A mixed economy is an economy system where the means of production and distribution are jointly owned by the private and public institutions. It is an economic system where the price mechanism and economic planning are used side by side. Certain decisions are taken by households and firms while some economic decisions are taken by the planning authority. Most developing economies are mixed economies.
FEATURES OF MIXED ECONOMY
1) Public Sector: The public sector is under the control and direction of the state. In this sector, all decisions regarding What, How and For Whom to Produce are taken by the state. Public utilities, such as rail construction, road building, canals, power supply, means of communication etc, are included in the public sector. This sector is operated for public welfare and not for profit motive.
2) Private Sector: There is a private sector in which production and distribution of goods and services are done by private enterprises. This sector operates in farming, plantation and manufacture of consumer goods and some capital goods. This sector operates under state regulations.
3) Joint Sector: A mixed economy also has a joint sector which his managed jointly by the state and private enterprise. It is organized on the basis of a joint stock company where the majority shares are held by the state.
4) Cooperative Sector: In a mixed economy, the state provides financial assistance to the people for organizing cooperative societies, usually in farming, storage, processing and purchase of consumer goods.
5) Freedom and Control: A mixed economy possesses the freedom to hold private property, to earn a profit, to consume, produce, distribute and to have any occupation. If this freedom adversely affects public welfare, they are regulated and controlled by the state.
6) Economic Planning: There is a central planning authority in a mixed economy. All sectors of the economy function according to the objectives, priorities and targets laid down in the plan. As a result, the state regulates the economy through various monetary, fiscal and direct control measures. The purpose is to check the evils of price mechanism.
7) Social Welfare: The principal aim of a mixed economy is to maximize social welfare by removing inequalities of income and wealth, unemployment and poverty. The government use measures such as social security, public works to help the poor. Restrictions are placed on concentration of monopoly and economic power in the hands of the rich through various fiscal and direct control measures.
ADVANTAGES OF MIXED ECONOMY
1) Best Allocation of Resources: The price mechanism, the profit motive and the freedoms of consumption, production and occupation leads to the efficient allocation of resources within the economy.
2) General Balance: A mixed economy maintains a general balance between the public sector and the private sector. There is competition as well as co-operation between two sectors which are conducive for achieving a high rate of economic growth.
3) Welfare State: A mixed economy contains all the features of a welfare state. There is no exploitation either by the capitalists or by the state as under a socialist economy. The workers are not forced to work. Labour laws are passed fixing minimum wages, hours of work and laying down the working conditions of workers in factories and on farms.
DISADVANTAGES OF MIXED ECONOMY
1) Non-cooperation between the Two Sectors: From experience the working of mixed economies reveals that the public sector and the private sector do not cohabitate. The private sector is taxed heavily, while the public sector is given subsidies.
2) Inefficient Public Sector: Experience also shows that the public sector of mixed economies is a big burden on the economy because it works efficiently. There is over-staffing of personnel, corruption and nepotism.
3) Economic Fluctuations: Economies of mixed economy are not immune from economic fluctuations. It is due to improper mixture of capitalism and socialism. The private sector is allowed to operate freely under a loose system of government regulation and control.