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A mixed economy is an economic system in which both the private sector and state direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight and governmental provision of public goods. Some mixed economies also feature a variety of state-run enterprises.
In general the mixed economy is characterised by the private ownership of the means of production, the dominance of markets for economic coordination, with profit-seeking enterprise and the accumulation of capital remaining the fundamental driving force behind economic activity. But unlike a free-market economy, the government would wield indirect macroeconomic influence over the economy through fiscal and monetary policies designed to counteract economic downturns and capitalism's tendency toward financial crises and unemployment, along with playing a role in interventions that promote social welfare. Subsequently, some mixed economies have expanded in scope to include a role for indicative economic planning and/or large public enterprise sectors.
There is not one single definition for a mixed economy, with it defined variously as a mixture of free markets with state interventionism, or as a mixture of public and private enterprise, or as a mixture between markets and economic planning. The relative strength or weakness of each component in the national economy can vary greatly between countries. Economies ranging from the United States to Cuba have been termed mixed economies. The term is also used to describe the economies of countries which are referred to as welfare states, such as the Nordic countries. Governments in mixed economies often provide environmental protection, maintenance of employment standards, a standardized welfare system, and maintenance of competition.
As an economic ideal, mixed economies are supported by people of various political persuasions, typically centre-left and centre-right, such as social democrats or Christian democrats. Supporters view mixed economies as a compromise between state socialism and free-market capitalism that is superior in net effect to either of those.
- Etymology 1
- Philosophy 2
- History 3
- Elements of a mixed economy 4
- Relation to forms of government and other ideas 5
- Historic examples 6
- Mixed socialist economies 7
See also 8
- Mixed economic systems 8.1
- Further reading 9
- Sources and notes 10
There is no clear definition and precise meaning of the term "mixed economy".
There are generally two major definitions of "mixed economy", a political and apolitical definition. The political definition of "mixed economy" refers to the degree of state interventionism in a capitalist market economy, portraying the state as encroaching onto the market under the assumption that the market is the "natural" mechanism for allocating resources. The political definition precludes an extension to non-capitalist systems and is concerned with public policy and state influence in a capitalist market system, whereas the apolitical definition relates to patterns of ownership and management of economic enterprises in a society. The apolitical definition of "mixed economy" refers to a mix of public and private ownership of enterprises in the economy and is unconcerned with political forms and public policy.
The term "mixed economy" is used to describe economic systems which stray from the ideals of either the market, or various planned economies, and "mix" with elements of each other. As most political-economic ideologies are defined in an idealized sense, what is described rarely—if ever—exists in practice. Most would not consider it unreasonable to label an economy that, while not being a perfect representation, very closely resembles an ideal by applying the rubric that denominates that ideal. When a system in question, however, diverges to a significant extent from an idealized economic model or ideology, the task of identifying it can become problematic. Hence, the term "mixed economy" was coined. As it is unlikely that an economy will contain a perfectly even mix, mixed economies are usually noted as being skewed towards either private ownership or public ownership, toward capitalism or socialism, or toward a market economy or command economy in varying degrees.
The term "mixed economy" arose in the context of political debate in the United Kingdom in the postwar period, although the set of policies later associated with the term had been advocated from at least the 1930s. Supporters of the mixed economy, including R. H. Tawney, Anthony Crosland, and Andrew Shonfield were mostly associated with the British Labour Party, although similar views were expressed by Conservatives including Harold Macmillan. Critics of the British mixed economy, including Ludwig von Mises and Friedrich von Hayek, argued that what is called a mixed economy is a move toward socialism and increasing the influence of the state in economic life.
Elements of a mixed economy
The elements of a mixed economy have been demonstrated to include a variety of freedoms:
- to possess means of production (farms, factories, stores, etc.)
