It is a golden mixture of capitalism and socialism. Under this system there is freedom of economic activities and government interferences for the social welfare. Hence it is a blend of both the economies. The concept of mixed economy is of recent origin.
The developing countries like India have adopted mixed economy to accelerate the pace of economic development. Even the developed countries like UK, USA, etc. have also adopted ‘Mixed Capitalist System’. According to Prof. Samuelson, “Mixed economy is that economy in which both public and private sectors cooperate.” According to Murad, “Mixed economy is that economy in which both government and private individuals exercise economic control.”
Main Features of Mixed Economy:
Mixed economy has following main features:
(i) Co-existence of Private and Public Sector:
Under this system there is co-existence of public and private sectors. In public sector, industries like defence, power, energy, basic industries etc., are set up. On the other hand, in private sector all the consumer goods industries, agriculture, small-scale industries are developed. The government encourages both the sectors to develop simultaneously.
(ii) Personal Freedom:
Under mixed economy, there is full freedom of choice of occupation, although consumer does not get complete liberty but at the same time government can regulate prices in public interest through public distribution system.
(iii) Private Property is allowed:
In mixed economy, private property is allowed. However, here it must be remembered that there must be equal distribution of wealth and income. It must be ensured that the profit and property may not concentrate in a few pockets.
(iv) Economic Planning:
In a mixed economy, government always tries to promote economic development of the country. For this purpose, economic planning is adopted. Thus, economic planning is very essential under this system.
(v) Price Mechanism and Controlled Price:
Under this system, price mechanism and regulated price operate simultaneously. In consumer goods industries price mechanism is generally followed. However, at the time of big shortages or during national emergencies prices are controlled and public distribution system has to be made effective.
(vi) Profit Motive and Social Welfare:
In mixed economy system, there are both profit motive like capitalism and social welfare as in socialist economy.
(vii) Check on Economic Inequalities:
In this system, government takes several measures to reduce the gap between rich and poor through progressive taxation on income and wealth. The subsidies are given to the poor people and also job opportunities are provided to them. Other steps like concessions, old age pension, free medical facilities and free education are also taken to improve the standard of poor people. Hence, all these help to reduce economic inequalities.
(viii) Control of Monopoly Power:
Under this system, government takes huge initiatives to control monopoly practices among the private entrepreneurs through effective legislative measures. Besides, government can also fake over these services in the public interest.
Types of Mixed Economy:
Capitalistic Mixed Economy:
In this type of economy, ownership of various factors of production remains under private control. Government does not interfere in any manner. The main responsibility of the government in this system is to ensure rapid economic growth without allowing concentration of economic power in the few hands.
Socialistic Mixed Economy:
Under this system, means of production are in the hands of state. The forces of demand and supply are used for basic economic decisions. However, whenever and wherever demand is necessary, government takes actions so that basic idea of economic growth is not hampered.
However, this system is again sub-divided into two parts:
(i) Liberal Socialistic Mixed Economy:
Under this system, the government interferes to bring about timely changes in market forces so that the pace of rapid economic growth remains uninterrupted.
(ii) Centralised Socialistic Mixed Economy:
In this economy, major decisions are taken by central agency according to the needs of the economy.
Features of Mixed Economy:
The following are the main features of the mixed economy:
1. Co-existence of Public and Private Enterprises:
The main feature of a mixed economy is the co-existence of both Public and Private enterprises. They work together. The industries in Private Sector are managed and operated completely by the Private entrepreneurs. The private entrepreneurs are fully free to develop their industries and to start new industries in this sector.
On the other-hand there is Public Sector in which the enterprises are owned and managed by the State. Usually the basic industries like defence, equipment’s, atomic energy, telecommunication, heavy engineering etc. are allocated in the public sector where as the consumer goods industries, small and cottage industries, agriculture etc. are often given to the Private Sector.
Besides this, the State also ensures to the Private Sector not to inter-venue in its functioning and provides several incentives and facilities for the development and the smooth functioning of the sector, so as to make the country’s economy rather more economically strong and powerful.
2. State Control over Private Sector:
In such an economy the State imposes certain necessary measures to regulate and control the enterprises relating to the private sector, so that they make undertake their work in accordance with the national objectives and not only in their own interests.
The Licensing System is an effective instrument in the hands of the State by which it controls and regulates the direction of private industrial investment and production. The other measures of control over private sector which it generally uses are appropriate monetary and fiscal policies. As such the State gives them rebates and tax concessions and credit facilities at the reasonable rates, so as to encourage the private entrepreneurs to invest their savings in the required and right direction.
