Mixed and Planned Economy

Planned and Mixed Economy

The economy can be divided into mainly three types based on the government’s control over the economy. In a planned economy, the government takes all the decisions and runs the show. In contrast, both government and private players are actively involved in running economic activities in a mixed economy. There is another category wherein only the private players are the decision-makers. We are currently focusing on two types of economies, i.e., planned and mixed economies. 

Planned economy

An economic system in which the elements of an economy (such as labour, capital, and natural resources) are subject to government control and regulation designed to achieve the objectives of a comprehensive economic development plan is called a planned economy.

Features or characteristics of a planned economy

One of the main characteristics of the planned economy is that the government has ownership over all the resources. Other features of a planned economy are:

• Important decisions such as what to produce, how to produce and how to distribute goods or services are taken by the government
• Usually, prices are decided by the price control mechanism
• Production is planned for at least five or ten years in advance
• Involves a high level of bureaucracy to manage and plan economic decisions
• A higher degree of political control 

Mixed Economy

In a mixed economy, both the public and private sectors coexist. It falls somewhere in between the capitalists, i.e., free markets and socialist economies, and enjoys the benefit of both.

In this type of economy, some part is left to the free market, whereas some part is managed by the government. A mixed economy is based on a system that allows private enterprises to run most businesses. Yet, the governments also intervene in certain areas of the economy. Apart from the USA, India is also one such country that has adopted this kind of economic model for its development. 

The basic idea behind the formulation of a mixed economy is to come up with a unique system that can have the benefits of both types of economies. Mixed economies enjoy the freedoms of a capitalist economy and the benefits of a socialist economy. A mixed economy has the characteristics of market, command, and traditional economies and is considered the most flexible system better suited to various countries. A free market is considered as closely associated with the capitalist economy, and a command economy is generally associated with socialism. 

Characteristics of a mixed economy 

There are certain characteristics that determine whether an economy is a mixed economy or not. Some of the important characteristics are reproduced below for better understanding: 

• Private and public ownership

In a mixed economy, both public and private ownership exist together. Mixed economies also promote ownership through joint sectors, which are run by the government and private companies. 

• Cooperative sector

In a mixed economy, another sector co-exists simultaneously, i.e. the cooperative sector. The main aim of this sector is to work for society, and the government does provide financial assistance to this sector for its development, especially to co-operatives engaged in the agricultural, dairy farming, and small scale industries. 

• Private property 

Another characteristic of a mixed economy is that individuals can maintain ownership of their private property. In this type of economy, all individuals are free to produce goods and products, acquire and hold property, choose the occupation of their interest and demand products/services they want. 

• Regulation 

A mixed economy allows some operations to be carried on freely, and in some sectors, the government’s role is much more active in regulating the same. 

• Social welfare

One of the important characteristics of a mixed economy is that it provides social security for its citizens, especially for the disabled, unemployed, and elderly. It aims to reduce the gap in the level of wealth their citizens acquire, thereby minimising the inequalities in society. With the aim of reducing poverty and unemployment, the government also works to improve social security, public health care, public education system, etc.

Advantages of a mixed economy

A mixed economy enjoys certain advantages over other types of economies. Some of the advantages are summarised below for quick reference: 

• Free markets

One of the biggest advantages of a mixed economy is that it somehow depends on supply and demand to decide prices. Although a mixed economy does not allow markets to run absolutely free, such as in capital-based economies, it still allows for free competition in many markets. 

• Economic stability

In a mixed economy, all economic activities are planned systematically. The government performs this task through various detailed plans for the entire economy. As the economic activities are well planned, it promotes an atmosphere of economic stability. 

• Public goods

In a mixed economy, goods or services such as facilities of parks, libraries and education are duly supplied by the government. It ultimately allows the economy to be more productive and efficient. 

• Promotes equality 

Mixed economies rely more on the welfare state and aim to maintain a balance between the rich and poor and thereby promote equality. In this type of economy, the capitalist has the money and resources to run a business, but the government also provides loans, grants, and rebates to the general public to run their business or for further studies. Hence, it promotes equality in society and allows everyone to grow. 

• Social welfare

Mixed economies also enjoy the benefits of a socialist economy, such as social welfare. The main role of the government is to provide some form of social safety net to the needy. Through various policies and programmes, the government of a mixed economy provides benefits to the unemployed, disabled, pensioners and aged people. 

Conclusion

In a planned economy, entire control is with the government of that economy. Whereas in a mixed economy, advantages of both the sectors can be enjoyed. In this type of economy, there is an environment of healthy competition in the market, and no cut-throat competition or negative tactics are implemented because of the government’s oversight. Another important point is that because the industrialists are also part of this type of economy, hence they boost healthy competition too.