Reading: The Benefits of Mixed Economies

A mixed economy allows private participation in production while ensuring that society is protected from the full swings of the market.

KEY points

  • Mixed economies allow many more freedoms than command economies, such as the freedom to possess the means of production; to participate in managerial decisions; to buy, sell, fire, and hire as needed; and for employees to organize and protest peacefully.
  • Mixed economies have a high level of state participation and spending, leading to tax-funded libraries, schools, hospitals, roads, utilities, legal assistance, welfare, and social security.
  • Various restrictions on business are made for the greater good, such as environmental regulation, labor regulation, antitrust and intellectual property laws.
  • The ideal combination of these freedoms and restrictions is meant to ensure the maximum standard of living for the population as a whole.

Terms

  • Monopoly:  An exclusive control over the trade or production of a commodity or service through exclusive possession.
  • Social Security:  A system whereby the state either through general or specific taxation provides various benefits to help ensure the well-being of its citizens.
  • Protectionism:  A policy of protecting the domestic producers of a product by imposing tariffs, quotas or other barriers on imports.

Examples

  • The US economy is best described as a mixed economy, because even though it strongly advocates free market principles, it relies on the government to deal with matters that the private sector overlooks, ranging from education to the environment. The government has also helped nurture new industries and has played a role in protecting American companies from competition abroad. An example of this is the heavily subsidized agriculture industry in the US. Overall, the US has benefited from this combination.

Overview: The Advantages of a Mixed Economy

A mixed economy permits private participation in production, which in return allows healthy competition that can result in profit. It also contributes to public ownership in manufacturing, which can address social welfare needs.

Marketplace
Private investment, freedom to buy, sell, and profit, combined with economic planning by the state, including significant regulations (e.g. wage or price controls), taxes, tariffs, and state-directed investment.

 

The advantage of this type of market is that it allows competition between producers with regulations in place to protect society as a whole. With the government being present in the economy it brings a sense of security to sellers and buyers. This security helps maintain a stable economy.

Overall, businesses, as well as consumers, in mixed economies have freedoms that are important to both. And while government is actively involved and provides support, its control is limited, which is good for structure.

The Details: The Advantages of a Mixed Economy

  • In a mixed economy, private businesses can decide how to run their businesses (e.g. what to produce, at what price, who to employ, etc.).
  • Consumers also have a choice in what they want to buy.
  • In this system, there is also less income inequality.
  • Monopolies, market structures that are the only producer of a certain product, are allowed under government watch so they do not make it impossible for entrepreneurs in the same industry to succeed.

More specifically:

The elements of a mixed economy have been demonstrated to include a variety of freedoms:

  • to possess means of production (farms, factories, stores, etc.)
  • to participate in managerial decisions (cooperative and participatory economics)
  • to travel (needed to transport all the items in commerce, to make deals in person, for workers and owners to go to where needed)
  • to buy (items for personal use, for resale; buy whole enterprises to make the organization that creates wealth a form of wealth itself)
  • to sell (same as buy)
  • to hire (to create organizations that create wealth)
  • to fire (to maintain organizations that create wealth)
  • to organize (private enterprise for profit, labor unions, workers’ and professional associations, non-profit groups, religions, etc.)
  • to communicate (free speech, newspapers, books, advertisements, make deals, create business partners, create markets)
  • to protest peacefully (marches, petitions, sue the government, make laws friendly to profit making and workers alike, remove pointless inefficiencies to maximize wealth creation).

They provide tax-funded, subsidized, or state-owned factors of production, infrastructure, and services:

  • libraries and other information services
  • roads and other transportation services
  • schools and other education services
  • hospitals and other health services
  • banks and other financial services
  • telephone, mail, and other communication services
  • electricity and other energy services (e.g. oil, gas)
  • water systems for drinking, agriculture, and waste disposal
  • subsidies to agriculture and other businesses
  • government-granted monopoly to otherwise private businesses
  • legal assistance
  • government-funded or state-run research and development agencies

Such governments also provide some autonomy over personal finances, but include involuntary spending and investments, such as transfer payments and other cash benefits, including:

  • welfare for the poor
  • social security for the aged and infirm
  • government subsidies to business
  • mandatory insurance (e.g. automobile)

They also impose regulation laws and restrictions that help society as a whole, such as:

  • environmental regulation (e.g. toxins in land, water, air)
  • labor regulation, including minimum wage laws
  • consumer regulation (e.g. product safety)
  • antitrust laws
  • intellectual property laws
  • incorporation laws
  • protectionism
  • import and export controls, such as tariffs and quotas
  • taxes and fees written or enforced with manipulation of the economy in mind

GLOSSARY

Agriculture

The art or science of cultivating the ground, including the harvesting of crops, and the rearing and management of livestock; tillage; husbandry; farming.

