Advantages & Disadvantages of Mixed Economic System

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A mixed economic system refers to the combination of private and public control within a given economy. The concept behind this system is taking advantage of private enterprises' productivity, while regulating the economy to avoid crises and achieve equal distribution of wealth. You can see examples of mixed economies across Europe, Australia and the United States; however, even traditionally socialist economies have adopted free market values, such as the New Economic Policy in the early Soviet Union and "socialism with Chinese characteristics." All cases of mixed economies can reveal the system's advantages and disadvantages.

Protecting the Economy

  • In a pure free-market economy, the issues of what to produce, how to produce and how to distribute the goods are answered by the "invisible hand of the market," demand and supply. However, this system is based entirely on trends which are subject to change quickly, especially in the case of non-essential goods, such as clothing and technology products. This could be the reason of periodic crises, until demand and supply restabilize the market. A mixed economy can prevent such events by allowing the government to intervene with state-directed investments and fluctuating tariffs for example.

Helping Producers and Consumers

  • In mixed economies, governments can set limits on the minimum price suppliers can sell their goods, as well as a cap on retail price. This way, both suppliers can be sure of the minimum amount they can gain through their work, while consumers are protected against skyrocketing prices in times of increased demand. For this reason, government agencies, such as the Federal Trading Commission in the U.S. and the Office of Fair Trading in the U.K., are responsible for the prevention of illegal iniquitous policies against supplies or consumers.

Harming Competition

  • A mixed economy allowing government intervention in the form of state monopolies harms competition, which can have serious effects in the economy's performance. Competition in a capitalist economy is the driving force behind better products and low prices, as suppliers try to lure consumers offering the best of both world. However, state monopoly in health care for example (NHS in the U.K.) or in the non urgent letter mail service (USPS in the U.S.), give governments the freedom to set the price and quality of the services provided without visible consequences, since consumers have nowhere else to turn.

Bureaucratic Decisions

  • Even if a mixed system is not a purely command economy, when the state controls key sectors, bureaucratic decisions can affect the economy's efficiency. A fully planned economy's advantage is that all sectors are controlled based on a general plan. However, state controlled enterprises in mixed economies have to take decisions on issues which are affected by the free market's self-regulatory mechanisms. The free market's unpredictable nature does not guarantee the success of a bureaucratic decision and can prove the costs of the changes' implementation vain.

References

  • Photo Credit Christopher Furlong/Getty Images News/Getty Images
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