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Chapter: 11th 12th std standard Indian Economy Economic status Higher secondary school College

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Mixed Economy : salient features, Merits and Demerits

In a mixed economy, both public and private institutions exercise economic control. The public sector functions as a socialistic economy and the private sector as a free enterprise economy.

Mixed Economy

 

In a mixed economy, both public and private institutions exercise economic control. The public sector functions as a socialistic economy and the private sector as a free enterprise economy. All decisions regarding what, how and for whom to produce are taken by the State. The private sector produces and distributes goods and services. It manufactures consumer and capital goods in the interest of public welfare. A mixed economy possesses the freedom to hold private property, to earn profit, to consume, produce and distribute and to have any occupation. But if these freedoms affect public welfare adversely, they are regulated and controlled by the State. The main features of mixed economic system are:

 

Co-existence of Public and Private Sectors: In a mixed economy, both the public and the private sectors initiatives will be there. The most strategically and nationally important sectors of the economy will be reserved for the public sector. The rest will be left for private operation. While the public sector will have social welfare as the prime motive, the private sector will function with profit motive.

Consolidation of merits of Capitalism and Socialism: As seen above, both capitalism and socialism have merits and demerits. Mixed economy is expected to retain only the merits of the two systems. For instance, the government is expected to allow private investment, but the government also controls monopolies.

Planning: Economic planning is another important feature of the mixed economy. Planning will direct the relative roles of public and private sectors and their respective jurisdictions.

 

Merits of Mixed Economy

 

Efficient resource utilisation: The resources are utilized efficiently as good features of both capitalism and socialism coexist. If there is misallocation of resources, the State controls and regulates it. This ensures the efficient utilization of resources.

 

Prices are administered: The prices are not fixed always by forces of demand and supply. In the case of goods which are scarce, the prices are administered by the government and such goods are also rationed.

 

Social Welfare: In a mixed economy, planning is centralized and there is overall welfare. Workers are given incentives and reward for any innovations. There is social security provided to the workers. Inequalities of income and wealth are reduced.

 

Demerits of Mixed Economy

 

Lack of Co-ordination: The coordination between the public and private sectors is poor in a mixed economy. Public sector spends huge public resources for infrastructure. The private sector aims at profit maximization by using the infrastructure created by the public sector. But they lack social responsibility and fail to spend for public causes like health, education. The private sector also dislikes any restriction imposed on it by the government.

Red -tapism and delay by Public Sector: There is every chance that the public sector works inefficiently. There is too much of red-tapism and corruption leading to delays in decision-making and project implementation. They result in inefficiency and also affect production.

 

Economic Fluctuations: The mixed economies experience economic fluctuations. On the one hand, the private sector does not operate under very rigid conditions prescribed by the government. On the other hand, the public sector too does not operate under very rigid conditions enforced by the planned economy. The lack of policy coordination between private and public sector results in economic fluctuations.

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