When Should Any Government Regulate Producers in a Mixed Market Economy?

Most modern economies are both a market economy and a socialist economy. It means the economy relies both on the government as well as the markets for allocating the resources.

In this article, I’ll explain about such mixed market economies. Moreover, our team also researched on when the government regulates producers in a mixed market economy. I’ll highlight that too, so continue reading.

I’ll First Explain the Mixed Market Economies and Its Characteristics

In a mixed economic condition, the free market and the government interventions coexist, unlike in a command economy where the government intervention controls the country’s finances and hence the market forces.

Also, unlike the free market principles, demand and supply maintain the economic systems of the country in a mixed market economy.

In a mixed economic system, the goal is to bring an equilibrium between the market-based economy and government intervention, while everything remains fair and stable. Some characteristics of a mixed economy are –

• Prices are determined by the free market, and economic affairs are governed by supply and demand.
• The government involvement is in a manner that helps the people and the market.

• The military and national defense, foreign trade, and transportation are the sectors that are handled by government policymakers.
• Most mixed economies protect private properties and are running in the self-interest of the people.

The Icy Whiz team interviewed Luke Smith, Attorney and Founder at LawSmith PLLC, on government intervention and market forces in a mixed economy. Here is what he said:

“Government regulation of producers is warranted when market failures occur, such as monopolistic practices, systemic efficient breach of contract (as can occur in the insurance industry), environmental degradation, or consumer safety concerns.

Regulations aim to promote fair competition, safeguard consumer interests, and ensure industry accountability. 

However, regulations may stifle innovation and hinder market efficiency, which, in some instances, will outweigh their benefits. Where regulations are narrowly tailored to prevent specific market failures, they promote a level playing field, trust in commerce, and public welfare.

Effective regulation fosters healthy competition, encourages innovation, and enhances consumer trust, ultimately contributing to a more stable and equitable mixed-market economy.”

Are You Wondering About the Prices in a Mixed Economy?

Well, the government does not control prices per se in a mixed economy rather it is a combined work of the government and the market. The prices fluctuate based on the supply and demand strategy; however, for some sectors, the government takes the upper hand like healthcare and essential utilities.

This is done to guarantee the access of these to all individuals, to prevent monopolization, and to protect consumers. The government regulates some other industries as well by introducing subsidies or price controls and this is mainly done to eradicate income inequality and to maintain fair competition.

Eric Novinson, Founder of This Is Accounting Automation, shared his views on this topic. Here is what he had to say:

“One situation where government intervention might be necessary is when a company has gained a monopoly and is using this monopoly to either manipulate related markets or force unfair terms on its customers or suppliers. 

Otherwise, if a producer is behaving badly, its competitors may be able to capture its market share without government involvement.”

Advantages of a Mixed Economy

• Mixed economic systems promote high efficiency along with innovation and creativity due to market-based incentives.
• Government intervention can be done in a very strategic manner, focused on some industries rather than central planning. The government plays less and economic activities are benefitted in a way that benefits most countries.
• There is a very clear distinction between the freedom of an individual and his/her social responsibilities and these economies are like public services as they also help people who can not find work or need help.

• There is a proper distribution of attention among all the sectors from private businesses to the national military and aviation. Anything that is missed by the market is fulfilled by the government.
• A mixed economy combines all competitors and cares for them to make sure that only the most inventive or successful ones do not prosper.

Disadvantages of a Mixed Economy

• Due to a lot of government involvement in the mixed economic system as compared to the free market economy, there is excessive taxation to pay for the major focus on welfare spending and economic influence.

• There are also chances of government monopoly. If in a country the government is giving a special preference or attention to a market sector, then eventually government owns it in a manner that other competitors are lost; for example, in some countries, the mail systems are state-owned enterprises.
• The mixed economic system might also lead to improper or unfair allocation of resources. This can be due to a lot of reasons like political influence, non-economic factors, and crowding out the private sector.

In Some Sense, Mixed Economy Seems Beneficial

• You can possess production capacity in factories, farms, or stores.
• You can sell, buy, hire, fire, and participate in managerial decisions, both cooperative and participatory.

• You can organize professional associations, and non-profit groups, and communicate using newspapers or advertisements. You can also make deals, and create markets.

Let’s Have a Look at Some Examples

Some countries provide very generous welfare programs, while others provide high regulations. Some will prevent monopolization, others might control pricing.

1. Vietnam

The government maintains certain market sectors like telecommunications and energy, but it supports both private and public ownership and even foreign investments.

2. Norway

The government here runs major industries like oil and gas production. However, it encourages private ownership by certain incentives and policies like free markets.

They have strict labor laws and high taxes but they also achieve social aims like healthcare and education by funding their revenue into public utilities.

3. Singapore

The government is involved in sectors like education, healthcare, and housing. They are known to have a very transparently working government so they have no problem working in a free market economic system.

In an interview with the Icy Whiz team, David Rubie-Todd, Co-Founder and Marketing Director at Glide, discussed the interaction between government regulation and market forces and advocated balancing safety and market accessibility. Here is what he said:

“As a small-business entrepreneur, I find the interaction between government regulation and market forces pivotal. From my perspective, government intervention is warranted in scenarios where public safety, environmental protection, and fair market practices are at stake.

A regulation that ensures the safety and quality of a product can instill consumer trust, which is invaluable when establishing a strong market presence for small businesses. 

However, these regulations must be balanced to avoid stifling innovation and competition. Excessive bureaucratic hurdles can impede the growth of small enterprises and deter market entry, thus consolidating the dominance of larger corporations.

Maintaining this balance in a mixed-market economy ensures that the competitive landscape remains accessible to small businesses, ultimately fostering innovation and competition and enhancing consumer welfare by offering a broader range of choices and better pricing.

Furthermore, government regulations can also be utilized to address market failures, such as monopolies or oligopolies. In such cases, intervention may be necessary to prevent these dominant players from exploiting their power and restricting competition.

A well-regulated market creates a level playing field for all businesses, regardless of size or resources, promoting healthy competition that benefits both producers and consumers.”

You Should Know About When This Regulation Happens

I must tell you that the government regulates producers in a mixed economy when interference is needed to create some social benefit.

If a producer is doing very well and is trying to monopolize the market, the government may intervene to promote the interests of other competitors.

If a producer is an excellent manufacturer of a certain product or product line, and hikes the pricing of the same to an extreme level; the government can then regulate the pricing. In case, it is an essential commodity required by the common man or any healthcare essential that could be required for any emergency or medical reasons.

In a mixed economy, we can see a mix of very powerful and effective management provided by the private sector and strong and reliable financial founding of the public sector.

This leads to a very stable base building which helps the country’s overall economy to boost, and it attains higher economic growth. It promotes individual rights and accentuates social welfare.

Guest Author: Saket Kumar

Last Updated on May 12, 2024 by Pragya