Mixed economies provide a system where private enterprises and public businesses co-mingle to the betterment of society. You will find that there are characteristics of socialism in this system, along with structures that are purely capitalistic. The goal of combining these systems is to prevent costs from spiraling out of control for businesses or consumers while still offering ownership opportunities and a chance for innovation without dictation from the state demanding that individuals work in specific jobs.
A mixed economy does not remove the government from ownership, even in nations like the United States where capitalism is seen as the preferred system of governing. People have the right to own property (which includes a corporation) in this system, but it also permits the government to interfere when choices could potentially harm the economy – as in the creation of a monopoly, for example.
Most governments today operate with a mixed economy. That includes France, the United Kingdom, and China. Any structure which incorporates both elements in any combination will create the foundation of this structure.
There are several pros and cons to consider with a mixed economy when reviewing its implementation and record of success. These are the key points to review.
List of the Pros of a Mixed Economy
1. Mixed economies work to lift up as many people as possible.
The goal of a modern society is to ensure that everyone sees their economic circumstances rise instead of only a privileged few. Although there will always be outliers that receive the brunt of the problems in any system, the goal of this one is to create a “safety net” that can help households adapt to changes as they may need to make them. Instead of being forced into poverty, programs that allow for new job training, food provision, and other needs become accessible to help families get back on their feet if they get knocked down.
2. Mixed economies help to create more private jobs.
Socialism creates jobs for everyone while providing what is typically the basic essentials for life while rewarding a privileged few. Capitalism creates more jobs in the private sector, but they are typically low-paid positions because executive pay is reserved for only the top. Although these structures might seem like they are the same, there is one key difference: anyone can become an owner in a capitalist society. A mixed economy incorporates some of the protections that new owners may need to get started (such as a low-interest loan guarantee) without the state demanding that people work in specific positions.
3. Mixed economies minimize government interference without entirely eliminating it.
The goal of a mixed economy is to create a place where private innovation is encouraged while offering market supports that reduce the risk of going out of business. In a true capitalist scenario, only the companies that could operate on a large enough scale to keep prices competitive would be able to survive. Monopolies would eventually form, which could recreate the issues of socialism that people wanted to avoid in the first place. This structure is preferred because it creates a balance between the two options that are fairly useful to the average person and corporation.
4. Mixed economies will also define the role of the government.
Even though the United States and China have mixed economies, the role of the government in each marketplace is very different. China follows capitalist ideas, but it also prefers to keep the state involved in many decisions in the business world. When you do business with a company there, then at some level, you are also working with the government. In the United States, the government tends to pick and choose the places where it is influential, like in the provision of student loans, mortgage guarantees, or the automotive industry bailout that occurred. Both structures create economic benefits that everyone enjoys – just in different ways.
5. Mixed economies create more opportunities for businesses to take the lead.
Mixed economies believe that individual innovation and hard work are the keys needed for a successful outcome. It provides a structure where anyone can follow an idea that they feel is important to their needs. The government only provides supervision in a way that creates a fair playing field, defined as each person or company receives the same initial chance to find the success they want. You can choose whatever job you wish to pursue in this economy, even if that means you create a business where you are the only employee. Freelancing, gigs, and other forms of independent work thrive here.
Because there are more opportunities to choose your own path, there is typically more competition available in a mixed economy than in any other option. That means there is more innovation present because that is the only way to find success. This process eventually keeps prices low for consumers on needed items, while emerging technologies are still more accessible to the average person too.
6. Mixed economies improve manufacturing and production efficiency rates.
Thanks to the presence of competition in a mixed economy, there are fewer mergers and acquisitions that lead to the development of industrial or market monopolies. The only way to improve profits is to work on bettering the manufacturing or production process. It is essential that corporations produce goods of high value as cheaply as possible without reducing their quality to ensure success. There are fewer instances of the government controlling this process entirely or allowing a private business to push all competitors out of the market to set their own prices.
7. Mixed economies work to protect the average household in society.
A true capitalistic market would take a Darwinian approach to the economy, encouraging a survival of the fittest in terms of who can access needed resources. Moving to a command economy like the one in North Korea would create a system where the government essentially owns everything. A mixed economy works to protect each household by only interfering when safety or cost begin to spiral out of control. We can initiate recalls of defective or dangerous products, prevent the sale of specific food items, or pass regulations that require companies to follow specific guidelines (like the amount of pollution they can release) to increase the chance that each person can pursue their own definition of happiness.
8. Mixed economies promote an equal level of control.
A command economy places all of the market controls in the hands of the government. If you were to live in a true capitalist economy, then the free-market systems would be guided by the largest corporations in each industry. The most significant advantage of a mixed economy is that it provides a balance between these two extremes. Even though businesses and governments are usually opposing forces, they must work together in this structure to maximize profit potential without putting the future of the society at risk to do so. You receive a healthy combination of short- and long-term benefits using this structure.
