A mixed economy means that one part of the entire economy is being controlled and run by a certain country’s government, while the other half is left to the free market. Most economies of the countries all over the world are mixed, and they only differ in terms of intervention by the state. This system usually begins by authorizing private enterprises to run the majority of businesses before the government intervenes with specific areas of economics, such as inflation protection and taxes. Great examples of countries running on mixed economy are Sweden, Iceland, the UK, France, the US, China, Russia and Hong Kong, just to name a few.
However, like most things in this world, this economic system also has its own share of advantages and disadvantages. So, which is really the best option for most countries? Will a mixed economy be good for a certain nation or will it just pull it downward? To get a well-informed answer to these questions, let us take a look at its pros and cons.
List of Pros of a Mixed Economy
1. Equal Distribution of Control
Unlike command economies that put the government primarily in charge, a mixed economy gives the government less regulation and control. This provides the private market with freedom to thrive, operate, expand and grow. Because most of the business is left in the hands of private entities, a great deal of service will be taken care of by groups other than the government. On the other hand, services that will not benefit those in the private sector, such as utilities, libraries, hospitals, roads and social security, are left to be handled by the government.
2. More Efficiency for Private Firms
As stated above, most of the business is left to the private firms, so these organizations are more likely to be efficient compared to groups that are controlled by the government, as they have profit incentive for being innovative and for cutting costs.
3. Freedom for Private Enterprise to Thrive On Their Own
In most cases, private companies can perform public service jobs more efficiently than the government itself. In addition, businesses can allow people to enjoy financial rewards for hard work. In a mixed economy, commercial organizations are given the freedom to manage their own business, hire and fire when necessary and even change the purpose of the business.
4. A Defined Role for the Government as Referee
With business left to private enterprises, the government can focus on the regulation of the market to improve economic stability and the country as a whole. When correctly implemented, the government’s policy decisions may seem counter intuitive to the interests of businesses at first, but will actually provide greater stability in the long run. Plus, a mixed economy allows for a social safety net that provides safety for the people who are hit hard by difficult economic times.
5. Safe Haven from Poverty
A mixed economy can help create improved equality and can offer safety net that will prevent the people in a certain country from suffering absolute poverty. It even allows people to enjoy financial rewards of hard work and entrepreneurship.
6. Greater Chance for the Government to Implement Good Policies
This type of economic system is known for allowing government regulations in areas where market failure is experienced. This means that a region will have more space to develop and grow to attain economic success.
7. More Job Investments Coming In
For private companies to improve profits, they often will not try to increase income, but decrease expenditure instead by cutting down on employment. These days, this comes not only in the form of job cuts, but outsourcing as well. The cheap labor available throughout all corners of the globe has inspired companies to cut on jobs domestically and hire labor elsewhere to save more money.
This is something a government is less prepared to do, as shown by the UK’s recovery from the 1930s crisis, as it would invest more in jobs to get out of its hole. By doing so, more people will find work in their own country, but would increase spending again.
List of Cons of a Mixed Economy
1. Challenge of Finding a Balance
One of the biggest issues that come with a mixed economy is finding a balance between wealth equality and market freedom. This is seen by a number of socialist and progressive thinkers. This problem can lead to lack of social mobility and wide-scale poverty.
2. Government Going Too Far
While sometimes the government does not go far enough, it can also go too far. Identifying the government’s exact role in private enterprises is sometimes a guessing game that results to unfair practices exhibited on both sides. According to Libertarians, the government tends to manage an economy poorly, and as such, any of its involvements is considered wrong.
3. Excessive Intervention by the Government
Free market economists also criticize a mixed economy, as it allows excessive intervention of the government. Most governments are invariably influenced by short-term political factors.
4. Limited Corporate Size
In a mixed economy, the government might limit company sizes because of rules regarding anti-trust laws and monopolies. Here, companies may even be harshly taxed to support other economic aspects. Without particular security measures in place, entrepreneurial spirit may be destroyed.
5. Higher Taxes
More state intervention in the economy, of course, requires greater investment from the government, which largely comes from tax revenues. An argument against such intervention is that the more it is, the more the need for people to be taxed. This will lead to negative consequences, such as decreased motivation in work, as employees see a large proportion of their earnings going to the taxation agency.
In the end, the fact remains that the failure or success of a mixed economy still depends upon how it is being managed. Even the most ardent market economists argue that government intervention is definitely needed for protecting private entities. On your end, what do you feel about a mixed economy? Based on the pros and cons mentioned above, do you think it will do your country any good or will it just make situations even worse?
Natalie Regoli, Esq. is the author of this post and the editor-in-chief of our blog. She received her B.A. in Economics from the University of Washington and her Masters in Law from The University of Texas School of Law. In addition to being a seasoned writer, Natalie has almost two decades of experience as a lawyer and banker. If you would like to reach out to contact Natalie, then go here to send her a message.