Economic system that is composed of market economies, free and economies along with intervention of the state is what we call an appropriate mixed economy. There is also a cohesive blend of public enterprise and private enterprise.
When a capitalist market economy fuses with regulatory intervention of the state, a proper mixed economy is formed. This regulatory authority of the government exercises macroeconomic influence with the help of monetary and tax-related policies. In the mixed economy, the law of demand and the law of supply determine the prices of the products. At its apex, the federal government protects its market.
Now let us go through some of the pros and cons of mixed economy.
Pros of Mixed Economy:
- Control is distributed equally:
Mixed economies enjoy the privilege of striking a balance between their governments and their private markets. Under the moderate supervision of the state or the government, the free market expands and revels in its freedom. Several private entities evolve and they look after the business. Certain services such as electricity, hospitals, social security and roads are looked after by the state. This is how the government and the private economy function together in the mixed economy.
- Private sectors are more efficient:
The private sectors look after the business of a mixed economy to a great extent. As a result, their business activities are profit oriented unlike public sectors.
- Government is a supervisor:
In mixed economies, the governments act as referees or supervisors. They regulate the market activities and look after the welfare of their people. Governments in mixed economies authorise economic stability. Another factor that these mixed economies stabilise is the safety of their people during economic emergencies. Overall, this federal structure enhances the economic conditions of a country and regularises its businesses. The business firms in the mixed economy, hence can flourish.
- Reduces poverty:
Unlike a Capitalist economy that creates a huge gulf between the rich and the poor, mixed economies establish a balance between the two. Hence, equality is guaranteed and the poverty margin is reduced.
Mixed economies offer a delightful opportunity to the aspiring entrepreneurs who intend to begin their own business start-ups. Since private sectors can enjoy an equal amount of freedom, several business firms can come up with their own business ideas and profit distribution. As a result, employees are rewarded for their hard work and dedication.
- The government can implement favourable policies:
Free market in a mixed economy cannot ensure public safety and security. Hence the government operates where the market significantly fails. The government can employ or implement favourable policies that benefit the whole country.
- Job Opportunities:
The private companies have an inherent tendency to increase their profit. As a result, there is a greater chance for the common people to get good job opportunities. Also, mixed economies have diverse sectors: there are food outlets, entertainment industries, IT sectors, education and health.
There are private hospitals and nursing homes and there are private schools and universities which exist despite the intervention of the state. Both the private and the public sectors hire employees and offer job security. Hence, in a mixed economy, a fresher has numerous fields to explore.
- Freedom enjoyed by the private companies:
Private companies can thrive without being answerable to the state. They can evolve by their own efforts and enjoy certain privileges which they would not have enjoyed had they functioned under the dominance of the government. There is no dictatorship and similarly there is no imbalance between the various sections of the society. Both the sectors can operate freely and execute their own responsibilities.
Cons of Mixed Economy:
- Difficulty in striking a balance:
Often a mixed economy fails to operate perfectly due to an imbalance between market freedom and wealth equality. This difficulty alone can compel a nation to experience severe economic crises. The whole economy can collapse if this balance is not maintained.
- Government’s role:
Sometimes, it is really difficult to fix the role played by the government in a mixed economy. The government can intervene in the business affairs of the private companies and can be unfair in certain circumstances. Social reformists are often of the opinion that governments operate poorly on several occasions, and hence their interventions can affect the business ideas of the private companies.
- Private companies take profit oriented measures:
It is true that private sectors focus more on their profit margins. As a result, they pay less attention to the welfare of the economy. A private hospital is inevitably more expensive, but a public hospital is more affordable. This is because governments in mixed economies are obligated to ensure safety for their people. Their measures and policies are people-driven. But, on the other hand, the private sectors have no such obligation. They are not obligated to provide services that promise welfare of the people.
- Corporate size:
Certain economic ideas of the private sectors are heavily compromised because the government can reduce the company size. On several occasions, some private companies are ruthlessly taxed and hence, they cannot enjoy complete entrepreneurial freedom.
- Taxes are astonishingly high:
If in a mixed economy, the government has a huge role to play, then its investment is enormous as well. If the services provided by the government are more in number, it requires more revenues in the form of taxes to function efficiently.
There is a high chance that the common people can be heavily taxed to help their government run properly. This has a glaring problem. The employees may lose interest and motivation to work harder because a larger portion of their income can directly go to the taxation department.
- Complicated economic system:
An economic clash may occur between public and private sectors.
A mixed economy has its own shares of benefits and loopholes. Keeping the political intricacies aside, if the economy alone fails to operate smoothly, then the whole nation can suffer a lot. A perfect balance, therefore, is more desirable without which the government and the private sector can totally collapse.