This post look mainly at the advantages and disadvantages of a mixed economy but first we will define mixed economy.
The mixed economy
There are economic systems that help us understand a bit how the mixed economy works, and these are market economies and planned economies. In the market economies the consumer is the most important , even more than the role played by the government in the economy.
In a planned or controlled economy, the government controls all decisions to own, issue and exchange goods.
In a mixed economy , which is made up of private companies as well as state entities, both are in control of owning, selling and exchanging goods. A mixed economy has a little of what the planned economy is like what the market economy has.
Characteristics of the mixed economy
The main characteristic of a mixed economy is the ownership of assets by private and state entities. Monopolies are developed in this type of economies with greater ease, so they are closely monitored by the government .
For the economy to be mixed, the government must control some parts, but not all of them either. Some areas that the government can control are health and education.
In the United States, the government is involved in welfare and unemployment benefits . We also have these types of programs in Chile, and could be extrapolated as:
- Subsidies to buy housing
- Lease subsidies
- Children’s homes
- Free education
- Employment and minimum wage programs
Advantages of the mixed economy
A mixed economy has several advantages, which we can summarize in the following way:
- It has all the advantages of a market economy.
- All goods and services can be allocated efficiently , by allowing prices to regulate supply and demand.
- It rewards the most efficient producers, giving them a greater benefit and the security that they will get the best value for every dollar spent.
- Innovation is encouraged , so that the needs of the client are met more creatively, cheaply and efficiently.
- More capital is automatically allocated to the most innovative and efficient producers . This allows these producers to have more capital to do business.
- The disadvantages of a market economy are minimized, since the government is also present in priority areas of the nation , such as defense, technology or airspace.
- Companies can freely decide how to manage their business, although they are subject to regulations that obviously will always exist in any market.
- Consumers are the ones who benefit the most, since they can choose different options within the market, with what best suits their expectations.
- With this economic model, income inequality is much lower , since it combines the best of both extreme economic models, generating greater equality of opportunity, so it could be said that it is a very democratic type of economy.
- Monopolies are allowed, but always under the strict gaze of the government that watches because the conditions in which these monopolistic companies act, are not abusive for other companies in the market or for consumers. We have, for example, the health companies, which work as monopolies by geographical area, and therefore must be regulated by a Superintendency, so that they charge fair rates and offer a quality service.
- Better access of certain resources by people from the state is achieved, for example, when state banks are created with funds to promote microenterprise , or when there are bank entrepreneurship programs they can go to, and they are made especially for them .
- The government can allocate subsidies to encourage the development of certain industries , such as technology. In this sense, that the government intervenes in the economy is not negative since it allows to improve the development of the same, to boost its growth and to give it competitiveness.
A pure market economy only rewards the most competitive and innovative, leaving aside those who are not so, there the role of the government helps all members of the economy, although not so competitive, be integrated in a harmonious to the economic system and are also served and valued through its government policies.
Disadvantages of a mixed economy
Among the disadvantages of the mixed economy are:
- The fear of expropriations , as the government and the private sector coexist, there may be a degree of fear in this regard. The same thing happens with the decisions that the government can make regarding taxes, since in this matter they take unilateral decisions frequently.
- The fear of the private sector towards other types of government interference in its operations.
- Resources are not maximized, mainly because the government is trying to mobilize resources to produce products and services that are beneficial to society, rather than to improve the economy.
- The taxes are higher as there is more government intervention in the economy, as the government seeks to ensure their income.
In short, a mixed economy will only work well depending on how it is managed.