Mixed Economy Advantages

When considering mixed economy advantages, they comprise a combination of the advantages that are attributed to both capitalist and socialist economies. A mixed economy refers to an economic system that combines the attributes of a free enterprise and a coordinated economy, through this synthesis, the features of both the socialist and capitalist economy are found in societies that practice it. A mixed economy comprises both public and private enterprises coexisting side by side.

While the government directs the economy towards specific socially important sectors of the economy such as education, healthcare, and transportation; the private sector contributes to the economy in the various sectors where they operate and provide products or services to the public.

The balance of the mixed economy is hinged on the price mechanism and the cooperative manner in which the public and private sectors work together to achieve specified social objectives as outlined in the economic plan of the particular society. A lot of modern economies such as India practice a mixed economic system. Let us now consider the advantages of a mixed economy.

See also: Command Economy Disadvantages

Mixed economy advantages

  1. Economic development
  2. Encourages private sector participation
  3. Government intervention
  4. Improved social welfare
  5. Increased productivity and efficiency
  6. Individual and economic freedom
  7. Job security and equitable distribution of income
  8. Lesser economic inequalities
  9. Limits the raise of monopolies
  10. Reduced incidences of market failures

Economic development

A common advantage of the mixed economy is that the combination of government and privately owned and run enterprises serve as a means of boosting economic development and growth. As both the public and private sector work side by side, more facets of the economy are active. This means that more people get employed to work at various companies and more money gets into society through the wages that are earned by these workers. The presence of so many economic actors fosters the growth of internal and external trade.

This is made possible due to the high rate of production that will be recorded as a result of the combined presence of both the government and private business owners. It further ensures a complementary relationship between the two sectors which aids in covering lapses in the economy that will normally be a challenge if only the public or private sector was an active participant in the economy. The increased production increases the rate of exports which in turn boosts the income from external trade.

Consequently, the whole economy benefits and keeps expanding; the level of individual wealth increases, and the country’s gross domestic product (GDP) gets boosted too which aids the society to have considerable economic growth. This economic development is a benefit of the mixed economy that is practiced within such a community.

Encourages private sector participation

A mixed economy encourages the involvement of the private sector in the economy. This participation leads to an increase in capital formation through the increased number of companies that operate within the society. The private sector enjoys the autonomy of running their business in their own way and making a profit as is obtainable in a liberal economy. They however need to operate within the legally acceptable standards of the sector in which they operate as well as in compliance with state laws as is common in coordinated economies.

The balance of having the freedom to do business within the limits of legally acceptable standards is an advantage of the mixed economy which fosters the participation of the private sector in the economy. One common example of this type of mix of the free market feature of capitalism and the government regulations of socialism can be seen in how the U.S Food and Drug Administration (FDA) regulates companies that are into the production of medical devices, animal and veterinary products, food, drugs, tobacco, cosmetics, radiation-emitting products, vaccines, blood, and biologics.

By the U.S. Food and Drug Administration regulation, companies that operate in any of the industries mentioned above have to comply with the standards set by the organization if they operate within the United States and want to sell their products to Americans. When it comes to decision-making, the participation of the private sector in the economy ensures that certain decisions that affect the nation’s economy cannot be made without their active participation and involvement. This means that the interest of both the public and private sectors are made to tally through adequate discussions and alignment of ideas.

Hence, the private sector is part of the decision-making process and this is part of the mixed economy advantages. It is an advantage because instead of having all decisions made by the government as is obtainable in a command economy or by the private sector as is obtainable in liberal economies, the mixed economy offers the advantage of having both sectors come to a common understanding and agree on what should be done in the economy. Additionally, the private sector gets to grow and blossom in such an economy where their participation in the economy is encouraged. They also get to relieve the government of bearing the sole responsibility of planning and managing the economy.

Mixed economy advantages
Advantages of mixed economy

Government intervention

One of the major mixed economy advantages is the participation of the government in the economy through intervening in various aspects where their intervention is necessary to ensure a smooth running of the market. The government may develop and set strategic targets for the economy through a clearly defined economic plan or policy and demand that all companies key into the plan by contributing their quota to its actualization through the products or services they offer consumers. In an event when private sector production is unable to meet up with societal demands, the government through its owned enterprises can step in by providing such products and services.

