what is a mixed economic system 
a mixed economic system is one that combines aspects of both capitalism and socialism a mixed economic system accepts private property and permits economic freedom in the use of capital but also allows for governments to interfere in economic activities in order to achieve social aims according to neoclassical theory mixed economies are less efficient than pure free markets however proponents of government intervention argue that the base conditions required for efficiency in free markets such as equal information and rational market participants cannot be achieved in practical application investopedia nez riazunderstanding mixed economic systemsmost modern economies feature elements of multiple different economic systems in mixed economies the public sector works alongside the private sector though they may compete for the same limited resources mixed economic systems do not block the private sector from profit seeking but they do regulate business and may nationalize industries that provide a public good for example the united states is a mixed economy as it leaves ownership of the means of production in mostly private hands but incorporates elements such as subsidies for agriculture regulation on manufacturing and partial or full public ownership of some industries like letter delivery and national defense in fact all known historical and modern economies fall somewhere on the continuum between pure socialism and pure capitalism which represent theoretical constructs 1mixed economy vs free marketsmixed economic systems are not laissez faire systems because the government is involved in planning the use of some resources and can exert control over businesses in the private sector governments may seek to redistribute wealth by taxing the private sector and by using funds from taxes to promote social objectives trade protection subsidies targeted tax credits fiscal stimulus and public private partnerships are common examples of government intervention in mixed economies these unavoidably generate economic distortions but they are instruments aimed to achieve specific goals countries may also intervene in markets to promote targeted industries such as by creating agglomerations or reducing barriers to entry this was common among east asian countries in the 20th century which saw a development strategy known as export led growth today the region has turned into a global manufacturing center some nations have come to specialize in textiles while others are known for machinery and others are hubs for electronic components these sectors rose to prominence after governments protected young companies as they achieved competitive scale and promoted adjacent services such as shipping mixed economy vs socialisma key element of socialism is common or centralized ownership of the means of production 2 proponents of socialism believe that central planning can achieve a greater good for a larger number of people socialists do not trust that the free market outcomes will achieve the efficiency and optimization posited by classical economists so socialists advocate the nationalization of all industries and the expropriation of privately owned capital goods lands and natural resources mixed economies rarely go to this extreme instead they identify only select instances in which intervention could achieve outcomes unlikely to be achieved in free markets such measures can include price controls income redistribution and intense regulation of production and trade this also includes the socialization of specific industries known as public goods that are considered essential and that economists believe the free market might not supply adequately such as public utilities military and police forces and environmental protection unlike pure socialism however mixed economies usually otherwise maintain private ownership and control of the means of production characteristics of a mixed economya mixed economy typically combines the features of a market based economy with a strong public sector while most prices are set by supply and demand the government may intervene in the economy by enforcing price floors or ceilings for certain goods or by directing public funds to certain industries at the expense of others 3the following are common examples of mixed economy policiesmost mixed economies even heavily market oriented ones offer benefits to those living at or near the poverty level in the united states the federal government provides snap benefits medicaid and public housing to low income individuals while many state governments provide their own benefits many countries in western europe have extremely generous social welfare programs as well as government provided health care and strong labor protections while prices in a mixed economy are generally set by the market the government may intervene to prevent the prices of certain commodities from rising or falling below a certain level for example most mixed economies have minimum wage laws to prevent exploitation of the workforce and they may use subsidies to support farmers or other key industries while most business activity is guided by the free market governments may use regulations to protect the public from dangerous products pollution or monopolistic business practices many mixed economies have anti trust laws to ensure that the marketplace remains competitive advantages and disadvantages of a mixed economya mixed economy combines several of the desirable qualities of both capitalist and socialist economic systems the capitalist principles of free enterprise market based prices and private property create incentives for innovation and efficiency while elements of a welfare state and price controls guarantee a minimum standard of living however social welfare programs can create a high tax burden and distort the market price controls such as minimum wage laws can have the unintended effects of reducing employment according to the philips curve other interventions such as housing guarantees or free healthcare can sometimes result in shortages because pricing does not reflect availability a mixed economy also allows the government to set its strategic priorities through selective interventions in the economy for example the united states gives favorable tax treatments to certain agricultural and manufacturing industries because they are considered crucial for the country s long term economic health mixed economies can also result in less competition or regulatory capture as private interests lobby for favorable regulations and tax treatment this can have the perverse effect of regulations being determined by industries rather than policymakers increased efficiency and productivity due to market based incentives welfare protections for the poorest members of the population allows the government to set strategic priorities through economic policy 