3. Price Mechanism and State Directions:
Other important characteristics of a mixed economy may be its operation – both by the price mechanism and the state directives. In the public concern all economic decisions relating to production, prices, marketing and investments are taken by the state authorities. On the other-hand it is price mechanism which decides all the important economic policy matters in private sector. The private entrepreneurs take the important economic decisions on the basis of the price and cost analysis of the market and with an object of realising maximum profits.
4. Consumer’s Sovereignty is Protected:
In a mixed economy the sovereignty of the consumers is almost protected which is not possible in a socialist economy. The consumers can purchase commodities freely from the market of their own choice which are produced by the private entrepreneurs according to the consumer’s demand or preferences.
The state sometimes imposes price control over the goods produced by the private entrepreneurs so as to protect the consumers against the ruthless exploitation undertaken by the capitalists or producers of the private sector.
Besides this, the state also introduces public distribution mechanism followed by the rationing of essential goods in short supply, so that the limited available goods may be fairly supplied and distributed among the people in the society.
5. Proper Protection is provided to Weaker Sections of the Society Specially Workers and Labourers:
In the initial stage of Industrial Revolution, the producers or capitalists, ruthlessly exploited the working class. The state thus realised its responsibility to protect this class from exploitation by the industrialists and producers.
It is with this view that the state has implemented a number of Labour Acts to regulate and control the working conditions of labour, such laws are Minimum Wages Act; Industrial Dispute Act; The Workman’s Compensation Act; The Maternity Benefit Act; The Employees State Insurance Act; The Employees Provident Fund Act etc.; provide protection to the workers in respect of employment, injury or casualty by accident, disease, maternity and old age benefits. The state also takes essential steps if there is any dispute arisen in the industry in the interest of the workers.
6. State Takes Measures to Control Monopoly and Concentration of Economic Powers in the Hands of Few:
In a mixed economy a monopolist uses his powers against the interest and welfare of the consumers and wants to realise maximum profits out of his total production which is possible either by reducing the total output or by raising the prices of the commodity.
It results in the growing inequalities in the society and enlarging exploitation of the workers. In 1969 MRTP Act was passed to control or restrict monopolist and the concentration of economic power in the Indian economy.
7. It Reduces Economic Disparities:
A Mixed Economy is often blamed for stimulating economic disparities in the country. But the states in such economies take necessary steps to reduce inequalities of income and wealth. The growing inequalities of income usually may create disparities of opportunities of education and jobs and may further generate class-struggle between the rich and poor workers.
Ultimately, the entire society may be divided into two major camps the rich and the poor or the ‘haves’ and the ‘have not’s”. It is with this view that a welfare state always tries to reduce economic disparities through the proper fiscal and credit policies.
With the elements or characteristics written above we can come to this conclusion that in a mixed economy both sectors-Public and Private work together. On the one hand there are Public and Private work together on the other-hand there are Public enterprises completely owned and managed by the state and the private concerns fully organised and managed by the individual owners on the other.
However, both the sectors still new a few restrictions to remove or minimise all other economic distortions and disparities existing in the economy; so as to develop those sectors according to the main stream of the economic developments.
Problems of Mixed Economy:
Sometimes it has been experienced that the economy does not work well successfully under a mixed economy. In Indian economy, there is a Public Sector to a large extent on the one hand and a weak and controlled Private Sector on the other. As a matter of fact, the Public Sector flourishes in a planned economy. The undue importance to the first at the cost of the latter tends to some sort of problems in the pace of economic development.
The difficulties may follow as under:
- The Private Sector has to work under certain restrictions and control and it is likely to carry out its programmes under a National Plan. But it is experienced in Indian Economy that the process of private sector ultimately depends on the profit motive system and it is generally against the objectives of national planning.
- The transportation of Private Sector into Public Sector, as a State Policy of nationalization of private enterprises, tends to a lot of fear and confusions against private entrepreneurs.
- The Public Sector is encouraged throughout the planning period but its performance is not satisfactory and is almost misfit in the framework of national planning. With the result that none of them fulfills the objectives of national planning and hence it is one of the major factor causing the failure of a long-term planning in India.
Measures for the Efficient Working of a Mixed Economy:
Following are the important steps which can be taken up for the efficient working of a Mixed Economy:
- Political Stability at the Centre:
There should be a strong central government along with the political stability.
- Timely Execution of Plans is Essential:
The prompt and timely execution of plans in inevitably necessary.
- State Policy should be Clear:
The state policy of nationalisation should be clear and understandable to general public.
- Private Sector should Work within the National Guidelines:
The Private Sector should work strictly within the structure of National Economic Planning.
- To Maintain balance between Public and Private Sector:
The Government of India has made it clear that in future, the Government has no programme of nationalisation of any industry and therefore has decided to maintain a balance between the two sectors. So no danger of take-over by the Government.