Explain the characteristics and merits-demerits of Mixed Economic System.
Does India have a mixed economy?
Ans.
Introduction:
A mixed economy is the result of a compromise between two conflicting ideologies, one of which advocates unrestricted free capitalism. While the other strongly supports socialization of all means of production and government control over the entire economy. In a mixed economy, the best elements of both these ideologies have been combined.
A mixed economy accepts the private enterprise system and emphasizes traits like self-interest and profit motive. The extensive economic development of countries like Britain, USA and Europe, Australia and American continents has happened through private or non-cooperative enterprises. A mixed economy also accepts the possibility of existence of non-government enterprises along with government enterprises. But in this situation, the private sector should balance the element of self-interest with social interest and in some matters, permission for existence of private enterprise can only be given on condition that it serves the society to a great extent.
The following are the characteristics of a mixed economy:
1. Existence of both private and public sectors -
The most important feature of a mixed economy is that both government and non-government sectors co-exist under it. In a way, capitalism and socialist economies combined can be called a mixed economy, because even in a capitalist economy the government sector definitely exists and in a socialist economy a small private sector exists. Capitalist or socialist economies do not get transformed into a mixed economy merely by existence of a small government or private sector. Rather, the important thing in a mixed economy is that the government has to follow a definite policy and declare through legislature that both sectors will continue to co-exist. Not only this, the domains of both government and private sectors also have to be clearly defined by law.
2. Presence of aims of both capitalism and socialism -
In this system, there is a blend and co-existence of characteristics of capitalism and socialism. Sufficient private and public sectors are found in both adequate proportions. The domains of both sectors are demarcated separately. Responsibility of industries and businesses of the public sector lies with the government and their ownership and management remains in the hands of the government. This sector includes defense related industries, means of transport and basic industries. Ownership and management of private sector industries and businesses remains in the hands of private industrialists and businessmen but government interference definitely remains in their activities. This sector generally includes consumable goods like textiles, sugar, paper, cement etc.
This system also includes joint and cooperative sectors. Operations and management of joint sector industries is done by both government and private industrialists but government's share remains more. Industries run by cooperative societies come under the government sector.
3. A mixed economy is necessarily a planned economy -
A mixed economy is necessarily a planned economy. By mixed economy is not just meant a controlled economy where the government interferes in economic matters through fiscal and monetary policies, but an economy where the government moves ahead with a definite and fixed economic plan. The government has to make an economic plan because the government has to work according to a fixed plan and has to achieve some social and economic aims. But the government cannot leave even the private sector to develop in its own unorganized manner. It has to prepare an approved plan in which the private sector gets a definite place.
The following are the merits of a mixed economy:
1. Private property, profit motive and competition -
In this economy, place is given to both private property and profit motive. Both encourage producers to work hard, increase efficiency and produce more. On the other hand, state control reduces the exploitative tendencies of private property and profit motive. In this system, profit motive and price mechanism together ensure optimum allocation of resources.
2. Benefits of a socialist economy -
A mixed economy also incorporates the main benefits of a socialist economy. A mixed economy is a planned economy. Hence, distribution of resources happens most efficiently and economically in all sectors of the economy. Additionally, major industries of the economy are related to the government, as a result of which social interest and welfare take the place of private profits in them. Then since government control is total in some industries, it can prevent obstacles in the working of the government sector and thus prevent defaming the government sector in front of the public. But if something can be learnt from past experiences and countries like Russia, the likelihood is that in future, a mixed economy will get transformed into a socialist economy.
3. Fear of end of democracy -
According to some critics, there is always a fear in this system that slowly the socialist forces may become strong and the private sector may end. In this manner, state ownership and control over the entire economy can happen. In such a situation, democracy may end.
4. Fear of private sector getting disturbed -
One flaw of a mixed economy is that while industries of the government sector work under effective control and direction, the non-government sector industries flow in domestic and foreign market forces. It may happen that if government control is not imposed effectively over private sector industries, they may get disturbed from their designated and planned framework. Generally it happens that the government or Planning Commission does not have any plan for price control or regulating private sector industries and in such a situation, any serious deviation caused due to development of the private sector can adversely impact development of the government sector too.
Conclusion:
Mixed reactions have been expressed regarding the mixed economy. It has many benefits but its criticisms are definitely true too. These criticisms can be removed through appropriate policies, economic planning and caution. Nowadays, most underdeveloped countries are adopting a mixed economy so that benefits of both capitalism and socialism can be attained and the economic development of the country can be done rapidly.
India as an example of a mixed economy:
India can be considered the best example of a mixed economy. Development of such an economy in India is based on the values of guiding political principles in the Indian Constitution. India's industrial policy is also based on a mixed economy. It emphasizes expansion of both the public sector and private sector.
Mixed economy in Five Year Plans:
In the First Plan, allocation in the public and private sector was 1500 crores and 1600 crores respectively. In the Second Five Year Plan, this allocation amount was 3600 crores and 3900 crores respectively. In the Third Plan, this amount was 6300 and 4100 crores respectively. In the Fourth Plan, the allocation amount was 15,902 crores and 10,902 crores respectively. In the Fifth Plan it was 36,307 crores and 27,048 crores. In the Sixth Plan, provision is to spend 67,500 crores in the public sector and 76,600 crores in the private sector. This makes it clear that the public sector is developing at a faster pace compared to the private sector.