What Is a Mixed Economy?
A mixed economy is one that contains aspects of market capitalism (a free-market system), socialism (government control over the means of production, including state ownership of all or almost all property), and a combination of the two.
The most common form in which this takes place is allowing private citizens to own some, but not all, forms of property. Most economies in the world today are considered to be ‘mixed’.
It can be said that each country’s economy is unique with its own different combinations, however, countries with strong market economies tend to have high levels of personal freedom while socialist states focus on equality within society.
Countries often try to find a balance between these two systems with varying degrees of success depending on how they choose to implement them.
Mixed Economy vs. Free Market Capitalism
The most significant difference between a mixed economy and free market capitalism is that the government plays a role in a mixed economy.
In a pure free market capitalist system, the government does not interfere in the workings of the market, but in a mixed economy, the government intervenes to ensure that some essentials are available to everyone, such as healthcare, education, and public transportation.
Another key difference is that in a mixed economy, private enterprise is allowed to flourish, while under pure capitalism, it would be banned.
Mixed economies also have higher levels of social welfare spending which provide benefits to citizens, whereas capitalist systems only offer limited social welfare programs or none at all.
Pros of a Mixed Economy
There are pros to mixed economies just as there are for any other type of economy. The benefits of a mixed economy include:
Firstly, it leads to more economic stability as there are multiple sources of revenue and fewer points of failure.
It encourages innovation and creativity as businesses compete with each other to become more productive and efficient.
Reduces Social Inequality
It helps to reduce social inequality as citizens have access to a variety of social services provided by the government.
It leads to increased efficiency as different sectors of the economy are better able to adapt to changing circumstances.
Encourages Private Enterprise and Entrepreneurship
A mixed economy allows for private enterprise and entrepreneurship to flourish, as citizens are able to start their own businesses and compete in a free market.
Cons of a Mixed Economy
There are also cons to mixed economies, which include:
Lack of Social Mobility
One issue is that there can be a lack of social mobility as those who are born into wealthy families have an advantage over those who are not.
Another issue is that the government can often be inefficient and corrupt, with money being wasted on unnecessary projects.
Social unrest may occur when the wealth gap between different social classes becomes too large.
Abuse of Power
There is also the risk that those with power or influence will abuse it, which can lead to corruption within government institutions.
Corruption and Cronyism
When there is a mixed economy, corruption and cronyism can be more difficult to regulate as the government’s policies may overlap with each other.
Favoring Special Interests
Lastly, it can also favor special interest groups who have close ties with members of the government.
Living in a Mixed Economy Country
Mixed economies vary from country to country, so it can be difficult to make generalizations. However, there are some things you can look out for.
Countries with mixed economies usually have a higher level of economic freedom than those with socialist economies, and private enterprise is encouraged.
There tends to be a higher level of regulation in mixed economies than in pure capitalist or socialist systems, and the government plays a more active role in the economy. In most cases, there is a mix of public and private ownership of property and resources.
Mixed Economies Around the World
It is difficult to give exact figures for the number of countries that have mixed economies as there are so many different types and degrees of the mixture.
Examples of Countries With Mixed Economies
Although there are not very many pure socialist or capitalist countries left in the world, you can still find examples of both such as North Korea (socialist) and Luxembourg (capitalist). However, here is a list of some countries with mixed economies:
Brazil is considered to be a ‘developing country’ by economists but it has always had a more market-based approach than most other developing nations. It has a high level of economic freedom and a mixed economy with a large state sector.
It also has the largest foreign reserves in the developing world, which is usually seen as a sign of economic security.
The Chinese government controls large sectors of its economy including major industries such as steel production and energy generation. However, it also has a very strong private sector with low regulation compared to other socialist countries.
There is often much debate about whether or not China can be considered a truly communist nation given that capitalism plays such an important role in the country’s economy today.
As one of the most influential economies in Europe, Germany has transformed over time from having a strong socialist sector to more of a mixed economy with both public and private ownership.
The Indian economy was originally based on socialism when it became independent back in 1947.
However, since 1991 when reforms were implemented by Prime Minister Narasimha Rao there has been much greater economic freedom in the country, resulting in increased economic growth and sustainable development.
Today India is considered to have a mixed economy that includes a mixture of private enterprise and state-owned services.
The UK has also been transitioning from a socialist to a mixed economy in recent decades.
Key industries such as energy production and railways are now owned and operated by the private sector, but the government continues to play an important role in other areas such as healthcare and education.
Although often considered to be a capitalist nation, the United States actually has a mixed economy with both public and private ownership.
The largest sector of the economy is made up of private businesses, but there are also many large public companies such as Walmart, General Electric, and Coca Cola.
Additionally, social programs such as Medicare and Medicaid are provided by the government which helps to ensure that all citizens have access to basic healthcare.
A mixed economy is one where there is a mix of public and private ownership of property and resources. They can be found all over the world in both developed and developing countries.
There are pros and cons to living in a mixed economy, but in general, it can be said that they offer more stability and security than either pure capitalist or socialist economies.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.