The fusion of the free market and state provision – drawing from the best (and sometimes worst) qualities of both

A mixed economy is a system that combines characteristics of free market, command, and traditional economies, gaining the benefits of all three types while suffering from only a few of the disadvantages.[1] It takes three of the main qualities of a free market – it protects private property and is driven by the incentive of generating a profit by individuals. It also allows the laws of supply and demand to determine prices – this is known as the price mechanism, as mentioned and explained earlier. Also, like a command economy, it allows the federal government to protect its people and market, as it is heavily involved in necessary state activities like the military, international trade and national transportation.

However, it separates from a command economy as state involvement in other sectors is based on the citizens’ priorities. In this case, the aspects vary depending on the country, as some choose to create a central plan that guides the economy. In contrast, others go for a more direct approach and enable the state to own critical industries like the police. An example of this in a mixed economy is the NHS in the UK – it is state-owned rather than privately funded, allowing for universal healthcare and ensuring that the public is not exploited by having to pay for life-saving treatments. The government might also manage or own welfare, retirement programs, aerospace, energy production and sometimes even banking.

Much like a free market, a mixed economy distributes goods and services depending on the demand and where they are required and allows this alongside the supply to determine the price of the product, meaning that transactions always happen regardless of changes (except for extremities like a market crash or war). In addition, it rewards the more efficient producers as the consumers will get the best value for money and so will buy more of it, meaning increased profits. Lower costs from the higher efficiency boost these profits. It also cultivates innovation to outcompete other companies by satisfying the customer’s requirements more cheaply, efficiently or creatively. Another advantage is that capital is automatically allocated to more innovative and profitable companies, which can then use the capital to invest in similar rising companies, leading to a positive multiplier effect similar to a chain reaction.

Furthermore, a mixed economy mitigates the negative impacts of a market economy. A free market often neglects defence, technology and aerospace as they are difficult to invest in or profit from, so having these sectors funded by the government allows them to survive. It also protects smaller companies who cannot compete with the largest, most innovative businesses, as they are usually highly vulnerable in a free market economy and remain at risk. In a mixed economy, government funding cares for them. It prevents them from going out of business by offering a range of helpful services, including loans, regulations, training, advice and much more.

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[1] Paul A. Samuelson. “Economics” Page 43. McGraw Hill Education, 2010.

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