Mixed Economy

A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economies is a combination of free-market principles and principles of socialism. While there is no single definition of a mixed economy, one definition is about a mixture of markets with state interventionism, referring specifically to a capitalist market economy with strong

regulatory

oversight and extensive interventions into markets. Another is that of active collaboration of capitalist and

socialist

visions. Yet another definition is apolitical in nature, strictly referring to an economy containing a mixture of private enterprise with public enterprise. Alternatively, a mixed economy can refer to a reformist transitionary phase to a socialist economy that allows a substantial role for private enterprise and contracting within a dominant economic framework of public ownership. This can extend to a Soviet-type planned economy that has been reformed to incorporate a greater role for markets in the allocation of factors of production.

The idea behind a mixed economy, as advocated by John Maynard Keynes and some others, was not to abandon capitalism, but to retain a predominance of private ownership and control of the means of production, with profit-seeking enterprise and the accumulation of capital as its fundamental driving force. The difference from a laissez-faire capitalist system is that markets are subject to varying degrees of regulatory control and governments wield indirect macroeconomic influence through

fiscal

and

monetary policies

with a view to counteracting capitalism's history of

boom/bust cycles

, unemployment and income disparities. In this framework, varying degrees of public utilities and essential services are provided by the government, with state activity often limited to providing public goods and universal civic requirements, including

education

,

healthcare

, physical infrastructure and management of public lands.Pollin, Robert (2007)
"Resurrection of the Rentier"
(July–August). Book review of Andrew Glyn's ''Capitalism Unleashed: Finance, Globalization, and Welfare''. In ''New Left Review'' (46): 141–142. "The underlying premise behind the mixed economy was straightforward. Keynes and like-minded reformers were not willing to give up on capitalism, and 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." This contrasts with laissez-faire capitalism, where state activity is limited to maintaining order and security, providing public goods and services, and providing the legal framework for the protection of property rights and enforcement of contracts.

About Western European economic models as championed by Christian democrats,

liberals

, and social democrats as part of the post-war consensus, a mixed economy is a form of capitalism where most industries are privately owned, with only a small number of public utilities and essential services under public ownership, usually 15–20%. In the post-war era, Western European social democracy became associated with this economic model. As an economic ideal, mixed economies are supported by people of various political persuasions, typically centre-left and centre-right such as Christian democrats or social democrats. The contemporary capitalist welfare state has been described as a type of mixed economy in the sense of state interventionism, as opposed to a mixture of planning and markets, since economic planning was never a feature or key component of the welfare state.

Overview

While there is no single all-encompassing definition of a mixed economy, there are generally two major definitions, one being political and the other apolitical. The political definition of a mixed economy refers to the degree of state interventionism in a 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 is limited to capitalistic economies and precludes an extension to non-capitalist systems, and aims to measure the degree of state influence through public policies in the market.

The apolitical definition relates to patterns of ownership and management of economic enterprises in an economy, strictly referring to a mix of public and private ownership of enterprises in the economy and is unconcerned with political forms and public policy. Alternatively, it refers to a mixture of economic planning and markets for the allocation of resources.

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.

The oldest documented mixed economies in the historical record are found as early as the 4th millennium BC in the Ancient Mesopotamian civilization in city-states such as Uruk and

Ebla

. The economies of the Ancient Greek city-states can also best be characterized as mixed economies. It is also possible that the Phoenician city-states depended on mixed economies to manage trade. Before being conquered by the Roman Republic, the Etruscan civilization engaged in a," strong mixed economy". In general the cities of the ancient Mediterranean, in regions such as

North Africa

,

Iberia

, Southern France, etc. all practiced some form of a mixed economy. According to the historians

Michael Rostovtzeff

and Pierre Lévêque the economies of

Ancient Egypt

, pre-Columbian Mesoamerican, Ancient Peru, Ancient China, and the

Roman Empire

after Diocletian all had the basic characteristics of mixed economies. After the collapse of the

western half

of the Roman Empire, the eastern half or

Byzantine Empire

continued to have a mixed economy until its destruction by the Ottomans.

