Mixed economy golden path between capitalism and socialism.

 Q. ‘Mixed economy is a golden path between capitalism and socialism’. Explain.

Ans. Meaning of Mixed Economy: Mixed economic system is a synthesis [combination/mixture] of the characteristics of both capitalism and socialism. Under this type of economy, on the one hand there is freedom of economic activities and on the other there is also government interference in the economic activities to achieve the objective of social welfare. In this new system, private sector and public sector co-operate with each other with a view to achieve economic objectives as well as promotion of social welfare. Thus, the economy that comes into being as a result of synthesis of private sector of capitalism and public sector of socialism is called a mixed economy. India has adopted mixed economic system.

According to Anatol Murad, “Mixed economy is that economy in which in which both government and private individuals exercise [to use or apply, काम में लाना] control over economic activities.”

According to Samuelson, “Mixed economy is that economy in which both public and private institutions exercise economic control.”

● Main Features of Mixed Economic System are:

(1) Co-existence of Private and Public Sectors: The most important feature of a mixed economy is that under it both public and private sectors work hand in hand. The main objective of both the sectors is mutual co-operation. They also supplement each other. In the interest of consumer, they also compete with each other in a spirit of healthy competition.

(2) Planned Economy and Government Control: It is the endevaour of the government to launch democratic plans with a view to achieveing economic development. These plans aim at progressive development of both public and private sectors. In order to achieve the set objectives and promote social welfare, the government keeps full control over the industries and other enterprises in the private sector.

(3) Private Property and Economic Equality: Under mixed economy, people are free to acquire private property. But in the interest of equitable distribution of wealth and income in the country, government formulates its economic policies in such a manner that there is no concentration of wealth in the hands of a few people. Government imposes various taxes on private sector. At the same time, it spends a lot of funds in the public sector to promote the welfare of the poor people. 

(4) Price Mechanism and Regulated Economy: In capitalism, the entire economy is regulated by price mechanism, that is, by the forces of demand and supply. Main economic decisions, like what to produce, how to produce and for whom to produce, are determined by price mechanism. On the other hand, under socialism, prices of goods are fixed on the directions of the government. Under mixed economy, one finds the operation (use) of both price mechanism as well as administrative (of govt.) prices. Prices of some goods are determined by market demand and supply but some prices, such as rail and bus fares, electricity tariffs etc. are largely fixed by the government. 

(5) Profit Motive and Social Welfare: Aim of production under mixed economy is to earn private profit as in capitalist economies and to promote social welfare as in socialist economies. 

In short, mixed economic system is a mixture of features of both socialism and capitalism, focussing on social welfare rather than on accumulation of wealth.

● Merits of Mixed Economy 

Mixed economy enjoys merits of both capitalism and socialism. Its main merits are: 

(1) Economic Freedom and Capital Formation: Economic freedom provides incentive to the people to work hard. It promotes setting up of more business units which in turn promotes capital formation.

(2) Competition and Efficient Production: Healthy competition among the producers keeps the standard of efficiency high. Because of the possibility of private profit, all factors work efficiently. Because of competition, all business units try to reduce their wastages, improve efficiency and make optimum utilisation of resources.

(3) Efficient Allocation of Resources: Both private and public sectors are keen to make efficient allocation of resources. Private sector makes efficient use of resources in order to earn more profit. Main motive of public sector is to promote social welfare. Thus, there is a sort of synthesis of social welfare and private profit. Thus, mixed economy promotes both – level of economic development as well as social welfare.

Price mechanism, profit motive, freedom of production and consumption can lead to efficient allocation of resources.

(4) Advantages of Planning: Mixed economy enjoys almost all advantages of planning. There is rapid development of the economy in accordance with the planned development programmes. Problems of unemployment, food shortage, poverty, etc. are properly tackled. Thus, economy works in a planned manner.

(5) Economic Equality: Objectives of economic equality can be achieved without sacrificing economic freedom. Increasing prosperity of private sector is controlled by the government in such a manner that it benefits the people at large. Government imposes tax at higher rates on rich class and spends on social welfare of poor class which in turn promotes economic equality.

(6) Freedom from Exploitation: Poor and middle class people are protected against the exploitation by rich, monopolies and landlord class. To safeguard the interests of poor labourers and farmers, government takes several legislative measures. It also helps poor and backward class people in getting employment in public sector units. Government also provides free education and free medical facilities to these people.

In short, mixed economy is a golden path between capitalism and socialism. It has the main merits of capitalism like inspiration to work, efficient organisation and economic freedom and also that of socialism like economic equality, economic planning, social welfare and lack of exploitation. It is the most useful system for the economic development of undeveloped countries.