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Quick Answer

Countries with mixed economies include Iceland, Sweden, France, the U.S, the U.K, Cuba, Russia and China. Most industrial countries have mixed economies, but vary in the degree of government involvement. For example, in Western Europe the government generally has a stronger role, while in North America the market is more influential. The only major planned economy is North Korea.
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Countries with mixed economies include Iceland, Sweden, France, the U.S, the U.K, Cuba, Russia and China. Most industrial countries have mixed economies, but vary in the degree of government involvement. For example, in Western Europe the government generally has a stronger role, while in North America the market is more influential.

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What is a 'Mixed Economic System'

A mixed economic system is a system that combines aspects of both capitalism and socialism. A mixed economic system protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. According to neoclassical theory, mixed economies are less efficient than pure free markets, but proponents of government interventions argue that the base conditions such as equal information and rational market participants cannot be achieved in practical application.

BREAKING DOWN 'Mixed Economic System'

Most modern economies feature a synthesis of two or more economic systems, with economies falling at some point along a continuum. The public sector works alongside the private sector, but may compete for the same limited resources. Mixed economic systems do not block the private sector from profit-seeking, but do monitor profit levels and may nationalize companies that are deemed impediments to the public good. The United States is mostly a free market economy, but it incorporates elements such as protection for agriculture and manufacturing through trade restrictions and subsidies. This makes the United States a mixed economy by definition.

What Is the Difference Between a Mixed Economy and Free Markets?

Mixed economic systems are not laissez-faire systems, because the government is involved in planning the use of some resources and can exert control over businesses in the private sector. Governments may seek to redistribute wealth by taxing the private sector, and using funds from taxes to promote social objectives. Trade protection, subsidies, targeted tax credits, fiscal stimulus and public-private partnerships are common examples of government intervention in mixed economies. These usually do not generate massive economic distortions, but instead are instruments to achieve specific goals.

Countries often interfere in markets to promote target industries by creating agglomerations and reducing barriers to entry in an attempt to achieve comparative advantage. This was common among different East Asian countries in the 20th century, and the region has turned into a global manufacturing center for a variety of industries. Some nations have come to specialize in textiles, while others are known for machinery, and others are hubs for electronic components. These sectors rose to prominence after governments protected young companies as they achieved competitive scale and promoted adjacent services such as shipping.

Difference From Socialism

Socialism entails more social ownership of the means of production. Proponents of socialism believe that central planning can achieve greater good for a larger number of people. They do not trust that free market outcomes will achieve the efficiency and optimization posited by classical economists, so socialists advocate measures that can include price fixing, income redistribution and intense trade restriction. Mixed economies rarely go to this extreme, instead identifying only select instances in which intervention could achieve outcomes unlikely to be achieved in free markets.

History and Criticism of the Mixed Economy

The term mixed economy gained prominence in the United Kingdom after the war, even though many of the policies associated with it were first propelled in the 1930s. Many of the supporters were associated with the British Labour Party.

Critics argued that there could be no middle ground between economic planning and a market economy, and many - even today - question its validity when they believe it to be a combination of socialism and capitalism. Those who believe the two concepts don't belong together say either market logic or economic planning must be prevalent in an economy. Meanwhile, classical and Marxist theorists say that either the law of value or the accumulation of capital is what drives the economy, or that non-monetary forms of valuation (i.e. transactions without cash) are what ultimately propel the economy. These theorists believe that Western economies are still primarily based on capitalism because of the continued cycle of accumulation of capital.

Advantages and Disadvantages of a Mixed Economy

Many of the advantages of a mixed economy are found in a market economy. Goods and services are distributed where they are most needed, while allowing prices to measure supply and demand. Secondly, it rewards the producers who are the most efficient with the biggest profits, meaning consumers get the most value for their dollar. A mixed economy promotes innovation and improvement, and gives capital to those producers who are most efficient.

But if the market has too much freedom and liberty, it can make the environment less competitive sans support from the government. Furthermore, the country could accumulate more debt by creating government-subsidized industries - like defense or military - slowing down the economy.

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A mixed economic system is a system that combines aspects of both capitalism and socialism.

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What is a free market economy? definition and meaning

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Definition of free market economy: an economic system where the government does not interfere in business activity in any way

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In a free market economy, the law of supply and demand, rather than a central government, regulates production and labor. Companies sell goods and services at the highest price consumers are willing to pay, while workers demand the highest wages companies are willing to pay for their services. A purely capitalist economy is a free market economy; the profit motive drives all commerce and forces businesses to operate as efficiently as possible to avoid losing market share to competitors.

