Mixed Economy


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Mixed Economy

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