The government may also intervene directly or indirectly in the economy to control the production, consumption, and pricing of certain goods and services. For instance, the government may provide subsidies to private companies that operate in key industries such as the health, education, housing, electricity, transportation, and energy sectors. The subsidy serves to cushion production costs which is a major determinant of the price of products made. Hence, the market price of the goods and services offered are made affordable for citizens due to the subsidy. This in turn ensures that all citizens are able to afford the basic necessities that they need for daily living such as food, shelter, and clothing.

Additionally, by banning the production and consumption of certain products such as cocaine, heroin, and other hallucinogens, the government directly controls their production and consumption. Hence, ensuring the well-being of its citizens and the reduction or elimination of the production and consumption of hard drugs within the community. Charging higher taxes or levies on some products such as precious metals, haute couture, jewelry, yacht, and other luxury goods can also indirectly affect their production and availability in the society.

When this is done, the companies that manufacture such products will definitely have to charge higher for such products. This in turn indirectly controls consumption as the number of people that can afford to buy such products will also be reduced. Therefore, government intervention in the mixed economy serves as an advantage in this regard as it subsidizes the production of its citizen’s necessities and bans the production of harmful products such as hard drugs.

See also: Advantages of free market economy

Improved social welfare

Since the government in this type of economy is both directly and indirectly involved in the market through the provision of certain goods and services that provide social benefits to its citizens and supervises and sets industry standards and requirements in the various economic sectors; it goes a long way in ensuring the improved social welfare of individuals. This is also one of the mixed economy advantages. While the government may carry out various social welfare programs such as providing food vouchers, cheaper housing, healthcare, and basic education. The private sector is also not left out when it comes to catering to and improving the social welfare of the societies where they operate.

Usually, the government encourages the private sector in being part of improving social welfare by granting tax holidays or reductions for companies that are into the production of goods or provision of services that improve social welfare. The government may also make it mandatory for all companies operating in the country to carry out at least one community development project yearly as a criterion for their continuous operation in the community. The private sector on their own accord may also choose to organize other social welfare improvement activities such as public health enlightenment lectures, skill acquisition training, etc.

This combined effort of the government and the public sector to improve the social welfare of individuals is another advantage of a mixed economy. Additionally, the government ensures the prices of goods and services, as well as productions, are made with the aim of achieving maximum social welfare. Thus, individuals benefit from the mixed economy.

Increased productivity and efficiency

Another advantage of the mixed economy is the increased productivity and efficiency of firms and individuals. A mixed economy ensures the increased productivity and efficiency of both corporate entities and individuals due to the market-based incentives present in the economy. For corporate entities, the incentive comes in the profits realized from the sales of goods or provision of services; while that of individuals comes in the form of wages, salaries, and other bonuses realized from the work they do. Companies continuously try to meet the needs of consumers by ensuring they effectively utilize their resources when producing and making available the various goods or services they sell.

They do so because consumers are at liberty to make purchases of the goods and services that best meet their individual preferences. This is another advantage of the mixed economy for consumers. By this, consumers vote with their dollars through the products and services they buy to keep the businesses that meet their needs in business and they do not patronize businesses that fail to meet their needs. Knowing this, companies regularly carry out research to know what the consumers want and they continuously work at creating better products and services that meet the needs of consumers in the most efficient manner.

In addition, the profits that are accrued by companies when they cater to the needs of individuals through the good or service they provide serves as a motivation for these companies to efficiently manage the resources available to them. This includes all the factors of production such as land, labor, and capital. The public sector also efficiently uses its resources when making productions. These private and public sectors combined are forced to keep a high level of productivity and creativity in other to meet up with the competition available in the sectors where they operate.

This leads to an overall increase in productivity and efficiency that is highly beneficial to society. Therefore, increased productivity and efficiency of production are advantages of the mixed economy.

Individual and economic freedom

An important advantage of the mixed economy is the freedom enjoyed by individuals in society. As individuals living in a mixed economy, a person is at liberty to choose their career path, whether or not they want to get an education, undergo skills acquisition, or start their own business. This brings about good diversity in society as individuals will choose different carrier paths that will ultimately lead to a more balanced economy. There will therefore be the availability of labor in all facets of the economy such as academics, doctors, engineers, lawyers, firefighters, law enforcement officers, bankers, stockbrokers, real estate managers, etc.

The use of one’s resources for investments or various purchases is also strictly left at the individual’s discretion. This means that people are at liberty to invest in ventures that they support. As a result of which companies in different sectors are able to access funding from investors who are interested in the particular sector where they operate. Similarly, manufacturers in this kind of economy are free to produce whatever kind of good or service they please provided it is within the acceptable standards or the rules and regulations established for the industry in which the company operates.

