A mixed economy is an economic system which combines elements of private enterprise with elements of public enterprise. That means there are characteristics of both capitalism and socialism found throughout the socioeconomic system.
In the typical mixed economy, there are systems in place that preserve the right to own private property. It also allows the government to interfere with economic activities to achieve specific social goals.
Many of the governments in the developed world today use this type of economy. The United States, the United Kingdom, France, Sweden, and even China all incorporate elements of a mixed economy.
Here are the biggest pros and cons of a mixed economy to think about and discuss.
Biggest Pros of a Mixed Economy
1. It minimizes government influence without eliminating it.
A mixed economy attempts to balance the need for private innovation with the need for the massive supports a government provides. Small businesses have limited purchasing power. The government, however, can purchase on a massive scale. They can implement subsidies to help certain industry. They can implement specific policies that encourage specific consumer behaviors. By combining these attributes, the best aspects of both can be obtained.
2. It is a jobs creator.
When private companies are able to produce higher revenues, they eventually create more jobs to support the new level of business. Governments hire more workers when there are more public-sector opportunities to manage. When a mixed economy is growing, it becomes a power jobs creator. If a mixed economy is in recession, it can preserve more jobs as well, especially within the public sector.
3. A mixed economy helps to create a socioeconomic safety net.
The goal of most modern societies is to give every person a chance to succeed in a way that suits them best. Within a mixed economy, a social net is created to catch those who might fail. If someone fails in a true market economy, then they face a high risk of entering poverty and never returning. Someone may enter poverty in a mixed economy as well, though they will have access to resources that someone in a market economy would not have to get back on their feet.
4. It creates a defined role for the government.
In a mixed economy, the government can choose to get involved in some business ventures if it so chooses. The United States has become directly involved with mortgage lending, student loans, professional baseball, and even the automobile industry. The government can also choose to let private businesses direct the economy, allowing the government to make decisions that encourage continued growth. The government is able to create policies that limit the influences of the private sector, while ensuring people are cared for with an integrated public-sector structure simultaneously.
5. There are more opportunities for businesses to thrive.
In a mixed economy, businesses (and their employees) enjoy the ability to achieve success through their hard work. They can pursue most business ventures with a minimal level of supervision. Employees can choose their job positions and employers instead of having those roles be dictated by the government. That structure encourages innovation because there is competition within the market. As a result, consumers within a mixed economy have access to more choices and pricing options.
6. It improves production efficiencies.
Because competition is present in a mixed economy, with limited opportunities for monopolies to form, a mixed economy encourages better production efficiencies. Companies must be able to produce high-value goods quickly and cheaply to improve their potential for profit. In a true market economy, private businesses would shift toward mergers and acquisitions. In a command economy, the government would fully control the process. Both options provide few incentives to continually improve.
7. There is an equal level of control within the economy.
In a free market economy, the businesses are in full control. In a command economy, the government is in full control. It is only within a mixed economy where both elements are forced together. This fusion creates a need to balance responsibilities within the economy to help it continue growing. That means there is an equal level of distribution when it comes to control.
In most mixed economies, the private sector is responsible for the activities which produce goods and services. Apple makes iPhones, not a U.S. government production facility. The public sector would then be responsible for the infrastructure which makes private production possible. The government handles roads, bridges, utilities, and entitlements.
8. This economy type helps to protect the general population.
In a free market economy, the production of goods takes an “anything goes” approach. In a command economy, it takes a “whatever is needed, but nothing more” approach. In a mixed economy, the government tends to interfere with industries when unsafe products are produced. If listeria is found in lettuce, for example, the government can order a recall of all affected products. They can also pass legislation that disrupts certain industries for the overall good of the society.
9. It distributes goods or services where they are need.
In a mixed economy, all the advantages of a free market economy are present. The distribution of goods and services occurs where the items are needed the most. The process of distribution allows for supply and demand to be measured, which helps to dictate pricing within the economy. That allows the producers with the highest levels of efficiency an opportunity to achieve the highest possible processes.
10. Mixed economies provide capital for innovation.
Within a mixed economy, the companies which are the most efficient or innovative automatically receive capital because of their efforts. That is because consumers in a mixed economy purchase the products which have the most personal value for them. In return, businesses can then invest more capital into areas where additional high profits can be found, expanding their profit footprint.
