Mixed Economy
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Mixed Economy

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Mixed Economy Mixed Economy Presentation Transcript

    • Economic Systems
    • Every economy , in order to produce and consume, needs
    • to address basic issues such as the following:
    • what goods and services should be produced and in
    • what quantities;
    • How scarce resources such as labour and capital should
    • be allocated to produce goods and services;
    • How the available supplies of goods and services should
    • be distributed across the population; and
    • What price should be charged for a good or service.
    • Individuals, the state or both can make and implement
    • decisions on these issues.
  • Capitalist Economy In a capitalist economy, most of these decisions are made by the citizens acting individually. In capitalism, individuals are driven by self-interest, and market forces direct and co-ordinate the decisions they make. As a result, capitalist economy is often referred to as a ‘market’ economy. Socialist Economy In a socialist economy, on the other hand, most of these decisions are made by citizens acting through the state, which co-ordinates and implements these decisions through central planning and command. In fact, a socialist economy is often referred to as a ‘planned’ or ‘command’ economy. Nowadays, most economies are known as ‘ mixed’ economies because, in reality, both market and state play a substantial role in them.
    • Evolution of the Concept of Mixed Economy
    • Mixed Economy is the compromise between the two
    • diametrically opposite schools of thought – 1. Capitalism
    • and 2. Socialism.
    • The vast economic development of U.K., U.S.A, Australia
    • etc was due to private enterprise.
    • According to the classical and neo-classical economists,
    • the economic system worked smoothly and what was most
    • profitable for the individual, was also most conducive to the
    • economic welfare of the community at large .
    • Perfect harmony in the economic system could be achieved
    • through the acceptance of the invisible hand of self-interest
    • and the use of market forces of demand and supply.
    • These ideas were not accepted by Karl Marx who believed
    • that the capitalist economy allowed the few powerful
    • industrialists and traders to exploit the vast majority of workers.
    • Marx advocated socialization of all the means of production
    • and wanted the state to direct the economy.
    • The rise of communist regimes in USSR and eastern European
    • countries, Communist China, Vietnam, Cuba etc., was the
    • direct consequence of the impact of Marxist ideas.
    • While Marx was laying the foundations of a socialist system,
    • the capitalist system failed to respond to the needs of the
    • people during the great depression of the thirties.
    • Lord Keynes wrote in 1926 :
    • “ The world is not so governed from above that , private and
    • social interests always coincide…. It is not a correct deduction
    • from the principles of economics that enlightened self-interest
    • always operates in the public interest. Nor is it true that self-
    • interest is generally enlightened.”
    • Keynes was proved correct when the Great Depression of the
    • 1930’s showed the hollowness of the classical claim of the
    • smooth working of the economic system.
    • As a direct relation to the failure of the old capitalist order, the
    • socialist economy was advocated as an alternative system.
    • Keynes, however ,thought that capitalism, shorn of some of its
    • defects, was an admirable system as it helps to promote
    • competition and efficiency in production.
    • Keynes viewed that, Socialism of the authoritarian type would
    • spell death to individual freedom. But state control and
    • direction was inevitable in the modern complex society.
    • A compromise was, therefore, necessary between the high
    • degree of state intervention and participation in the socialist
    • economy on the one side and free enterprise capitalist
    • economy based on market forces on the other.
    • It was from these ideas of Keynes that the concept of mixed
    • economy evolved.
    • Mixed Economy
    • A Mixed Economy is that form of economic organization
    • wherein elements of capitalism or free market economy and
    • Socialism or Centrally planned economy are found to be
    • co-existing and working together.
    • Features of a Mixed Economy
    • Coexistence of the Private and Public Sectors
    • Price Mechanism and Government Control and Regulation
    • work together
    • Economic Freedom and Control
    • Economic Welfare
    • The foundations of the mixed economy were laid in India
    • with the Industrial policy of 1948.
    • Under this policy some industries like arms and ammunition,
    • atomic energy, railway transport, etc., were made the monopoly
    • of the state.
    • Some more industries like iron and steel, aircraft and
    • Shipbuilding, minerals etc., were sought to be progressively
    • owned by the state .
    • Government control over other industrial sectors was also
    • extended and strengthened.
    • The Industrial Policy of 1956 further expanded the ownership
    • of the state to a wide variety of industrial sectors.
    • 17 industries like arms and ammunition, atomic energy,
    • railway transport, aircraft building, air transport etc., were
    • brought under the exclusive ownership of the government.
    • 12 more industries like machine-tools, fertilizers, antibiotics
    • and other essential drugs etc., were sought to be
    • progressively owned by the state .
    • Thus the government was extended to cover 29 industrial
    • sectors and with this the state assumed the commanding
    • heights of the economy.
    • The future development of all the remaining industries was
    • left to the initiative of the private sector.
  •