- to participate in managerial decisions (cooperative and participatory economics)
- to travel (needed to transport all the items in commerce, to make deals in person, for workers and owners to go to where needed)
- to buy (items for personal use, for resale; buy whole enterprises to make the organization that creates wealth a form of wealth itself)
- to sell (same as buy)
- to hire (to create organizations that create wealth)
- to fire (to maintain organizations that create wealth)
- to communicate (free speech, newspapers, books, advertisements, make deals, create business partners, create markets)
- to protest peacefully (marches, petitions, sue the government, make laws friendly to profit making and workers alike, remove pointless inefficiencies to maximize wealth creation)
with tax-funded, subsidized, or state-owned factors of production, infrastructure, and services:
- libraries and other information services
- roads and other transportation services
- schools and other education services
- hospitals and other health services
- banks and other financial services
- telephone, mail and other communication services
- electricity and other energy services (e.g. oil, gas)
- water systems for drinking, agriculture, and waste disposal
- subsidies to agriculture and other businesses
- government-granted monopolies to otherwise private businesses
- legal assistance
- government-funded or state-run research and development agencies
and providing some autonomy over personal finances but including involuntary spending and investments such as transfer payments and other cash benefits such as:
- welfare for the poor
- social security for the aged and infirm
- mandatory insurance (example: automobile)
and restricted by various laws, regulations:
- environmental regulation (example: toxins in land, water, air)
- labor regulation including minimum wage laws
- consumer regulation (example: product safety)
- antitrust laws
- intellectual property laws
- incorporation laws
- import and export controls, such as tariffs and quotas
Relation to forms of government and other ideas
The mixed economy is most commonly associated with social democratic policies or governments led by social democratic parties. However, given the broad range of economic systems that can be described by the term, most forms of government are consistent with some form of mixed economy. In contemporary uses, "social democracy" usually refers to a social corporatist arrangement and a welfare state in the context of a developed capitalist economy.
Authors John W. Houck and Oliver F. Williams of the University of Notre Dame have argued that Catholic social teaching naturally leads to a mixed economy in terms of policy. They referred back to Pope Paul VI's statement that government "should supply help to the members of the social body, but may never destroy or absorb them". They wrote that a socially just mixed economy involves labor, management, and the state working together through a pluralistic system that distributes economic power widely.
The American School (also known as the National System) is the economic philosophy that dominated United States national policies from the time of the American Civil War until the mid-twentieth century. It consisted of three core policy initiatives: protecting industry through high tariffs (1861–1932) (changing to subsidies and reciprocity from 1932-1970s), government investment in infrastructure through internal improvements, and a national bank to promote the growth of productive enterprises. During this period the United States grew into the largest economy in the world, surpassing the UK (though not the British Empire) by 1880.
Dirigisme is an economic policy initiated under Charles de Gaulle of France designating an economy where the government exerts strong directive influence. It involved state control of a minority of the industry, such as transportation, energy and telecommunication infrastructures, as well as various incentives for private corporations to merge or engage in certain projects. Under its influence France experienced what is called "Thirty Glorious Years" of profound economic growth.
Social market economy is the economic policy of modern Germany that steers a middle path between the goals of social democracy and capitalism within the framework of a private market economy, and aims at maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, public welfare and public services by using state intervention. Under its influence Germany emerged from desolation and defeat to become an industrial giant within the European Union.
The concept of a mixed economy is not exclusive to capitalist economies (economies structured upon capital accumulation and privately owned, profit-seeking enterprises), and the phrase has been used to characterise some socialist economic systems. A number of proposals for socialist systems call for a mixture of different forms of enterprise ownership. For example, Alec Nove's conception of feasible socialism provides an outline for an economic system based on a combination of state-enterprises for large industries, worker and consumer cooperatives, private enterprises for small-scale operations, and individually owned enterprises.
The social democratic theorist Eduard Bernstein advocated a form of mixed economy, believing that a mixed system of public, cooperative and private enterprise would be necessary for a long period of time before capitalism would evolve of its own accord into socialism.
- Christian democracy
- Economic interventionism
- Economic system
- Fascist economics
- Keynesian economics
- Political economy
- Public-private partnership
- Public sector
- Radical center
- Social democracy
- Social liberalism
- Third Way
- Third Position
- Types of capitalism
- Welfare state
Mixed economic systems
- American School
- Corporatist economy
- Nordic model
- Rhine capitalism
- Social corporatism
- Social market economy
- Socialist market economy
- State-sponsored capitalism
- Welfare capitalism
- Rosin, Kirk (“Economic theory and the welfare state: a survey and interpretation.” Journal of Economic Literature, 30(2): 741-803. 1992, a review essay looking at the economics literature
- Buckwitz, George D. (1991) America’s Welfare State: From Roosevelt to Reagan. The Johns Hopkins University Press.