Command economies are marked by communist and socialist tendencies. The government controls the means of production and the distribution of wealth, dictating the prices of goods and services, and the wages workers receive.

Free market economies and command economies exist more as abstract concepts than as tangible realities; almost all of the world's economies feature elements of both systems. For example, while the U.S. allows companies to set prices, and workers negotiate wages, the government establishes parameters, such as minimum wages and antitrust laws, that must be followed.

Based on the 2017 Index of Economic Freedom Hong Kong, with its extremely low tax rates, minimal regulations on businesses, and highly capitalist system of economics, ranks as 89.8% economically free, which is the highest rating in the world.

Singapore ranks second and is 88.6% free. The country imposes no tariffs, and there are few restrictions on investments. Singapore also features strong private property rights.

Australia, which ranks as 81.0% free, also has very low tariffs and strong private property rights. The government provides businesses with lots of flexibility and does not constrict them with overly complicated regulations or licensing procedures.

New Zealand and Switzerland are also ranked in the top 5 segment, having 83.7% and 81.5% free economies, respectively.

The U.S., featuring the world's most advanced financial markets, is 75.1% economically free as of 2017. This number has decreased in recent years. While certain U.S. industries generate more government scrutiny than others, private companies, rather than the government, control most sectors. The country also practices free trade with much of the world.

The top 5 countries with little to no free market economies include North Korea, Venezuela, Cuba, Republic of Congo, and Eritrea.

To set the record straight, you might be interested in reading What is the difference between a capitalist system and a free market system?

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What are some examples of free market economies?

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In a free market economy, the law of supply and demand, rather than a central government, regulates production and labor. Companies sell goods and services at the highest price consumers are willing to pay, while workers demand the highest wages companies are willing to pay for their services.

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In a command economy, all aspects of business, including how goods are produced, how much they are sold for, and how many of the goods are produced, are variables that are defined by the state. In essence, this means that all businesses in the economy are run by or for the state.

One of the advantages of a command economy is that it makes it easier to mobilize the resources of a country. However, the disadvantage is that the needs of the society are often not fully met, since the market is driven by what the government dictates rather than what people actually want. It is common to find thriving black markets in such settings, which people use to get access to any products they need but cannot get through official government channels. Innovation is frequently stifled in such an economy because regulations may not change quickly enough to take advantage of new ideas.
Learn more about Types of Government

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What Are Some Examples of Command Economies?

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In a command economy, all aspects of business, including how goods are produced, how much they are sold for, and how many of the goods are produced, are variables that are defined by the state. In essence, this means that all businesses in the economy are run by or for the state.

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A command or planned economy occurs when the government controls all major aspects of the economy and economic production. In a command economy, it is the government that decides what to produce, how to produce goods and how to distribute goods and services within the economy. Command economies were often associated with the political system of Communism. It was Karl Marx, in the Communist manifesto who argued for 'common ownership of the means of production.'

A command economy works in contrast to a free market economy. In a free market economy, goods and services are produced by private enterprise with distribution occurring according to market forces.

How a command economy works

Government ownership of the means of production. In command economies, governments will own some or all of the industries producing goods and services.

Government pricing and production decisions. In a command economy, production is decided by government agencies, who decide the most socially efficient goods to produce. Government agencies may also set prices or give consumers rations directly.

Government macro-economic objectives. In a command economy, the government will have over-riding macroeconomic objectives such as employment rates and what to produce.

Some centrally planned economies may consist of not just state-owned enterprises, but some privately owned firms who are closely directed by state management.

How a command economy compares to a free market economy

Advantages of command economies

Supporters of command economies argue that it enables the government to overcome market failure, inequality and create a society that maximises social welfare rather than maximises profit.

Command economies can prevent abuse of monopoly power.

Command economies can prevent mass unemployment, often a feature of capitalist economies.

Command economies could produce goods which benefit society and ensure everyone has access to basic necessities.

Although Command economies are associated with failing inefficient economies of the late Soviet Union and Cuba, in the 1920s and 30s, the Soviet Union made periods of very rapid economic growth. Between 1928-40 - the first three Five-Year Plans, the Soviet Union made rapid economic growth changing from a largely agrarian society to a major industrial nation. (This also occurred during a period of depressed world demand during the Great Depression.)

Disadvantages of command economies

Government agencies usually have poor information about what to produce. Centralisation means that decisions are taken by people who may have no access to what is actually happening. Command economies, like the Soviet Union, often produced goods that weren't used.

