Capitalist Economy VS Socialist Economy VS Mixed Economy; which one is better?

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There are many economic systems that are run globally. Each system has its own pros and cons which depends upon the country’s economic environment and condition. Let’s say – A capitalist economic system is successful in the first world countries while it can have adverse effects in the 3rd world countries. However, it is very daunting to decide as to what is best, but still, we can find out the best according to the economic environment and resources.

There are 3 renowned economic systems in the world.

  • Capitalist System ⇒USA
  • Socialist Economy ⇒China, Denmark
  • Mixed Economy ⇒Pakistan, France

Capitalist Economy

Capitalism is often referred to as a free market economy in its purest form. Capitalist societies believe that business should operate without government intervention. Instead of the market setting the prices, the seller is the price setter.

A pure Capitalist system is the one which doesn’t own the SOE’s (State-Owned Enterprises). All the business is done by the private sector with little to no intervention of the government. So it can be stated that since the private sector is the one that does the business; they are responsible for creating jobs in every sector.

This type of system has many consequences especially to the point of the local public. Because, with no government intervention in the private sector and the seller setting the prices, this can increase inflation especially in times when there is more demand than supply.

It is safe to say that in such a system of the economy, the rich become richer while the poor become poorer. The capitalist class or the ones who do the business are the ones who are favored by this system of economy.

Socialist Economy

In a socialist economy, the state owns and controls the major means of production. Here, it is the sole responsibility of the state to provide jobs and employment to its people. Since the state own the major means of production, prices are set by the government itself. Such type of economy system promotes an equitable distribution of wealth and resources because things are done through proper merit.

However, the socialist economy does allow individual ownership of enterprise and property but on high taxes and stringent government controls. Unlike in the Capitalist system, the state directly intervenes in the labor market. Thus, in a socialist economy, the state is the primary employer. This system of economy is followed by China and Denmark. Their success in the world is proof of the credibility of the socialist economy.

 

Socialist Economy VS Capitalist Economy


Example:-

In Capitalist Economy: When demand for coffee increases, the market will boost prices to increase profit. Note, there is no government intervention in setting the prices.

In Socialist Economy: No matter whether the demands go up or the supply, the state is the one which determines output and pricing levels.

Mixed Economy

It is a mixture of capitalist economy and the socialist economy because it plays at both ends. The state does own the SOEs (State-Owned Enterprises) but the major production is done by the private sector. Both state and private sector is responsible for employment. France, Pakistan, and United Kingdom are few of the countries that do follow the mixed economy system.

In short, one part of the entire economy is run by the government while the other half is left to a free market system; such a system has both pros and cons.

Among the major advantages of the mixed economy includes:

  • Equal Control

Since the government doesn’t hold full control on the market, private sector enjoys freedom to grow and operate in the market. They contribute largely to the GDP which improves the financial growth of the economy. While things such as roads, hospitals, libraries, utilities, and social security are controlled by the government which of course, helps the private sector to boost its operations and growth.

  • It makes the private sector more efficient

This is always a positive sign for any country. Since the government has little to no intervention in the private sector, the organizations and businesses tend to be more efficient as compared to the government institutions.

  • Focus on other major economic aspects

The mixed economy system allows the government to focus on the regulation of the market while allowing it to improve economic stability in the country.

  • The government can implement important policies

In areas where the market condition is bad or at its worst, the government can introduce a sustainable economic policy to overcome the challenges.

Some of the known disadvantages of the mixed economy are:

  • Higher Taxes

Since most of the business is done by the private sector, the government has to earn through taxes. Heavy taxes on employ’s wages and bonuses demotivate a person from doing hard work which has its own adverse effects. In order to run the country, the state has to impose heavy taxes which create uncertain economic conditions.

  • Limited Corporate Sector

In a typical mixed economy, the state may limit corporate sector due to certain rules which includes monopolies and anti-trust laws. Sometimes, the companies are harshly taxed depending upon the country’s economic condition.

  • Excessive Intervention mainly due to politics

Favoritism and unnecessary government intervention have always been a big concern for many economists. In such an economy, the policies that exist today can be completely changed within months due to political changes. This is why; the ‘uncertainty’ in the market is by far the biggest concern for the private sector.

Capitalist Economy VS Socialist Economy VS Mixed Economy; which one is better?

It is very daunting to decide as to which system of economy is better as each has its own pros and cons. However, the failure and success of any economy solely depend on the way it is been managed. The government intervention is needed to boost up the private sector and it should create a certain environment all across the board. Change in political powers should have no impact on the market, therefore; the right government intervention can really help an economy to achieve new heights.

What do you think about the mixed economy? Let us know in the comments below.

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