- Buchanan, James M. (1986) Liberty, Market and State: Political Economy in the 1980s New York University Press.
- Gross, Kyle B. (1991) The Politics of State Expansion: War, State and Society in Twentieth-Century Britain. New York: Routledge.
- Derthick, Martha and Paul J. Quirk (1985) The Politics of Deregulation. Washington, DC: The Brookings Institution.
- Sanford Ikeda; Dynamics of the Mixed Economy: Toward a Theory of Interventionism London: Routledge 1997
Sources and notes
- Schiller, Bradley. The Micro Economy Today, McGraw-Hill/Irwin, 2010, p. 15. "Mixed ecoonomy - An economy that uses both market signals and government directives to allocate goods and resources." This follows immediately from a discussion on command economies and market mechanism.
- Stilwell, Frank. Political Economy: The Contest of Economic Ideas, 2nd ed., Oxford University Press. 2006. Stilwell
- Hendricks, Jean and Gaoreth D. Myles. Intermediate Public Economics, The MIT Press, 2006, p. 4 "the mixed economy where individual decisions are respected but the government attempts to affect these through the policies it implements."
- Gorman, Tom. The Complete Idiots Guide to Economics, Alpha Books (2003), p. 9"In a market economy, the private-sector businesses and consumers decide what they will produce and purchase, with little government intervention....In a command economy, also known as a planned economy, the government largely determines what is produced and in what amounts. In a mixed economy, both market forces and government decisions determine which goods and services are produced and how they are distributed."
- Pollin, Robert. Resurrection of the Rentier, University of Massachusetts: http://www.peri.umass.edu/fileadmin/pdf/other_publication_types/NLR28008.pdf p. 141-142: "The underlying premise behind the mixed economy was straightforward. Keynes and like-minded reformers were not willing to give up on capitalism, in particular two of its basic features: that ownership and control of the economy’s means of production would remain primarily in the hands of private capitalists; and that most economic activity would be guided by ‘market forces’, that is, the dynamic combination of material self-seeking and competition. More specifically, the driving force of the mixed economy, as with free-market capitalism, should continue to be capitalists trying to make as much profit as they can. At the same time, Keynes was clear that in maintaining a profit-driven marketplace, it was also imperative to introduce policy interventions to counteract capitalism’s inherent tendencies—demonstrated to devastating effect during the 1930s calamity—toward financial breakdowns, depressions and mass unemployment. Keynes’s framework also showed how full employment and social welfare interventions could be justified not simply on grounds of social uplift, but could also promote the stability of capitalism."
- A variety of definitions for mixed economy.
- U.S. Economy - Basic Conditions & Resources. U.S. Diplomatic Mission to Germany. "The United States is said to have a mixed economy because privately owned businesses and government both play important roles." Accessed: October 24, 2011.
- (4)Outline of the U.S. Economy – (2)How the U.S. Economy Works. U.S. Embassy Information Resource Center. "As a result, the American economy is perhaps better described as a "mixed" economy, with government playing an important role along with private enterprise. Although Americans often disagree about exactly where to draw the line between their beliefs in both free enterprise and government management, the mixed economy they have developed has been remarkably successful." Accessed: October 24, 2011.
- The Challenges of Cuba's Economy - An Interview with Dr. Antonio Romero. Also, India has been a hub for practicing mixed economic structure since its independence. Jawaharlal Nehru was a strong proponent of mixed economy. In 1998 "Transformations have occurred in property ownership, employment systems, and income levels to the extent that today we have a particular kind of mixed economy."
- "social democracy". Jason P. Abbot. Routledge Encyclopedia of International Political Economy. Ed. R. J. Barry Jones. Taylor & Francis, 2001. 1410
- Brown, Douglas (November 11, 2011). Towards a Radical Democracy (Routledge Revivals): The Political Economy of the Budapest School. Routledge. pp. 10–11.
- Brown, Douglas (November 11, 2011). Towards a Radical Democracy (Routledge Revivals): The Political Economy of the Budapest School. Routledge. pp. 10–11.
- Vuong, Quan-Hoang. Financial Markets in Vietnam's Transition Economy: Facts, Insights, Implications. ISBN 978-3-639-23383-4, VDM Verlag, Feb. 2010, 66123 Saarbrücken, Germany.