Unable to respond to consumer preferences.

Inefficient firms are protected and kept going; making it hard for resources to move to dynamic and efficient firms.

Threat to democracy and liberty. A command economy creates a very powerful government which limits individuals rights to pursue economic objectives. This invariably creates a climate where governments can extend their control into other areas of people's lives.

Bureaucratic. Command economies tend to be very bureaucratic with decisions held up by planning and committees.

Price controls invariably lead to shortages and surpluses.

Transition from command to market economies

From the 1980s, many command economies, such as the Soviet Union began to make the transition to a mixed economy. This involved a process of privatisation and price deregulation. A mixed economy enables the benefits of both free market and some selected government intervention.

China has also made the transition from a command economy to a mixed economy - though politically the country still remains communist.
Related

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A command or planned economy occurs when the government controls all major aspects of the economy and economic production. In a command economy, it is the government that decides what to produce, how to produce goods and how to distribute goods and services within the economy.

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A command economy is where a central government makes all economic decisions. Either the government or a collective owns the land and the means of production. It doesn't rely on the laws of supply and demand that operate in a market economy. A command economy also ignores the customs that guide a traditional economy. In recent years, many centrally-planned economies began adding aspects of the market economy. The resultant mixed economy better achieves its goals.

Five Characteristics of a Command Economy

You can identify a modern, centrally planned economy by the following five characteristics:

1. The government creates a central economic plan. The five-year plan sets economic and societal goals for every sector and region of the country. Shorter-term plans convert the goals into actionable objectives.

2. The government allocates all resources according to the central plan. It tries to use the nation's capital, labor, and natural resources in the most efficient way possible. It promises to use each person's skills and abilities to their highest capacity. It seeks to eliminate unemployment.

3. The central plan sets the priorities for the production of all goods and services. That includes quotas and price controls. Its goal is to supply enough food, housing, and other basics to meet the needs of everyone in the country. It also sets national priorities. These include mobilizing for war or generating robust economic growth.

4. The government owns monopoly businesses. These are in industries deemed essential to the goals of the economy. That includes finance, utilities, and automotive. There is no domestic competition in these sectors.

5. The government creates laws, regulations, and directives to enforce the central plan. Businesses follow the plan's production and hiring targets. They can't respond on their own to free-market forces.﻿﻿

A command economy has a few advantages, although they come with a few important disadvantages as well.

Advantages

Planned economies can quickly mobilize economic resources on a large scale. They can execute massive projects, create industrial power, and meet social goals. They aren't slowed down by lawsuits from individuals or environmental impact statements.

Command economies can wholly transform societies to conform to the government's vision. The new administration can nationalize private companies. It can force the previous owners to attend "re-education" classes. Also, workers may receive new jobs based on the government's assessment of their skills.

Disadvantages

This rapid mobilization often means command economies mow down other societal needs. For example, the government tells workers what jobs they must fulfill. It discourages them from moving. The goods it produces aren't always based on consumer demand. But citizens find a way to fulfill their needs. They often develop a shadow economy or black market. It buys and sells the things the command economy isn't producing. Leaders' attempts to control this market weakens support for them.

They often produce too much of one thing and not enough of another. It's difficult for central planners to get up-to-date information about consumers' needs. Also, prices are set by the central plan. They no longer measure or control demand. Instead, rationing often becomes necessary.

Command economies discourage innovation. They reward business leaders for following directives. This system doesn't allow for taking risks required to create new solutions. Command economies struggle to produce the right exports at global market prices. It's challenging for central planners to meet the needs of the domestic market. Meeting the needs of international markets is even more complex.

Here are examples of the most well-known countries with command economies:

Belarus: This former Soviet satellite is still a command economy.﻿﻿ The government owns 80% of the country's businesses and 75% of its banks.

China: After World War II, Mao Tse Tung created a society ruled by Communism. He enforced a strictly planned economy. The current leaders are moving toward a market-based system. They continue to create five-year plans to outline economic goals and objectives.

Cuba: Fidel Castro's 1959 revolution installed Communism and a planned economy.﻿﻿ The Soviet Union subsidized Cuba's economy until 1990. The government is slowly incorporating market reforms to spur growth.

Iran: The government controls 60% of the economy through state-owned businesses. It uses price controls and subsidies to regulate the market. This control created recessions, which it has ignored. Instead, it devoted resources to expanding its nuclear capability. The United Nations imposed sanctions, worsening its recessions. The economy improved once the nuclear trade deal ended sanctions in 2015.

