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What is a Mixed Economy? Definitions and Types

What is a mixed economy? The majority of modern economies feature a mixture of two or more economic systems which is referred to as a mixed economy. This is one of the types of economic systems (the system of production, resource allocation, and distribution of goods and services within a given geographic area).

Economists have identified four different types of economies: the traditional economy, market economy, command economy, and mixed economy. The mixed economy is different from the rest as it is an economic system wherein the public sector works alongside the private sector, even though they may compete for the same limited resources. In this article, we will discuss the mixed economy definition and its types.

Related: What is a Free Enterprise Economy? Definition and Examples

What is a mixed economy?

A mixed economy is a system that combines features of both capitalism and socialism. In this economic system, private property is protected and a level of economic freedom in the use of capital is allowed. However, the system allows governments to interfere in economic activities in order to achieve social aims.
What is a mixed economy?
What is a mixed economy?

Definition of mixed economy

We can define a mixed economy as an economic system that blends the elements of a market economy with elements of a planned economy, private enterprise with public enterprise, or markets with state interventionism. It is common for all mixed economies to combine free-market principles and principles of socialism.

Hence, mixed economies are an economic arrangement of a free market and socialistic ideals that follow a pattern of capitalism and socialism. That is, a mixed economic system upholds private ownership of production activities but within governmental control.

According to neoclassical theory, a mixed economic system is less efficient than pure free markets, though advocates of government interventions argue that the base conditions required for efficiency in free markets, such as rational market participants and equal information, cannot be achieved in practical application.

Read also: What is one way a command economy affects the lives of private citizens?

Mixed economy definitions in economics

What is a mixed economy in economics? this can be defined as a market system of commerce, resource allocation, and trade wherein free markets coexist with government intervention. Another mixed economy definition is defining it as a mixture of markets with state interventionism, referring particularly to a capitalist market economy with strong regulatory oversight and extensive interventions into markets.

A mixed economy can also be defined as an active collaboration of capitalist and socialist visions which is apolitical in nature, wherein the economy contains a mixture of private enterprise with public enterprise. A mixed economic system can therefore be considered a reformist transitionary phase to a socialist economy that allows a substantial role for private business and contracting within a dominant economic framework of public ownership.

It is important to note that a mixed economic system is not laissez-faire capitalism. This is because the government is involved in planning the use of some resources and can exert control over businesses in the private sector. In a mixed economy, governments may seek to redistribute wealth by taxing the private sector and by using funds from taxes to promote social objectives.

Hence, public-private partnerships, trade protection, targeted tax credits, subsidies, and fiscal stimulus are common examples of government intervention in a mixed economic system which unavoidably generate economic distortions. However, despite their distortionary effect, they are instruments to achieve specific goals that may succeed.

See also – LME vs CME: Coordinated Market Economy vs Liberal Market Economy

How a mixed economic system works

A mixed economic system may emerge when a government steps in to disrupt free markets by introducing regulations, subsidies, state-owned enterprises (such as public health or education systems), tariffs, and tax policies. A mixed economy can also emerge when a socialist government makes exceptions to the rule of state ownership in order to capture economic benefits from private ownership and free market incentives.

This means that a mixed economy function by combining the features of a market-based economy with a strong public sector. That is, as most prices are set by supply and demand, the government may intervene in the economy by directing public funds to certain industries at the expense of others or enforcing price floors or ceilings for certain goods. Hence, a combination of socialist principles of state ownership or planning and free market principles of private contracting is common to all mixed economic systems.

Therefore, a mixed economic system would involve governmental control of companies that provide essential goods and services that the public use such as airports, telecom, transport, railways, mining, water supply, electricity, food, defense, medicine, and banking. This system does not block the private sector from profit-seeking, but does regulate business and may nationalize industries that provide a public good.

As a matter of fact, virtually all present-age economies are examples of mixed economies. For instance, the United States consists of both private and government-owned (or state-owned) entities. The U.S. government sometimes gets involved to help the economy. Typical examples of government assistance in the U.S. are welfare and unemployment benefits which provide financial assistance for people who are in need.

There are many types of welfare programs in the U.S. such as housing aid, healthcare, aid for children, food stamps, etc. The government also gets involved with minimum wage policies that private and government-owned entities must adhere to. France is another example of a mixed economy country as the country is a mix of market and command economies. In France, the government is usually involved in employee benefits and welfare.

Related: What is the goal of a command economy?

Mixed economy types

  1. A mixed economy with partial state control
  2. A mixed economy with total government control
  3. A mixed economy with public-private control

What are the three types of mixed economies?

There are 3 types of mixed economies based on the level of control that the government, state, or private entities have in the economy. These three types include mixed economies with either partial state control economy, total government control, or public-private control.

A mixed economy with partial state control

A mixed economic system with partial state control is one of the mixed economy types. In this type of mixed economy, private entities own the factors of production such as factories, farms, machinery, and plant, while the government plays a regulatory role.

That is, the ownership of means of production is owned and controlled by the private sector while the government only controls and regulates the functioning of the private sector. Prominent examples of this type of mixed economy are western countries like the U.S. and the U.K.

A mixed economy with total government control

A mixed economic system whereby the state directly influences the functioning of the entities is no doubt one of the types of mixed economy. That is, the government directly participates in productive enterprise side by side with private enterprise by investing its own money into the business and being solely responsible for the activities of the companies.

In this type of mixed economy, the government sets up industries of its own and invests its own capital, and purchases or hires productive resources. Hence, it takes the risk of loss and owns the profits of the company like an ordinary entrepreneur. Asian countries like India are an example of this type of mixed economy.

A mixed economy with public-private control

One of the mixed economy types is the one with public-private control whereby there is a joint venture between the state and private players. In this type of mixed economic system, there is a joint sector that is both shared by the private and public sectors.

This is more like a partnership between private companies and governments. Such partnerships allow large-scale government projects, such as bridges, roads, or hospitals, to be completed with private funding. For instance, a city government that is heavily indebted may be unable to undertake a capital-intensive project, but a private company might be interested in funding the project in exchange for receiving the operating profits once the project is completed.

Related: Disadvantages of free enterprise economy