Autonomy

The capacity to make an informed, uncoerced decision. Self-government; freedom to act or function independently.

Command economy

Most of the economy is planned by a central government authority and organized along a top-down administration where decisions regarding production output requirements and investments are decided by planners from the top, or near the top, of the chain of command.

Benefit

An advantage, help or aid from something. Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, perqs or perks) are various non-wage compensations provided to employees in addition to their normal wages or salaries.

Communication
The concept or state of exchanging information between entities. An instance of information transfer; a conversation or discourse.

Consumer

Someone who acquires goods or services for direct use or ownership rather than for resale or use in production and manufacturing. The consumer is the one who pays to consume the goods and services produced. As such, consumers play a vital role in the economic system of a nation. In the absence of their effective demand, the producers would lack a key motivation to produce, which is to sell to consumers.

Economy

Collective focus of the study of money, currency and trade, and the efficient use of resources. The system of production and distribution and consumption. The overall measure of a currency system; as the national economy.

Enterprise

A company, business, organization, or other purposeful endeavor.

Entrepreneur

A person who organizes and operates a business venture and assumes much of the associated risk. A person who organizes a risky activity of any kind and acts substantially in the manner of a business entrepreneur.

Export

This term export is derived from the conceptual meaning to ship the goods and services out of the port of a country. To sell (goods) to a foreign country. Any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade.

Finance

To provide or obtain funding for a transaction or undertaking; to back; to support.the science of management of money and other assets.

Free market

Any economic market in which trade is unregulated; an economic system free from government intervention.

Good

An object produced for market.

Import

Something brought in from an exterior source, especially for sale or trade. To bring (something) in from a foreign country, especially for sale or trade.

Incorporation

The act of incorporating, forming a corporation or the state of being incorporated.

Industry

The sector of the economy consisting of large-scale enterprises.

Insurance

A means of indemnity against a future occurrence of an uncertain event.

Intellectual property

Any product of someone’s intellect that has commercial value: copyrights, patents, trademarks, and trade secrets. Intellectual property (IP) is a juridical concept that refers to creations of the mind for which exclusive rights are recognized.

Investment

The placement or expenditure of capital in expectation of deriving income or profit from its use.

Labor union

A continuous association of wage-earners for the purpose of maintaining or improving the conditions of their employment; a trade union. An association of workers for the purpose of consolidating bargaining power in disputes with employers.

Leading

The management function of determining what must be done in a situation and getting others to do it to conduct or direct with authority.

Market

A group of potential customers for one’s product. One of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange.

Minimum wage

The lowest rate at which an employer can legally pay an employee; usually expressed as pay per hour.

Mixed economies

A system in which both the state and private sector direct the way goods and services are bought and sold.

Mixed economy

An economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety of government-sponsored aspects.

Price

The price is the amount a customer pays for the product. The quantity of payment or compensation given by one party to another in return for goods or services. The cost required to gain possession of something.

Private sector

All organizations in an economy or jurisdiction that are not controlled by government, including privately owned businesses and not-for-profit organizations.

Product

Any tangible or intangible good or service that is a result of a process and that is intended for delivery to a customer or end user. Anything, either tangible or intangible, offered by the firm as a solution to the needs and wants of the consumer; something that is profitable or potentially profitable; goods or a service that meets the requirements of the various governing offices or society.

Profits

Collective form of profit.

Regulation

A law or administrative rule, issued by an organization, used to guide or prescribe the conduct of members of that organization; can specifically refer to acts in which a government or state body limits the behavior of businesses. A regulation is a legal provision that creates, limits, or constrains a right; creates or limits a duty; or allocates a responsibility.

Security

Proof of ownership of stocks, bonds, or other investment instruments. The condition of not being threatened, especially physically, psychologically, emotionally, or financially.

Services

That which is produced, then traded, bought or sold, then finally consumed and consists of an action or work.

Standard

Something used as a measure for comparative evaluations. A level of quality or attainment.

System

A whole composed of relationships among the members. The part of the universe being studied, arbitrarily defined to any size desired.

Tariff

A system of government-imposed duties levied on imported or exported goods; a list of such duties, or the duties themselves.

Wage

An amount of money paid to a worker for a specified quantity of work, usually expressed on an hourly basis.