A mixed economy is one that has some parts of both capitalistic and socialistic economies. Features of a mixed economy include a public sector, private sector, and economic planning, among others. The purpose is to provide both an open market for consumers and the ability for a government to engage in regulation and social engineering. Many countries use mixed economies to varying levels of success.
The public sector of an economy includes all government bodies and agencies. This includes national, regional or state, and local government bodies and agencies that are able to pass taxes and incur regulations on the private sector. In other words, the public sector has some control over the private sector. While most mixed economies do have some rules on the protection of private property, individuals and businesses may not be able to retain as much as in market economies. Public officials in this sector may be elected into office or appointed by other individuals already in office.
Private sectors of a mixed economy include both individuals and businesses that attempt to make a profit from the selling of goods and services. Here, the distribution of economic resources occurs frequently among all parties in the private sector. Those choosing to operate in the private sector must obey and operate within the a mixed economy as created by the public sector. In some cases, private sector companies can work jointly with the public sector. This occurs when a business engages in a contract for goods or services needed only by a public sector agency or office.
Economic planning is often one of the most important features of a mixed economy. The public sector may set up agencies and offices that set specific goals or plans for the economy. A central bank, for example, can set the interest rates and money supply for the entire economy. The resulting changes can either help grow the economy or send it into a contraction period. Taxes allow the government to engage in wealth transfers, taking money from successful individuals or companies and giving to other parties.
The amount of freedom and control often changes differently in a mixed economy. The features of a mixed economy may leave some freedom with individuals and businesses to operate in their own self-interests, while placing control in the hands of the government. This is perhaps the greatest difference between a market and mixed economy.