Libya: In 1969, Muammar Gaddafi created a command economy reliant upon oil revenues.﻿﻿ Most Libyans work for the government. Gaddafi had been instituting reforms to create a market-based economy. But his 2011 assassination halted these plans.

North Korea: After World War II, President Kim Il-sung created the world's most centrally-planned economy.﻿﻿ It created food shortages, malnutrition, and several bouts of mass starvation. Most state resources go into building up the military.

Russia: In 1917, Vladimir Lenin created the first Communist command economy. The Russian people were ready for a radical change, having suffered starvation during World War I. Joseph Stalin built up military might and quickly rebuilt the economy after World War II. The Soviet State Planning Committee, or "Gosplan," has been the most-studied command economy entity. The USSR was also the longest-running command economy, lasting from the 1930s until the late 1980s. Then, the state transferred ownership of the largest companies to oligarchs.

Below you can see a world ranking countries by level of economic freedom, from the freest to the most repressed.

Development of the Theory

Viennese economist Otto Neurath developed the concept of a command economy after World War I. Neurath proposed it as a way to control hyperinflation. The phrase "command economy" comes from the German word "Befehlswirtschaft." It described the fascist Nazi economy.﻿﻿

But centrally planned economies existed long before Nazi Germany. They included the Incan empire in 16th century Peru and the Mormons in 19th century Utah. The United States used a command economy to mobilize for World War II.﻿﻿ ﻿﻿

The Bottom Line

A command economy does not allow market forces like supply and demand to determine what, how much, and at what price they should produce goods and services. Instead, the central government will plan, organize, and control all economic activities, discouraging market competition. Its goal is to allocate resources to maximize social welfare.

The main advantage is that the government can rapidly move resources and transform the structure of society to achieve a national goal. But there is not much room for innovation. As a result, China, Russia, and Vietnam have veered away from a pure command economy. They've combined elements from both command and free-market economies.

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A command economy is where a central government makes all economic decisions. Either the government or a collective owns the land and the means of production. It doesn't rely on the laws of supply and demand that operate in a market economy. A command economy also ignores the customs that guide a traditional economy.

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A traditional economy is usually underdeveloped with minimal economic growth. It is often dominant in rural and farm-based countries. Limited surplus is produced, and excess goods are usually given to the ruling authority or landowner.

Typical examples of traditional economies are the Inuit or those of the South India tea plantations. This type of economic system is considered "primitive" or "undeveloped," having technologies or tools perceived as outdated. People living in such an economy are regarded as living in poverty, even if their daily needs are satisfied. However, traditional economies are usually less environmentally destructive than sophisticated ones may be.

Traditional economies are popular in emerging markets or developing world countries. For instance, they can be found in parts of Africa, Asia, the Middle East and Latin America. Some forms of traditional economies, however, are present virtually all over the world. Traditional economic systems are expected to eventually evolve into a mixed, market or command economies.
Learn more about Economics

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What Are Characteristics of a Traditional Economy?

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A traditional economy is usually underdeveloped with minimal economic growth. It is often dominant in rural and farm-based countries. Limited surplus is produced, and excess goods are usually given to the ruling authority or landowner. Typical examples of traditional economies are the Inuit or those of the South India tea plantations.

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A traditional economy is a system that relies on customs, history, and time-honored beliefs. Tradition guides economic decisions such as production and distribution. Societies with traditional economies depend on agriculture, fishing, hunting, gathering, or some combination of them. They use bartering instead of money.

Most traditional economies operate in emerging markets and developing countries. They are often in Africa, Asia, and South America. You can also find pockets of traditional economies scattered in developing countries throughout the world.

Economists and anthropologists believe all other economies got their start as traditional economies. Thus, they expect remaining traditional economies to evolve into market, command, or mixed economies over time. A market economy is a system where the laws of supply and demand direct the production of goods and services. A command economy is where a central government makes all economic decisions. Either the government or a collective owns the land and the means of production. A mixed economy combines the characteristics of the other three.

Key Takeaways

5 Characteristics of a Traditional Economy

The five characteristics of a traditional economy are:

1. Centering around a family or tribe

2. Existing in a hunter-gatherer and nomadic society

3. Producing only what it needs

4. Relying on a barter system

5. Evolving once it starts farming and settling

First, traditional economies center around a family or tribe. They use traditions gained from the elders' experiences to guide day-to-day life and economic decisions.

Second, a traditional economy exists in a hunter-gatherer and nomadic society. These societies cover vast areas to find enough food to support them. They follow the herds of animals that sustain them, migrating with the seasons. These nomadic hunter-gatherers compete with other groups for scarce natural resources. There is little need for trade since they all consume and produce the same things.

