Mixed Economy

Mixed Economy, market economy in which both the private sector and the public sector contribute to economic activity. Since the collapse of Communism in Eastern Europe and the former Soviet Union, and the encouragement of private enterprise in Communist-controlled states such as China and Vietnam, there are hardly any countries that do not now have a mixed economy. But even when Communist rule was at its most authoritarian, there was usually at least some private enterprise in centrally planned economies.

In recent years, many governments have moved to adjust the mix in their economies by reducing the size of the public sector through a programme of privatization that has involved selling state-owned businesses (or part-shares in them) to the private sector. Of the many issues that privatization raises, the most fundamental is what the role of the public sector in economic activity should be. In general, it is easier to convince people that a chemical company or an airline is likely to be better run by private enterprise than the state than it is to convince them it is in the general public interest for, say, the rail network, the postal service, or for essential public utilities such as the water companies to be sold to the private sector. There is, of course, the option of pursuing a mixed course of action: establishing special public-interest controls over privatized companies, or providing government subsidies to those companies to ensure that public-interest requirements (for example, the maintenance of postal or rail services to rural areas) are fulfilled. But this course is not an easy one to follow. For example, it can be difficult for the regulator of a privatized industry to balance the need to protect the interest of consumers with, say, the company's need to raise money for necessary investment. And, once the principle of government subsidies is accepted, the floodgates open to all kinds of special-interest groups lobbying for a judgement that their interest coincides with the public interest. As subsidies tend to reduce the pressure to improve efficiency, one special-interest group likely to be keen on them is the team that manages the privatized business (or will manage it if its bid is successful).

Apart from the matters raised above, there are numerous other practical issues that privatization of a state-owned business raises, notably how and to whom it is disposed of and at what price.