Medieval Islamic societies drew their primary material basis from the classical Mediterranean mixed economies that preceded them, and therefore the economies of Islamic empires such as the

Abbasid Caliphate

dealt with their emerging, prominent capitalistic sectors or market economies through regulation via state, social, or religious institutions. Due to having low, diffuse populations and disconnected trade, the economies of Europe could not supported centralized states or mixed economies and instead a primarily agrarian feudalism predominated for the centuries following the collapse of Rome. However, with the recovery of populations and the rise of medieval communes from the 11th century onward, economic and political power once again became centralized. According to

Murray Bookchin

by the 15th century mixed economies, which had grown out of the medieval communes, were beginning to emerge in Europe as feudalism declined. In 17th century France,

Jean-Baptiste Colbert

acting as finance minister for

Louis XIV

attempted to institute a mixed economy on a national scale.

The American system initially proposed by the first

United States

Secretary of the Treasury

Alexander Hamilton

and supported by later US leaders such as

Henry Clay

, John C Calhoun, and

Daniel Webster

exhibited the traits of a mixed economy combining protectionism, laissez-faire, and

infrastructure spending

. By 1914 and the start of

World War I

Germany had developed a mixed economy with government co-ownership of infrastructure and industry along with a comprehensive social welfare system. After the 1929 stock crash and subsequent Great Depression threw much of the global economy into a severe economic decline, British economists such as

John Maynard Keynes

began to advocate for economic theories which argued for more government intervention in the economy.

Harold Macmillan

, a conservative politician in the British

Tory Party

also began to advocate for a mixed economy in his books ''Reconstruction'' (1933) and '' The Middle Way'' (1938). Supporters of the mixed economy, included

R. H. Tawney

, Anthony Crosland and Andrew Shonfield who were mostly associated with the Labour Party. During the post-war period and coinciding Golden Age of Capitalism, there was general worldwide rejection of laissez-faire economics as capitalist countries embraced mixed-economies founded on economic planning, intervention, and welfare.

Political philosophy

In the apolitical sense, the term mixed economy is used to describe economic systems that combine various elements of market economies and planned economies. 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 a market economy or command economy in varying degrees.Vuong, Quan-Hoang
''Financial Markets in Vietnam's Transition Economy: Facts, Insights, Implications''
,

VDM Verlag

, February 2010, 66123 Saarbrücken, Germany.

Catholic social teaching

Jesuit author David Hollenbach has argued that Catholic social teaching calls for a "new form" of mixed economy. He refers back to Pope Pius XI's statement that government "should supply help to the members of the social body, but may never destroy or absorb them". Hollenbach writes that a socially just mixed economy involves labor, management and the state working together through a pluralistic system that distributes economic power widely. Catholic social teaching opposes both unregulated capitalism and state socialism.

However, subsequent scholars have noted that conceiving of subsidiarity as a "top-down, government-driven political exercise" requires a selective reading of 1960s encyclicals. A more comprehensive reading of Catholic social teaching suggests a conceptualization of subsidiarity as a "bottom-up concept" that is "rooted in recognition of a common humanity, not in the political equivalent of '' noblese oblige''".

Fascism

Although

fascism

is primarily a political ideology that stresses the importance of cultural and social issues over economics, fascism is generally supportive of a broadly capitalistic mixed economy. Fascism supports state interventionism into markets and private enterprise, alongside a corporatist framework, referred to as the "third position" that ostensibly aims to be a middle-ground between socialism and capitalism by mediating labor and business disputes to promote national unity. 20th-century fascist regimes in Italy and Germany adopted large public works programs to stimulate their economies, state interventionism in largely private-sector dominated economies to promote re-armament and national interests. Scholars have drawn parallels between the American New Deal and public works programs promoted by fascism, arguing that fascism similarly arose in response to the threat of socialist revolution and similarly aimed to "save capitalism" and private property.