9. Mixed economies allow for private investment.
If you live in a mixed economy, then you have the opportunity to choose which businesses that you work with to ensure the brightest possible future. You can do that in a number of different ways, from purchasing their goods or services to becoming a shareholder of the business. You are the one who is in control of each investment. The government can provide assistance or advice with this process, but it is the customer – not the company or the government – who has the final say in who succeeds or fails in this system.
10. Mixed economies allow for spending to occur in non-traditional areas of society.
A free-market system focuses on products and services that maximize the cash value that is possible in each transaction. If corn is grown by a farmer as an example, then the higher prices for ethanol would divert this product away from the food supply. By using a mixed economy instead, we can work on areas like public assistance, public defense, or even aerospace to ensure that we have public-sector resources that can benefit everyone just as there are private-sector resources available.
List of the Cons of a Mixed Economy
1. Mixed economies tax their population at higher rates.
Although a mixed economy does not have the exceptionally high tax rates of a command economy, they are still relatively significant in the amount that is charged by the government for business services and personal income. The funds generated from these policies are then used to support social programs, infrastructure needs, and often healthcare accessibility. These tax rates even applied in the United States. Throughout most of the 1950s, the top federal income tax rate was 91%, creating a system where the top 1% of income earners contributed 42% of their income.
2. Mixed economies can limit the size of a company.
There have been several proposed mergers in the history of the United States that failed because of the principles of a mixed economy. In March of 2011, AT&T announced their intent to purchase T-Mobile for $39 billion, but the Department of Justice said that they would immediately move to block the merger because of antitrust violations. The New York Stock Exchange and NASDAQ tried to come together in 2011 as well, which caused the antitrust chief at the time to issue a two-word statement: absolutely not. The government has the right to limit the size of a company in this structure, which is an option they would not have in a typically free-market economy.
3. Mixed economies do not place limits on special interest influence.
Companies can pay millions of dollars to politicians in a mixed economy to help them become elected to office. The goal of these actions is to support people who will introduce legislation that supports their agency while voting down regulations that could limit profits. Both parties in the United States have pay-to-play scenarios that require regulation to avoid because the influence that the government has in the economy is something that some households can see as purchased access. Those with money can influence state decisions, but then those without it cannot do so.
4. Mixed economies do not always limit the extent of government interference.
China offers a mixed economy that trends more toward the scale of socialism, even though they offer free-market solutions and independent regions (Hong Kong, Macau, etc.) where their influence is purposely minimized. In the United States, the 10th Amendment delegates power to the state government if the federal one does not reserve control. Although some households don’t think about the structure of their community, there could be four different sets of rules to follow to stay in compliance with the law: federal, state, county, and local. This structure can place more interference on any individual instead of less.
5. Mixed economies often operate with higher levels of debt.
Consumerism is the backbone of most mixed economies. The government and businesses want individuals to spend money because that is how profits and taxes are earned. Saving can be encouraged at a minimal level, but those who choose to save more than they spend are often treated as outliers. That means debt is often encouraged in this system, which is an issue that some people never escape. The governments of the world are no stranger to this issue either. Even with record growth, the world’s debt is approximately $244 trillion, of which the United States is responsible for about 10%.
6. Mixed economies do not prevent poverty.
People who find wealth tend to get richer because they can invest in processes that are not available to the average person. They have less of a percentage of their discretionary spending dedicated to food, clothing, and shelter compared to those with income levels at or below the national poverty line. A mixed economy may seek to find fairness, but it is only at the initial start of the process. Once you begin to make decisions about your employment or spending habits, the chance that you can skip to a higher socioeconomic group become lower – no matter how much hard work you might be willing to put into the process.
7. Mixed economies can disguise socialism for capitalism.
The Emergency Economic Stabilization Act of 2008 was a bailout of the U.S. financial system that was caused by subprime mortgage lending. Over $700 billion in distressed assets were purchased, with cash supplied directly to banks. Although the Treasury Secretary at the time opposed the move and President Barack Obama is often blamed for this legislation, it was signed into law by President George W. Bush on October 3, 2008. Although it would eventually help to stability the economy, it would not have been possible using the systems of capitalism because companies that fail are supposed to go out of business. The United States government helped to pick and choose which companies stayed, and which ones had to cease operations.
The pros and cons of a mixed economy suggest that it is a viable option for most governments because it attempts to balance who is in control. By creating a system of checks and balances, the theory is that the average person can have a fair chance to achieve success based on what their definition of it happens to be. This structure may not always be beneficial, but it does typically offer a solution that minimizes the control that others have over individual lives.
Natalie Regoli is our editor-in-chief. The goal of ConnectUs is to publish compelling content that addresses some of the biggest issues the world faces. If you would like to reach out to contact Natalie, then go here to send her a message.