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- Mixed Economic System with Advantages and Disadvantages by Ahsan Khan Eco
Posted by : Ahsan Khan Thursday, 7 February 2013
A mixed economy has many of the characteristics of market, command and traditional economies. The United States is a mixed economy because its Constitution protects many of the characteristics of a market economy, including ownership of private property, limitations on government interference, and promoting innovation. However, the Constitution also encourages the government to promote the general welfare. This allows many aspects of a command economy, where needed. In addition, many American traditions still guide economic policy.
A mixed economy seeks to have all the advantages of a market, command and traditional economy with little of the disadvantages. Therefore, most mixed economies have three of the six characteristics of the market economy: private property, pricing and individual self-interest.
Mixed economies also have a command economy in certain areas. Most allow government to have a command role in areas that safeguard the people and the market itself. This usually includes the military, international trade, and national transportation. An increased governmental role depends on the priorities of the people. Many mixed economies also allow centralized planning and even government ownership of key industries, such as aerospace, energy production and even banking. Some mixed economies encourage the government to centrally manage health care, welfare, and retirement programs.
In addition, most mixed economies follow traditions that have been so ingrained that they may not even be aware of it. For example, many mixed economies still fund and give some power to royalty or emperors.
Most of the world's major economies are now mixed economies. It would be difficult to avoid, thanks to globalization. A country's people are best served through international trade -- oil from Saudi Arabia, consumer products from China, and food from the U.S. As soon as businesses within a country are allowed or even encouraged to export, the government must give up some control to free market forces.
Second, the global economy is primarily free-market based. There is very little government control, although some regulations and agreements have been put into place. However, there is no world government today that has the power to override a country's sovereignty and create a global command economy.
Advantages of a Mixed Economy
A mixed economy can enjoy the advantages of a market economy. First, it can efficiently allocate goods and services where they are needed, by allowing prices to measure supply and demand. Second, it also rewards the most efficient producers with the highest profit, ensuring that customers are getting the best value for their dollar. Third, it encourages innovation that meets customer needs more creatively, cheaply or efficiently. Fourth, it automatically allocates capital to the most innovative and efficient producers. They, in turn, can invest the capital in more businesses like them.
A mixed economy also minimizes the disadvantages of a market economy. A larger governmental role allows fast mobilization in priority areas, such as defense, technology or aerospace. Since a pure market economy rewards those that are most competitive or innovative, leaving others at risk, the expanded governmental role can make sure these less competitive members are cared for and valued.
Disadvantages of a Mixed Economy
A mixed economy can also take on all the disadvantages of the other types of economies, depending on which characteristics are emphasized. If it has too much free market, it can reward the competitive members of society and leave others without any government support. Central planning might do extremely well in mobilizing forces for defense, creating a government-subsidized monopoly or oligarchy system. This could also put the country into debt, slowing down economic growth in the long run. Businesses that are already successful can lobby the government for more subsidies and tax breaks. The government's role of protecting the operation of the free markets might mean not enough regulation, and ultimately taxpayer-funded bailouts of businesses that took on too much risk. Article updated August 26, 2012
Economy of Pakistan is an example of mixed economic system.
USA, Canada, England, Germany, France, Denmark, Sweden, Italy, Swiss and Norway are the also the examples of mixed economic systems.
The United States is a mixed economy because, although the factors of production are owned by the private sector, the government does get involved in decisions: The government determines what infrastructure will be built, and the government has passed laws putting many restrictions and regulations upon private industry (just to name a couple, minimum wage laws and anti-pollution laws).
China is a mixed economy because, although it went many years without government acknowledging the role that markets play, it has recently been relaxing many restrictions on market-based activity. This trend began in the agriculture industry and in industries where the activities were extremely local in nature. The government now welcomes letting some industries be controlled by market forces, while at the same time the government totally controls other (usually larger) industries.