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What Are the Disadvantages of a Mixed Economy?

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  • Written By: Alex Newth
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  • Last Modified Date: 24 November 2014
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A mixed economy is a blend of a governmentally controlled and free-market economy, and while some may consider this economy to be ideal, it does have disadvantages. One of the disadvantages of a mixed economy is that business owners must pay taxes they cannot control, because the government controls tax collection and spending. The government has a tendency to allocate resources for social welfare, rather than for items that would boost the economy. This economy gives business owners great freedom, but that may be a problem for some, because business owners need to find their own market. The government also has a large hand in the economy, so there typically is a lot of paperwork and bureaucracy for business owners to go through.

Business owners rarely like to pay taxes, because this bites into their profit. This is one of the disadvantages of a mixed economy, because of how the government is involved in the economy. Business owners also cannot determine where their tax money goes. Instead, the government takes a pre-determined percentage from business owners’ profits and uses the money as it wishes; this means that the money could be used for social programs or for wars.

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The government has control of resource allocation in a mixed economy. In a free-market economy, resources will be given to services that best boost the economy, but a mixed economy gives the majority of resources to social welfare programs. While some people will see this as an advantage, it is a disadvantage for business owners, because they may not get enough resources to create an adequate product or profit.

Another disadvantage is the amount of freedom business owners have to create a product. While there are legal restrictions on some product types, most items can be made without any such problems. This means business owners must find and create their own market, which can be difficult for some companies because of the free-market side of a mixed economy.

Government agencies typically like to keep track of businesses, their earnings, and many other aspects of their business practices. This means that business owners may have to deal with a lot of paperwork and bureaucracy to get licenses or simply to operate legally. This is one of the disadvantages of a mixed economy that is hardest for private businesses, because they often experience the most paperwork.

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burcinc
Post 3

A mixed economy cannot be as good as a capitalist economy. I'm not much of an expert on economic systems but one thing I've noticed is that the European Union and the International Monetary Fund always encourage governments to adapt a capitalist economic system to help their economy grow and for the country to become wealthier.

One of the requirements of the International Monetary Fund, for example, is for governments to privatize state owned businesses. Private businesses are said to be more efficient and profitable and so are better for the economy.

In a mixed economy, businesses will continue to be owned or controlled by the government which means less profit and less wealth for the country.

bear78
Post 2

I don't think that all mixed economies are necessarily disadvantageous and limit growth. I think that there is a lot of leeway in this system and it could go in both directions depending on how it is set up.

Like the article mentioned, if there is a lot of government control over the economy, then it's probably going to stifle the system and will be disadvantageous. But if the government can make wise decisions as to where in the economy it should practice control or not, it may do pretty well.

In some countries for example, the government practices control over economic issues that involve environmental threat and pollution but gives a lot of freedom otherwise. This is a good example of a mixed economy that has used the system in a good and productive way.

fify
Post 1

I agree that business taxes will generally be very high in mixed economies. I once had the opportunity to take part in a simulation about a mixed economy. One of the things the government had to do in this simulation to actually improve public satisfaction and cover all social needs was to raise corporate taxes.

Especially in developing countries, or countries which have experienced conflict and are struggling economically, paying for social welfare programs and necessities is very difficult. The best sector in such countries tends to be the corporate sector and so a disproportionate amount of the funds required are taken from businesses as tax.

This can be a huge burden for the corporate industry to function and remain competitive.

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