Mixed Economies
Over time, many different types of economies have been developed and utilized all over the world. Each kind of economy has its advantages and disadvantages, but in command and pure market economies, the disadvantages sometimes outweigh the benefits. Mixed economies are often considered superior to command and market economies individually because they produce the benefits of each economy but leave out their weaknesses. That’s why mixed market systems take care of the economic needs of societies better than any other economic system.
There are plenty of benefits that come with having a pure market economy, but there are also many disadvantages. There is no government involvement in a pure market system, so competition is uncontrolled and monopolies are free to grow and take over other businesses. This leaves small businesses and their employees to suffer, no matter how hard they work to prosper. Pure market economies are selfish, and unconcerned with the needs of individuals, their security, and equity among its people. In a society with an economic system of this kind, there are bound to be a few greedy people who prosper immensely, while many others live in poverty. Also, because the government is not involved in the economy, negative externalities, or side effects of some good or service provided in a society, are often left ignored and uncontrolled, affecting people mercilessly. Pure market systems also do not provide public goods, or something that benefits an entire community at no cost to the citizens. Business owners in this type of economy lack incentive, or motivation, to provide public goods because it benefits others while they have to pay the costs all by themselves.
Command economies also have many negative aspects to them. This economic system is completely uncaring of the wants of individuals and their freedom. People do not get to decide what they do for a living or what they are able to buy. Because people have no say in where they work or what their job title is, as well as the fact that doing better or working harder will not necessarily benefit them, workers often lack motivation to do their work well. In other words, employees in a command economy lack incentive to put forth their best effort into their work. This economic system also needs quite a substantial bureaucracy in order to enforce their economic laws upon every individual equally, since everyone must follow the rules at all times in order for the economy to work.
Pure command and market systems also have many benefits, which mixed economies can provide while simultaneously leaving out the disadvantages of these two kinds of economies. The market portion of mixed economy allows competition among businesses which encourages creativity and growth, while prices stay reasonable and quality stays high. But there is also some government involvement in a mixed economy, which can interfere if a monopoly is forming and competition becomes unfair. Mixed economies are also able to be concerned with peoples’ needs, as well as their wants, which is not possible in a command or market economy alone. Individuals are free to buy what they want, and the government also provides some security if people’s needs are not being met, such as food stamps or welfare. The government can also interfere with businesses to take care of negative externalities if they’re needed, so people do not have to pay the cost of someone else benefiting. And finally, mixed economies are also able to provide public goods, such as roads and public education, through taxes and government funding.
It’s obviously beneficial to have a mixed economy rather than an entirely market or command economy because individuals can profit from the positive aspects of each pure system without feeling the negative affects they present on their own. Of course, some benefits of these pure economies are lost when combined, such as the fact that in a command economy everyone has a meaningful place in their society. However, the majority of the positive characteristics are transferred into mixed economies while nearly all negative ones are left behind. Mixed economies are the most sensible and beneficial type of economic system.
A Debate on How to Run an Economy
A fledgling society has a few options on how to run its economy. The two main points of view have vastly different ideas and philosophies. The first consists of total governmental control. It decides who produces what, and who receives those things. The main goal of this economic structure, known as a Command Economy, is so that no individual is left without adequate basic amenities. In stark contrast, Pure Market Economies completely remove all governmental influence on the economy. The main goals of this economy is to promote competition, an unseen regulator, or in the words of Adam Smith, “the Invisible Hand”. The theory is that competition will cause prices to remain justifiable, as customers won't pay more than they must, and to promote improvement and innovation, as customers will tend to buy better products. Both of these systems, in their true form, are hopeless visions. As Command and Pure Market economies are severely flawed, societies tend to find a balance of the two.
Command economies have been proven to fail. First, there is a lack of incentives, something that motivates people to make a choice, for the working class to produce. They are guaranteed the same conditions as any other worker, so hard work will go unrewarded. This lack of proper compensation for labor causes the masses to do the bare minimum required, and nothing more. This weakens the economy and means there is a distinct lack of advancement and innovation. This system is poor for stability of the economy. As all decisions are made by the government, if a poor decision is made, the entire society suffers the consequences. This blanket effect causes the economy to be very vulnerable to changes that lack stability. Command economies are also very prone to corruption. In a Command economy, all decisions are made by the government. As a result, many of the decisions made by officials tend to improve the lives of the officials, and not the majority of the population. This only makes the common man’s life worse, and drives up the inequality in its society.
Market economies on the other hand suffer from vastly different problems. The main idea behind market economies is that competition in between producers regulates the economy and keeps prices down. However, if left unchecked this system can backfire. A company with a particularly successful product can lower prices and cause its competition to drop out of the market, creating a monopoly over this one product. Once the company has a monopoly there is no more competition to regulate it, which means that it can effectively stop improvements on the product, and charge whatever price it wants. Along with this, market failures occur. Market failures are when a person or group benefits from a thing without suffering the costs. People are irrational, so even though they would benefit from paying for an item, they don't want other people having positive externalities from it if they didn’t pitch their fair share of the costs. In addition, some projects are too costly for just one individual or group, even though it would be a tremendous benefit to the group. In other cases, an entity will push negative externalities on others for its own benefit. This tends to make unhappy citizens, which tends to be bad.
Mixed economies are society's’ attempts to fix problems presented by the true forms of Command and Pure Market economies. They strive to keep the good and replace the bad to cater for the specific needs of their citizens. In the case of incentives, a mixed economy keeps the incentive of profit by having competition as the main driving force behind it, but it has rules and regulations in place to keep any one particular entity from dominating the market and creating a monopoly. They tend to be more stable as any one poor decision only affects a few parts of the economy, not the entire thing, and governments tend to reserve the right to have general control over the growth and decline of the economy to prevent any drastic destabilizing changes. By enforcing taxes, the government of a mixed economy can provide public goods, goods that are non-excludable and non-rival, for the greater benefit of the entire population. By providing these public goods, a government can prevent market failures from taking place. Through regulating businesses, a government can help reduce the number of negative externalities affecting the society, which could lead to a happier population.
Some might make the point that Command economies are the way of the future. But they have always failed as they cannot cope with their inherent lack of incentives to drive the economy in the way Pure Market and Mixed economies can. Others might say Pure Market economies are the best. However, if left with only competition as a regulator, economies will tend towards monopolies, which is bad news for consumers. It is also racked with negative externalities, more bad news for consumers. No, the only way for a society to survive is to have a Mixed economy which has been adapted to deal with the problems that society faces in the other two.