Mixed Economy: Definition, Types, Features and Problems

Let us make an in-depth study of Mixed Economy:- 1. Definition of Mixed Economy 2. Types of Mixed Economies 3. Features of Mixed Economy 4. Problems of Mixed Economy 5. Measures for the Efficient Working of a Mixed Economy.

Definition of Mixed Economy:

Meaning and Definition:

1. Mixed Economy is a two Wheel economy in which Private Sector and Public Sector run together.

In other words—it is neither pure capitalism nor pure socialism but it is the mixture of the two.

In this economy private enterprise is not permitted to function freely and uncontrolled. The Government intervenes to control and regulate private enterprise.

2. Hanson has written that—”Mixed Economy is a golden mean by socialism and capitalism”.

3. Joseph E. Stigtitz has defined the concept in a much more simple manner. He says that Mixed Economy is a “Mixture of Public and Private Decision-making.”

4. Prof. A. Samuelson has defined—”Mixed Economy as on which primarily relies on price mechanism for economic organisation but uses a variety of government interventions, such as taxes, spending and regulation to handle macro-economic instability and market failures.”

Further, a mixed economy implies the operation of both Private Sector and Public Sector. The enterprises in the private sector are not permitted to work freely through price mechanism and are often controlled by the state in order to stimulate them to work within the frame work of the national economic planning.

On the other-hand the state in the underdeveloped countries like India actively participates in economic activities, so as to minimise the evils of pure capitalism and to realise the benefits of the socialism as well.

The evolution of the concept of “Mixed Economy” is the development of the 20th Century. It emerged as a measure to avoid the evils of economic liberty or “Laissez Faire” on the one hand and to realise simultaneously the good qualities of socialisation of means of production on the other.

Types of Mixed Economies:

There are two types of mixed economies:

In one type the ownership of the means of production i.e., farms and factories is owned and controlled by the private sector and the Government merely controls and regulates the functioning of the private sector.

In the second type the government directly participates in productive enterprise side by side with private enterprise. The government sets up industries of its own and invests its own capital and purchases or hires the productive resources and takes the risk of profit or loss like an ordinary entrepreneur.

There are also Joint Sector which is shared both by Private and the Public Sector.

The U.S.A. and the U.K. are prominent examples of first type of mixed economy while India represents the second type of mixed 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:

1. 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.

2. 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.

3. 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:

1. Political Stability at the Centre:

There should be a strong central government along with the political stability.

2. Timely Execution of Plans is Essential:

The prompt and timely execution of plans in inevitably necessary.

3. State Policy should be Clear:

The state policy of nationalisation should be clear and understandable to general public.

4. Private Sector should Work within the National Guidelines:

The Private Sector should work strictly within the structure of National Economic Planning.

5. 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.