A mixed economy resembles a capitalist economy with certain modifications. It is not a complete different economic system. The state tries to change the structure of the capitalist economy so as to make it more appropriate for model economy situations.
The prominent features of a mixed economy can be described as follows:
- Private and state ownership of the means of production
In India almost the entire agricultural sector is under private ownership. In the non agricultural sector, 3/4th of the industries are in the private sector. The wholesale and retail trade is mostly in the private sector and transport is also largely in the private sector except the railways transport. The air transport is being privatized rapidly.
The role of the public sector is supportive. The public sector is expected to build the infrastructure which is sued by the private sector. The public sector also develops the basic and capital goods industries. Their products are used by the private sector but even in this field we are fast moving towards privatization.
- Decisive Role of Market Mechanism with supportive role of planning
On the whole the economy is regulated by the market mechanism. The prices of goods and services are determined by the operation of forces of demand and supply. If at a particular price demand exceeds supply the price rises, If supply exceeds demand the price falls. The producers are guided by the changes in the prices of different goods. A rise in the price of a commodity is like a green signal for the producer to increase its production. A fall in price is a signal to reduce production. Thus the production of goods and services and the allocation of resources as between the production of the different goods and services are controlled by the invisible hand of the price mechanism.
The technique of production is also regulated by the prices of the factors of production, if labour is cheaper the producers use labour intensive technology. If capital is cheaper then the producers use capital intensive technology. Of course in certain productive activity the technique to be used is determined by the nature of the industry.
The money market and the capital market supply the long and short term capital required by productive activities. They are also controlled by the forces of demand and supply. The level of investment is determined by a balance between the rate of interest and the marginal efficiency of capital. The fluctuations in share prices reflect the performance of the different companies. If the share prices are rising it is a sign of an excellent performance of the company concerned. This is also helpful to the company to raise more capital and undertake expansion of its business.
- Intervention Role of the State
In a mixed economy the state intervenes in any productive activity with the intention of making it more community friendly. If it s found that the private sector is cornering the stocks of a commodity and exploiting the consumers, the state setup its own units to produce the commodity and augment its supply. This is helpful in arresting the rise in the price of the commodity.
The state intervenes in the forex market also through the Central Bank of the country (RBI in India). If the local currency is depreciating the state enters in to the forex market and starts purchasing it that halts the depreciation. On the other hand if the local currency is appreciating the state enters in to the market and sells it. The supply of the local currency (i.e.: Demand for foreign currency) increases which prevents appreciation of the local currency i.e.: depreciation of the foreign currency. This is necessary for balancing the balance of payments. The state also intervenes in the market for fixing the prices of commodities, if the prices are rising the government starts selling that commodity and protecting the interests of the consumers. If the prices are falling the government fixes minimum prices and purchases the commodity at those prices. This prevents a further fall and protects the interests of the producers.
- Public Sector Activities guided by Social Benefit
The public sector mainly specialized in the production of public utilities such as local transport, supply of cooking gas, supply of water and such other commodities which enter into the budget of the common man. The government also undertakes purchase and sale of necessaries of life so as to protect the vulnerable sections of the community against an excessive rise in prices.
In a less developed economy which is trying to develop, the public sector is born out of need. It is not a matter of any ideological step like socialism. The private sector is not capable of developing the infrastructure, the basic and heavy industries, the capital goods industries etc because its material and human resources are limited. The state has unlimited powers and can mobilize resources on a very large scale. Therefore the public sector is a dire need of a developing economy particularly in the initial period of development. In India the public sector was born in 1948 to give a big push to the developmental efforts
- The Supportive role of economic planning.
Planning is an ingredient of a socialist economy but that does not mean that every economy which has planning is a socialist economy. In a developing economy planning is necessary for introducing a system in economic development and an efficient exploration and exploitation of resources. Planning introduces priorities in the use of resources which is a basic need of a developing economy hence the planning in a mixed economy has a different nature than planning in a socialist economy. It is indicative in nature.
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