A mixed economy is commonly defined as 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 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. Philosophy
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.
History 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 to participate in managerial decisions
to travel to buy
to sell to hire
to fire to organize
to communicate to protest peacefully
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
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 and restricted by various laws, regulations:
environmental regulation labor regulation including minimum wage laws
consumer regulation antitrust laws
intellectual property laws incorporation laws
protectionism import and export controls, such as tariffs
and quotas and taxes and fees written or enforced with
manipulation of the economy in mind. 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. Historic examples
The American School 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, 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 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. Mixed socialist economies
The concept of a mixed economy is not exclusive to capitalist economies, 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.
See also
Mixed economic systems American School
Corporatist economy Dirigisme
Distributism Nordic model
Rhine capitalism Social corporatism
Social market economy Socialist market economy
State-sponsored capitalism Welfare capitalism
Further reading
Sources and notes