Mixed economy | Characteristics | Advantages | Disadvantages

What is a Mixed economy?

Mixed economy is the combination of capitalism and socialism. Under the mixed economy, the advantages of both capitalism and socialism are incorporated and at the same time their evils are avoided.

Under mixed economy, both the private and the public sectors function side by side. The Government directs economic activity towards certain socially important areas of the economy and the balance is subject to the operation of the price mechanism.

The public and private sectors work in a co-operative manner to attain the social objectives under a common economic plan.

The private sector constitutes an important part of the mixed economy and considered as an important instrument of economic growth. India is regarded as the best example of a mixed economy in the world.

Mixed Economy - Characteristics, Merits, Demerits
Image: Mixed Economy – Characteristics, Merits, Demerits

Characteristics of Mixed Economy

The following are the main characteristics of mixed economy:

1. Co-existence of the Private and Public Sectors

Co-existence of the private and public sectors is the outstanding feature of mixed economy. In mixed economy, both public sector as well as private sector industries will be functioning. Certain industries will be in the public sector and certain industries in the private sector. Private individuals and firms own private sector industries. Profit will be the primary motive of private sector industries. In public sector, industries are owned and managed by the Government. Public industries will also have profit motive but that too for the promotion of social welfare.

2. Existence of Joint Sector

Joint sector is one where both Government and private individuals establish an organization jointly by contributing the necessary capital.

3. Regulation of Private Sector

Under mixed economy, Government exercises strict control and regulation over private sector industries.

4. Planned Economy

The entire economic structure is subject to the planning of the Government. Mixed economy is a planned economy. The planning commission decides the objectives, targets and allocation of resources etc.

5. Private Property

Under mixed economy, private firms and individuals have right to own and use property.

6. Provision of Social Security

Under mixed economy, Government takes steps to provide social security.

7. Motive of Business Concerns

The motive of the business concerns is profit but coupled with the objective of social welfare.

8. Reduction of Inequalities of Income and Wealth

The Government takes steps to reduce inequalities of income and wealth.

9. Complete Economic Freedom

There is complete economic freedom in mixed economy. Hence, the consumer is free to buy any commodity they like.

Advantages of Mixed Economy

The important advantages of mixed economy are as follows:

1. Efficiency

There will be competition between public and private industries, which will result in greater efficiency and production in a mixed economy.

2. Reduced inequality

The profit of public sector industries goes to the Government and as a result inequalities of income will be reduced in mixed economy.

3. Systematic plan

In a mixed economy, economic activities are carried out as per plan. The entire economic system is subject to systematic planning of the Government.

4. Economic Stability

The economic activities take place in a planned manner. So there will be economic stability in mixed economy.

5. Consumer sovereignty

Goods are produced as per the wishes of the consumers, which results in consumer’s sovereignty in a mixed economy.

6. Freedom

In mixed economy, freedom of enterprise and profit motive are the important features. Further there is competition between public and private sectors. These factors increase efficiency, initiative, innovation and productivity.

7. Promotion of social welfare

Mixed economic system gives importance to the promotion of social welfare. Under this system, both private and public sectors work for the welfare of people.

8. Rights of Individual

Under mixed economy, individual rights are protected. People have freedom to buy any commodity.

Demerits of Mixed Economy

The mixed economy also suffers from various defects, which are as under:

1.Unhealthy Competition

There is unhealthy competition between private and public sectors in a mixed economy.

2. No freedom to pvt sector

There is no freedom to private sector in mixed economy. This is because Government regulates private industries through its various regulations and licensing.

3. Inefficient public sector

Inefficiency of public sector is another demerits of mixed economy. They may suffer heavy losses. People will have to bear these losses. The objective and targets of economic planning also may not be achieved in a mixed economy.

4. Unemployment and Uncertainties

On account of capital scarcity, Government regulation and control, the growth of private sector may be less than what is fixed in plan. It may lead to unemployment and uncertainties in a mixed economy.

5. Threat of Nationalization

There is always a threat of nationalization in the mixed economic system because of which the private sector does not work actively.

In spite of the defects in the mixed economy, it has become popular in some countries. India is one of the important countries, which adopted mixed economy.

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