What is Mixed Economy
What is Mixed economy?
Mixed economy means that it is managed mutually by private enterprise and public enterprise. That is, private enterprise is not allowed to work liberally through price-mechanism. On the other hand, the government intervenes to control and regulate private enterprise in more than a few ways. It has been realized that a free functioning of private enterprise results in several types of evils. For instance, free functioning of private enterprise produces trade cycles, i.e., sometimes depression and unemployment and at other times booms and inflationary situations. Besides, free functioning of private enterprise results in extreme inequalities of income and wealth. Under the laissez-faire policy pursued by the State in the free enterprise economy, the weaker and vulnerable sections of society as well as the indigenous industries do not get protection.
It has also been realized that in the under-developed countries like India, economic development cannot be achieved at the desired rate of growth by private sector alone. Hence, the government in such countries actively participates in economic activities in order to minimize the evils of unadulterated capitalism and to accelerate economic growth. That is why most of the capitalistic economies of the world have become mixed economies, because in all economies the economic functions of the State have increased.
In the Indian economy, both the public sector and private sector are in operation. The foundations of mixed economy in India were laid by the Industrial Policy Resolution of 1948 which was modified by the Industrial Policy Resolution of 1956. According to these resolutions, various industries were divided between the two segments, viz., the private and the public sector. The responsibility for the development of several basic, heavy and strategic industries was assigned to the State and the development of the rest of the industries was left to the private sector. Even the private sector is controlled and influenced by the Government of India by means of direct controls or through appropriate fiscal and monetary policies.
It is clear from the above that the mixed economy is a mixture of capitalism and socialism. The mixed economy tries to avoid the two extremes of pure capitalism and pure socialism and the evils associated with each. In other words, it strikes a middle path between capitalism and socialism. We have mentioned above that in pure capitalism only private sector establishes and runs industries and the government does not interfere in any manner. As against this, under pure socialism all the means of production, i.e., industries, agriculture, land, mines, etc. are owned and controlled by the State and the State operates them. In the mixed economy, on the other hand, both private and public sectors operate. Some industries are owned and managed by the State and other industries are owned and managed by the private sector. It is thus clear that in u mixed economy all industries are not nationalized. Only those industries are nationalized and put under the operation of the public sector which are very essential for the speedy economic development of the country but in which the private entrepreneurs are reluctant to invest because the return is either insufficient or long delayed. In a mixed economy, the spheres of the two i.e., the private sector and the public sector, are clearly demarcated, and they combine and co-operate in the work of economic development country.