Mixed economic system

A mixed economic system is a system that combines aspects of both capitalism and socialism. A mixed economic system protects private property and allows a level of 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, but proponents of government interventions 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.

Most modern economies feature a synthesis of two or more economic systems, with economies falling at some point along a continuum. The public sector works alongside the private sector, but they may compete for the same limited resources. Mixed economic systems do not block the private sector from profit-seeking, but do regulate business and may nationalize industries that provide a public good. Mixed 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 to achieve specific goals that may succeed despite their distortionary effect.

Countries often interfere in markets to promote target industries by creating agglomerations and reducing barriers to entry in an attempt to achieve a comparative advantage. This was common among East Asian countries in the 20th-century development strategy known as export-led growth, and the region has turned into a global manufacturing center for a variety of industries. 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.

The term mixed economy gained prominence in the United Kingdom after World War II, even though many of the policies associated with it at the time were first proposed in the 1930s. Many of the supporters were associated with the British Labour Party.

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