- Reisman, David A. Theories of the Mixed Economy (Theories of the mixed economy). Pickering & Chatto Ltd.
- Tawney, R. H. (1964). Equality. London: Allen and Unwin.
- Crosland, A. (1977). The Future of socialism. Westport, Conn: Greenwood Press.
- Gardner, Martin. Whys of a Philosophical Scrivener, St. Martin's Press (1991), p. 126
- John W. Houck; Oliver F. Williams (1984). Catholic social teaching and the United States economy: working papers for a bishops' pastoral. University Press of America. pp. 132–133.
- The Library of Economics and Liberty on-line Book titled The National System of Political Economy by Friedrich List
- "The Progressive Movement". United States History. Retrieved February 12, 2011.
- The Making of Modern British Politics, Martin Pugh
- Global Political Economy, Robert O'Brien and Marc Williams
- Gill: "By 1880 the United States of America had overtaken and surpassed the UK as industrial leader of the world.: (from "Trade Wars Against America: A History of United States Trade and Monetary Policy" Chapter 6 titled "America becomes Number 1" pg. 39-49 - published 1990 by Praeger Publishers in the USA - ISBN 0-275-93316-4)
- Lind: "Lincoln and his successors in the Republican party of 1865-1932, by presiding over the industrialization of the United State, foreclosed the option that the United States would remain a rural society with an agrarian economy, as so many Jeffersonians had hoped." and "...Hamiltonian side...the Federalists; the National Republicans; the Whigs, the Republicans; the Progressives." (from "Hamilton's Republic" Introduction pg. xiv-xv - published 1997 by Free Press, Simon & Schuster division in the USA - ISBN 0-684-83160-0)
- Lind: "During the nineteenth century the dominant school of American political economy was the "American School" of developmental economic nationalism...The patron saint of the American School was Alexander Hamilton, whose Report on Manufactures (1791) had called for federal government activism in sponsoring infrastructure development and industrialization behind tariff walls that would keep out British manufactured goods...The American School, elaborated in the nineteenth century by economists like Henry Carey (who advised President Lincoln), inspired the "American System" of Henry Clay and the protectionist import-substitution policies of Lincoln and his successors in the Republican party well into the twentieth century." (from "Hamilton's Republic" Part III "The American School of National Economy" pg. 229-230 published 1997 by Free Press, Simon & Schuster division in the USA - ISBN 0-684-83160-0)
- Richardson: "By 1865, the Republicans had developed a series of high tariffs and taxes that reflected the economic theories of Carey and Wayland and were designed to strengthen and benefit all parts of the American economy, raising the standard of living for everyone. As a Republican concluded..."Congress must shape its legislation as to incidentally aid all branches of industry, render the people prosperous, and enable them to pay taxes...for ordinary expenses of Government." (from "The Greatest Nation of the Earth" Chapter 4 titled "Directing the Legislation of the Country to the Improvement of the Country: Tariff and Tax Legislation" pg. 136-137 published 1997 by the President and Fellows of Harvard College in the USA - ISBN 0-674-36213-6)
- Boritt: "Lincoln thus had the pleasure of signing into law much of the program he had worked for through the better part of his political life. And this, as Leornard P. Curry, the historian of the legislation has aptly written, amounted to a "blueprint for modern America." and "The man Lincoln selected for the sensitive position of Secretary of the Treasury, Salmon P. Chase, was an ex-Democrat, but of the moderate cariety on economics, one whom Joseph Dorfman could even describe as 'a good Hamiltonian, and a western progressive of the Lincoln stamp in everything from a tariff to a national bank.'" (from "Lincoln and the Economics of the American Dream" Chapter 14 titled "The Whig in the White House" pg. 196-197 published 1994 by University of Illinois Press in the USA - ISBN 0-252-06445-3
- Feasible Socialism: Market or Plan – Or Both: http://www.whatnextjournal.co.uk/Pages/Ratner/Feassoc.html
- Steger, Manfred B. The Quest for Evolutionary Socialism: Eduard Bernstein And Social Democracy. Cambridge, England, UK; New York, New York, USA: Cambridge University Press, 1997. pg. 146.