Third, most traditional economies produce only what they need. There is rarely surplus or leftovers. That makes it unnecessary to trade or create money.

Fourth, when traditional economies do trade, they rely on bartering. It can only occur between groups that don't compete. For example, a tribe that relies on hunting exchanges food with a group that relies on fishing. Because they just trade meat for fish, there is no need for cumbersome currency.

Lastly, traditional economies start to evolve once they start farming and settle down. They are more likely to have a surplus, such as a bumper crop, that they use for trade. When that happens, the groups create some form of money. That facilitates trading over long distances.

Traditional Mixed Economies

When traditional economies interact with market or command economies, things change. Cash takes on a more important role. It enables those in the traditional economy to buy better equipment. That makes their farming, hunting, or fishing more profitable. When that happens, they become a traditional mixed economy.

Traditional economies can have elements of capitalism, socialism, and communism. It depends on how they are set up. Agricultural societies that allow private ownership of farmland incorporate capitalism. Nomadic communities practice socialism when they distribute production to whoever contributed the most and earned it. That would be the case if the best hunter or the leader of the community received the best cut of meat or the best grains from a farmer. If an economy feeds children and the elderly first, it would be adopting communism and basing it on people's needs.

Pros and Cons of a Traditional Economy

Pros Explained

Little or no friction between members: Custom and tradition dictate the distribution of resources. As a result, there is little friction between members. Everyone knows their contribution toward production, whether it's as a farmer, hunter, or weaver.

Everyone understands their role and contribution: Members also understand what they are likely to receive. Even if they aren't satisfied, they don't rebel. They understand that it's what has kept society together and functioning for generations.

More sustainable than a technology-based economy: Since traditional economies are small, they aren't as destructive to the environment as developed economies. They don't have the capability to produce much beyond their needs. That makes them more sustainable than a technology-based economy.

Cons Explained

Exposed to changes in nature and weather patterns: Traditional economies are exposed to changes in nature, especially the weather. For this reason, traditional economies limit population growth. When the harvest or hunting is poor, people may starve.

Vulnerable to market or command economies that use up their natural resources: They are also vulnerable to market or command economies. Those societies often consume the natural resources traditional economies depend on or they wage war. For example, Russian oil development in Siberia has damaged streams and the tundra. That has reduced traditional fishing and reindeer herding for traditional economies in those areas.

Examples of a Traditional Economy

America had traditional economies before the immigration of Europeans. Nomadic Native American and indigenous economies had advantages, like communities of people with stronger immune systems. Small communities protected them from smallpox and other diseases from other countries and communities-but only for a while. Eventually, people from other countries immigrated and brought with them new diseases, as well as advanced weapons and more resources. Native Americans and indigenous communities could not fight off the diseases. These people who moved into their land also brought violent colonization and genocide to these communities.

Before the Civil War, the southern states in the U.S. had somewhat of a traditional economy. These states and their economies relied heavily on farming-much of which was done by enslaved people. When the war was over and slavery was abolished, these farms were forced to operate in new ways.

Another example is before the Great Depression when the United States had many aspects of a traditional economy. At the beginning of the 20th century, more than half of Americans lived in farming communities. Agriculture employed at least 41% of the workforce. But they used poor farming techniques to meet high demand following World War I. That resulted in droughts that ultimately led to the Dust Bowl. By 1930, only 21.5% of the workforce was in agriculture. It generated just 7.7% of the gross domestic product.

Haiti is another example. Haiti's economy is largely dependent on small family farms. It also uses wood fuel as a primary energy source. Unfortunately, many people live in poverty in Haiti and the nation's reliance on wood has also made it vulnerable to natural disasters, such as the earthquake that struck in 2010.

Indigenous tribes in the Arctic, North America, and eastern Russia also have a history of traditional economies. These communities rely on fishing and hunting. For example, the Sami people of Scandinavia manage reindeer herds. A tribe member's relationship to managing the herd defines their economic role. That includes their legal status, culture, and state policies toward the individual.

Frequently Asked Questions (FAQs)

Which countries have a traditional economy?

How are economic decisions made in a traditional economy?

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A traditional economy is a system that relies on customs, history, and time-honored beliefs. Tradition guides economic decisions such as production and distribution. Societies with traditional economies depend on agriculture, fishing, hunting, gathering, or some combination of them. They use bartering instead of money. Most traditional economies operate in emerging markets and developing countries.