11. It allows for continued spending in necessary areas that free market economies neglect.
Within a free market economy, certain areas tend to be neglected because they are not viewed as being profitable. The most common areas which experience this issue in the market economy are aerospace, defense, and public assistance. Because the government is allowed to intervene, it can mobilize resources for these areas to make them a public-sector priority, even if the private sector is choosing to ignore it.
Biggest Cons of a Mixed Economy
1. Mixed economies generally have higher tax rates.
For the government to provide the public-sector services that are required for businesses, it requires monetary funding. Those funds are generated through some type of taxation policy. Most mixed economies will tax individuals and businesses at some level. Higher levels of government involvement typically create higher rates of taxation. This becomes a negative within this type of economy if individuals do not see or receive value for their taxed income, which reduces their motivation to find independent work.
2. This economy type often limits the size of corporations.
T-Mobile and Sprint announced in May 2018 that they are finally going to complete a business merger of their two brands. For this to be allowed, the two companies must first have their request be authorized by the U.S. government. Within a mixed economy, businesses typically have no power to control an entire market to form a monopoly. The free market system is disrupted to allow for continued competition, which usually lowers consumer pricing. If mergers like this are permitted, some governments may also legislate higher taxes to prevent the behavior.
3. Government interventions may be influenced by special interests.
In the 2016 presidential election in the United States, the National Rifle Association reportedly contributed $30 million to Donald Trump’s campaign. In remarks given to the Association, Trump reportedly stated that the NRA took care of him, so he was going to take care of the NRA.
When government interventions are permitted within an economy, it creates the potential for special interest influence. One might call it a “pay-to-play” scenario. Instead of doing what is required for the benefit of all, the government intervenes based on the influence of the highest bidder.
4. Mixed economies may not put a check on government interference.
In the United States, the 10th Amendment gives any powers not delegated to the U.S. by the Constitution, or prohibited by it to the States, are therefore reserved to the States or to the people. When a mixed economy is introduced into that structure, there are multiple levels of government influence involved. People are governed locally, regionally, on the state level, and on the national level in the United States. That’s four different types of influence that could interfere with a business opportunity.
5. It can trigger poverty just as often as it can trigger wealth.
When someone gains power, their immediate goal tends to be to preserve their position. Power comes from more than just politics. It also comes with wealth. In the U.S., the top 1% of earners are taking a greater share of the economic pie than ever before in the country’s history right now. At the same time, wages for the Middle Class have been stagnant for nearly 30 years. Government interference in the economy can trigger wealth, as it did in the years after World War II. It can also trigger higher levels of poverty if the interference is on a large enough scale.
6. Debt can often be encouraged within a mixed economy.
One of the greatest dangers of a mixed economy is overdevelopment within the centralized planning of the public sector. Industries managed by the government can quickly turn into subsidized monopolies. Should that occur, high levels of debt begin to accumulate. The government then transfers budget resources from other programs to settle those debts, which then creates new debts.
The United States is no stranger to this issue. The current national debt, at the time of writing, is over $21 trillion. More than $5,300 in interest occurs on this debt every second. That puts the debt responsibility, per person, at almost $65,000.
7. Businesses can sometimes become too big to fail.
During the Great Recession years of 2007-2009, this negative aspect of a mixed economy became well-known. When the government doesn’t regulate the free market economy enough within the mixed economy structure, businesses can put themselves into a position where government assistance is required to survive. Numerous businesses took on too much debt, then received taxpayer-funded assistance to continue surviving. Although this preserves business structures, it also allows businesses and the government to profit off the backs of individual taxpayers.
The biggest pros and cons of a mixed economy show us that striking a balance between public and private enterprises can be advantageous. When both have an equal share, most people within that society benefit from the structure in some way.
There are challenges that this economy type faces. Businesses may try to avoid government regulations. The government may try to interfere with certain businesses as a way to control the society.
That is why a mixed economy is successful, or embraces failure, because of how it is ultimately managed by both parties. Private entities are still protected when managed appropriately, as are the public services that help to maximize production.