READING. Command and market economies both have significant faults

MIXED ECONOMY

Command and market economies both have significant faults. Partly because of this, an intermediate system has developed, known as mixed economies.

A mixed economy means very much what it says as it contains elements of both market and planned economies. At one extreme we have a com­mand economy, which does not allow individuals to make economic deci­sions, at the other extreme we have a free market, where individuals exercise considerable economic freedom of choice without any govern­ment restrictions. Between these two extremes lies a mixed economy. In mixed economies some resources are controlled by the government whilst others are used in response to the demands of consumers.

Technically, all the economies of the world are mixed: it is just the balance elements between market and planned elements that alters. Some countries are nearer to command economies, while others are closer to free market economies. So, for example, Hong Kong has some state-con­trolled industry, while Cuba has some privately owned and controlled firms.

The aim of mixed economies is to avoid the disadvantages of both sys­tems while enjoying the benefits that they both offer. So, in a mixed eco­nomy the government and the private sector interact in solving economic problems. The state controls the share of the output through taxation and transfer payments and intervenes to supply essential items such as health, education and defence, while private firms produce cars, furniture, electri­cal items and similar, less essential products.

The UK is a mixed economy: some services are provided by the state (for example, health care and defence) whilst a range of privately owned businesses offer other goods and services. The Conservative government under Margaret Thatcher switched many businesses from being state-owned and controlled to privately owned as part of its privatization pro­gramme. This has taken the UK economy further away from the planned system.