Thus, individuals and corporate entities enjoy a high level of freedom in a mixed economy which may not be as much as that enjoyed in a free market but at the same time, higher than the stringent restrictions prevalent in a regulated market. This is another great benefit of a mixed economy.

See also: What is an Unregulated Market?

Job security and equitable distribution of income

Trade and employers union play a vital role in ensuring that individuals that work in a mixed economy enjoy an improved level of job security and a considerably stable amount of income. The trade and employers union generally consult with each other in the process of setting up the various tasks associated with varying job titles, the length of job contracts as well as the remuneration for jobs done. This ensures uniformity of salaries among firms that operate within the same industry, instead of having varying wages set by the board members of the companies or being negotiated between the employer and employee at the time of hiring.

On the part of the government, they mostly serve as an unbiased umpire that sets the pace of wages through the establishment of various guidelines that are useful in providing guidance to companies based on the minimum wage level as well as the expected years or length of service or work. Pension funds, other retirement plans, and on-the-job freak accident provisions are further set up to help cushion the effects of accidents or retirement when they occur. There may also be provisions for having paid leave for a few weeks each. These are all advantages of the mixed economy that employees benefit from.

The working class may also enjoy certain severance benefits when their employers terminate their work contracts. Such benefits may include life insurance, getting paid up to 6 or more months’ salary advance at the termination of one’s employment, etc. By these mechanisms, workers in mixed economies enjoy the advantage of having both job security as well an equitable distribution of income. Thus, the public and private sectors work hand in hand to curtail imperfections that are prevalent in the labor market when only the public sector operates as is found in socialism or when only the private sector operates as found in capitalism.

Lesser economic inequalities

An advantage of a mixed economy is the reduction of economic inequality among individuals in societies that operate on this type of economy. Economic inequalities which are a common feature of economies whose means of production are controlled solely by the private sector become reduced when the mixed economic system is practiced. This is so because the mixed system supports both the private and public sector engagement in the marketplace. Through this dual involvement of the sectors, economic inequalities based on social class that segregates citizens into the poor, middle class, and rich get greatly reduced.

In the same vein, economic inequality can also be easily controlled by the government through various poverty alleviation efforts and the imposing of taxes based on an individual’s income level. This ensures that citizens’ taxation is done equitably and in a way that aligns earnings to the amount paid in taxes. Therefore, an important pro of the mixed economy is the reduction in economic inequality that may exist if a different economic system was in play in society.

Limits the raise of monopolies

Another benefit of a mixed economy is that it limits the raise of monopolies. A monopoly is a situation whereby the means of production are controlled by a few individuals; which leads to an inordinate accumulation of wealth for these individuals through their control of a large part of the production and services sector of the economy. Monopolies rarely occur in mixed economies because competition is encouraged and different companies are involved in the production and services sectors. This means that no single company has a hundred percent monopoly on operating in a specific industry. There are usually several companies operating and providing similar goods and services.

The presence of competition provides a level playing ground for all companies as it allows for the participation of both government-owned and privately owned companies in the economy. This freedom of participation in the market is a huge benefit of operating a mixed economy which lessens the possibility of the occurrence of monopolies.

See also: Mercantilism vs capitalism differences and similarities

Reduced incidences of market failures

One of the top disadvantages of the free economy is the risk of market failure that could arise due to the lack of regulation of the market. This risk is mitigated in the mixed economy because the market has a mixture of both free and regulated markets. The coexistence of the public and private sectors in this type of economy ensures that each sector makes up for any imperfection that could arise from the other sector. Due to this complementary role, they fill up loopholes that could arise and cause a market failure if only one sector was active in the market.

Hence, the government is necessary to set up economic plans that minimize economic fluctuations and other economic inconsistencies that could result in a market failure while the private sector ensures a continuous running of daily market activities that meet the needs of all economic actors in the market. This is one of the important mixed economy advantages.

What are the advantages of a mixed economy?

The mixed economy advantages include limiting the raise of monopolies, improved social welfare, economic development, private sector participation, government intervention, and increased productivity and efficiency.

Some other mixed economy advantages are reduced incidences of market failures, individual and economic freedom, job security and equitable distribution of income, and lesser economic inequalities. All these combined benefits are enjoyed by individuals and societies where the mixed economic system exists.

Last Updated on November 3, 2023 by Nansel Nanzip Bongdap

Blessing's experience lies in business, finance, literature, and marketing. She enjoys writing or editing in these fields, reflecting her experiences and expertise in all the content that she writes.