this system, both sectors suffer due to lack of efficiency. In public sector
it is so because government employees do not perform their duty with
responsibility, while in private sector, efficiency goes down because
government imposes too many restrictions in the form of control, permits
and licenses, etc.
14. Delay in Economic Decisions.
In a mixed economy, there is always delay in making certain decisions,
especially in case of public sector. This type of delay always leads to a great
hindrance in the path of smooth functioning of the economy.
15. More Wastages.
Another problem of the mixed economic system is the wastages of
resources. A part of funds allocated to different projects in public sector
goes into the pocket of intermediaries. Thus, resources are misused.
16. Corruption and Black Marketing.
There is always corruption and black marketing in this system.
Political parties and self- interested people take undue advantages
from public sector. Hence, this leads to emergence of several evils like
black money, bribe, tax evasion and other illegal activities. All these
ultimately bring red-tapism within the system.