Social democracy

In the early post-war era in Western Europe, social democratic parties rejected the Stalinist political and economic model then current in the Soviet Union, committing themselves either to an alternate path to socialism or to a compromise between capitalism and socialism. In this period, social democrats embraced a mixed economy based on the predominance of private property, with only a minority of essential utilities and public services under public ownership. As a result, social democracy became associated with Keynesian economics, state interventionism and the welfare state while abandoning the prior goal of replacing the capitalist system (factor markets, private property and wage labor) with a qualitatively different economic system through reformed capitalism.

Socialism

Mixed economies understood as a mixture of socially owned and private enterprises have been predicted and advocated by various socialists as a necessary transitional form between capitalism and socialism. Additionally, several proposals for socialist systems call for a mixture of different forms of enterprise ownership including a role for private enterprise. For example, Alexander Nove's conception of feasible socialism outlines 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 a mixed economy, believing that a mixed system of public, cooperative and private enterprise would be necessary for a long period before capitalism would evolve of its own accord into socialism.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.

The

People's Republic of China

adopted a socialist market economy which represents an early stage of socialist development according to the

Communist Party of China

. The communist party takes the Marxist–Leninist position that an economic system containing diverse forms of ownership—but with the public sector playing a decisive role—is a necessary characteristic of an economy in the preliminary stage of developing socialism.

The Socialist Republic of Vietnam describes its economy as a socialist-oriented market economy that consists of a mixture of public, private, and cooperative enterprise—a mixed economy that is oriented toward the long-term development of a socialist economy.

Typology

Mix of free markets and state intervention

This meaning of a mixed economy refers to a combination of market forces with state intervention in the form of regulations, macroeconomic policies and social welfare interventions aimed at improving market outcomes. As such, this type of mixed economy falls under the framework of a capitalistic market economy, with macroeconomic interventions aimed at promoting the stability of capitalism. Other examples of common government activity in this form of mixed economy include environmental protection, maintenance of employment standards, a standardized welfare system and Competition law, maintenance of competition.

Most contemporary market-oriented economies fall under this category, including the economy of the United States. The term is also used to describe the economies of countries that feature extensive welfare states such as the Nordic model practiced by the Nordic countries which combine free markets with an extensive welfare state.

The German 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 American School (economics), 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 (1861–1932; changing to subsidies and reciprocity from 1932–the 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 United Kingdom by 1880.

Mix of private and public enterprise

This type of mixed economy specifically refers to a mixture of private and public ownership of industry and the means of production. As such, it is sometimes described as a "middle path" or transitional state between capitalism and socialism, but it can also refer to a mixture of state capitalism with private capitalism.

Examples include the economies of Socialist market economy, China, Economy of Norway, Norway, Economy of Singapore, Singapore and Economy of Vietnam, Vietnam—all of which feature large state-owned enterprise sectors operating alongside large private sectors. The French economy featured a large state sector from 1945 until 1986, mixing a substantial amount of state-owned enterprises and nationalized firms with private enterprises.

Following the Chinese economic reforms initiated in 1978, the Chinese economy has reformed its state-owned enterprises and allowed greater scope for private enterprises to operate alongside the state and collective sectors. In the 1990s, the central government concentrated its ownership in strategic sectors of the economy, but local and provincial level state-owned enterprises continue to operate in almost every industry including information technology, automobiles, machinery, and hospitality. The latest round of state-owned enterprise reform initiated in 2013 stressed increased dividend payouts of state enterprises to the central government and mixed-ownership reform which includes partial private investment into state-owned firms. As a result, many nominally private-sector firms are partially state-owned by various levels of government and state institutional investors; and many state-owned enterprises are partially privately owned resulting in a mixed ownership economy.

Mix of markets and economic planning

This type of mixed economy refers to a combination of economic planning with market forces for the guiding of production in an economy and may coincide with a mixture of private and public enterprise. It can include capitalist economies with indicative macroeconomic planning policies and socialist planned economies that introduced market forces into their economies such as in Goulash Communism, Hungary.

