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22 September, 2019 00:00 00 AM

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Why do most countries have mixed economies?

In Bangladesh, the adoption of mixed economic system means that business firms whether in private sector or public sector must work towards the improvement of the economic lot of the people
Md. Harun-Or-Rashid
Why do most countries have mixed economies?

Most of the world's major economies are now mixed economies. A country's people are best served through international trade as globalization makes it difficult to avoid.

Since 2004, Bangladesh has produced an average GDP growth rate of 6.50%, which has been largely driven by its exports of readymade garments, remittances and the domestic agricultural sectors. The country has pursued export oriented industrialization; with its key export sectors include textiles, shipbuilding, fish and seafood, jute and leather goods. The government of Bangladesh promotes the Digital Bangladesh scheme as part of its efforts to develop the country's growing information technology sector as well.

In a mixed economy, entrepreneurs, businesses and corporations are allowed to pursue their best interests in the market, while government or public programs, organizations, and enterprises are equally permitted to provide services and the like in the market, as well as arbitrate in areas like trade or taxes. However, a mixed economy is not the same as a laissez faire economy because the government competes for limited resources in the market and may monitor and impose sanctions on corporations or businesses in the private sector. Additionally, a mixed economy does watch over profit levels and may interfere in the allocation of resources. While in a market economy, the consumer plays a larger role than the national and state government. The economy is run by the consumers' purchasing choices. And in a planned economy also called a command economy, the government controls all of the decisions for owning, making, issuing, and exchanging goods.

The overall objective of the economic system in Bangladesh is to achieve economic growth with distributed justice. And few areas of economic activity are left open to private enterprises, few others are reserved for public enterprises while in some areas both the sectors may compete or collaborate. Thus, there is a combination of the features of capitalism and socialism. In Bangladesh, the adoption of mixed economic system means that business firms whether in private sector or public sector must work towards the improvement of the economic lot of the people, and narrowing down of inequalities of income and wealth.  

The U.S. consists of both private and government/state owned entities. Sometimes, the government gets involved to help the economy. Two examples of government assistance in the U.S. are welfare and unemployment benefits. These provide financial assistance for people who are in need. There are many types of welfare programs including housing aid, aid for children, healthcare etc. Countries with mixed economies include Iceland, Sweden, France, the U.S, the U.K, Cuba, Russia, China and also Bangladesh. Most industrial countries have mixed economies, but vary in the degree of government involvement in the society.

A mixed economy is a system that combines characteristics of market, command and traditional economies. It benefits from the advantages of all three while suffering from few of the disadvantages. Firstly, it protects private properties. Secondly, everyone is free to live, work, produce, buy and sell whatever they choose. Thirdly, self-interest drives the buying and selling of goods and services, including employment. Sellers want the highest price and buyers want the best value for their money. Fourthly, the law protects competition. Fifthly, prices are allowed to float along with supply and demand. Finally, the primary role of government is to make sure that everyone has free access to a free market.

In this type of economic system, both the public and private sectors can operate equally, which means that economic development will be quicker. This is especially true considering that economic resources will be utilized efficiently. Also, depletion of resources will be slowed down. Innovation is encouraged, so that the needs of the client are met more creatively, cheaply and efficiently. In addition, the government would also try to develop each sector of the population. With a mixed economy, there will be lesser inequality when it comes to income, where the inheritance law is applied to enable members of society to become richer. As for the public sector, it would try to provide economic utility to the general public, leading to further reduction of inequality in income.

A mixed economy can also take on all the disadvantages of the other types of economies. It just depends on which characteristics the mixed economy emphasizes. For example, if the market has too much freedom, it can leave the less competitive members of society without any government support.

However, central planning of government industries also creates problems. The defense industry could become a government subsidized monopoly or oligarchy system.

The fear of expropriations, as the government and the private sector coexist, there may be a degree of fear in this regard. The same thing happens with the decisions that the government can make regarding taxes, since in this matter they take unilateral decisions frequently. That could put the country into debt, slowing down economic growth in the long run. The taxes are higher as there is more government intervention in the economy, as the government seeks to ensure their income. The government could protect the free market so much that it doesn’t regulate enough. For example, businesses that took on too much risk could receive taxpayer funded bailouts. With more state intervention in the economy, it would mean that the government would invest more and would get their funds largely from tax revenues.

In bottom line, very few economists would argue that the government should try and intervene in all areas of the economy. Private businesses and financial incentives play an important role in a well functioning economy even if the desire is to promote greater redistribution. And most importantly, a mixed economy will work well depends on how the economic systems are managed.

The writer is banker, (Appraisal Unit), BBA, MBA (Banking), DU, Certified Finance Specialist

 

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Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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