Dirigisme was an economic policy initiated under Charles de Gaulle in France, designating an economy where the government exerts strong directive influence through Indicative planning, indicative economic planning. In the period of dirigisme, the French state used indicative economic planning to supplement market forces for guiding its market economy. It involved state control of industries 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.(Gardner)

Hungary inaugurated the New Economic Mechanism reforms in 1968 that introduced market processes into its planned economy. Under this system, firms were still publicly owned but not subject to physical production targets and output quotas specified by a national plan. Firms were attached to state ministries that had the power to merge, dissolve and reorganize them and which established the firm's operating sector. Enterprises had to acquire their inputs and sell their outputs in markets, eventually eroding away at the Soviet-style planned economy.

In 2010, Australian economist John Quiggin wrote: "The experience of the twentieth century suggests that a mixed economy will outperform both central planning and laissez-faire. The real question for policy debates is one of determining the appropriate mix and the way in which the public and private sectors should interact."''Zombie Economics: How Dead Ideas Still Walk among Us''
John Quiggin, Princeton University Press, 2010, page 78. The author made this statement in his chapter which is sharply critical of the strong version of "The Efficient Market Hypothesis," esp. as it pertains to financial markets.

Criticism

Numerous economists have questioned the validity of the entire concept of a mixed economy when understood to be a mixture of

capitalism

and socialism.

In ''Human Action'', Ludwig von Mises argued that there can be no mixture of capitalism and socialism—either market logic or economic planning must dominate an economy. Mises elaborated on this point by contending that even if a market economy contained numerous state-run or nationalized enterprises, this would not make the economy mixed because the existence of such organizations does not alter the fundamental characteristics of the market economy. These publicly owned enterprises would still be subject to market sovereignty as they would have to acquire capital goods through markets, strive to maximize profits or at the least try to minimize costs and utilize monetary accounting for economic calculation. Friedrich von Hayek as well as Mises argued that there can be no lasting middle ground between economic planning and a market economy and any move in the direction of socialist planning is an unintentional move toward what Hilaire Belloc called "The Servile State, the servile state".

Classical Marxism, Classical and Orthodox Marxism, orthodox Marxist theorists also dispute the viability of a mixed economy as a middle ground between socialism and capitalism. Irrespective of enterprise ownership, either the capitalist law of value and accumulation of capital drive the economy or conscious planning and Calculation in kind, non-monetary forms of valuation ultimately drive the economy. From the Great Depression onward, extant mixed economies in the Western world are still functionally capitalist because they operate based on capital accumulation.

See also

* Christian democracy
** Distributism
** Social credit
* Corporatism
* Dirigisme
* Economic planning
* Economic interventionism
* Keynesian economics
* Market economy
* National conservatism
* Neo-nationalism
* Political economy
* Public-private partnership
* Public sector
* Regulation
* Social liberalism
* Third Way
* Third Position
* Capitalism#Types of capitalism, Types of capitalism

Sources and notes

Further reading

* Buchanan, James M. (1986) ''Liberty, Market and State: Political Economy in the 1980s'' New York University Press.
* Buckwitz, George D. (1991) ''America’s Welfare State: From Roosevelt to Reagan.'' The Johns Hopkins University Press.
* Derthick, Martha and Paul J. Quirk (1985) The Politics of Deregulation. Washington, D.C.: The Brookings Institution.
* Gross, Kyle B. (1991) The Politics of State Expansion: War, State and Society in Twentieth-Century Britain. New York: Routledge.
* Rosin, Kirk (1992). "Economic theory and the welfare state: a survey and interpretation". ''Journal of Economic Literature''. 30 (2): 741–803. A review essay looking at the economics literature.
* Sanford Ikeda (1997). ''Dynamics of the Mixed Economy: Toward a Theory of Interventionism''. London: Routledge.

External links

Mixed economy
at ''Encyclopædia Britannica'' Online

{{DEFAULTSORT:Mixed Economy
Capitalism
Economic ideologies
Economic systems
Political philosophy
Social democracy
Welfare state
Welfare economics