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Mixed economy

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A mixed economy is an economic system that accepts both private businesses and nationalized government services, like public utilities, safety, military, welfare, and education. A mixed economy also promotes some form of regulation to protect the public, the environment, or the interests of the state.

This is in contrast to a laissez faire capitalist economy which seeks to abolish or privatize most government services while wanting to deregulate the economy, and a fully centrally planned economy that seeks to nationalize most services like under the early Soviet Union. Examples of political philosophies that support mixed economies include Keynesianism, social liberalism, state capitalism, fascism, social democracy, the Nordic model, and China's socialist market economy, Vietnam's socialist-oriented market economy.

A mixed economy can also be defined as an economic system blending elements of a market economy with elements of a planned economy,[1] markets with state interventionism,[2] or private enterprise with public enterprise.[3][4] Common to all mixed economies is a combination of free-market (particularly the elements of neoliberalism) principles and principles of socialism.[5] 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.[6] Yet another definition is apolitical in nature, strictly referring to an economy containing a mixture of private enterprise with public enterprise.[7] 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.[5]

The idea behind a mixed economy, as advocated by John Maynard Keynes and several others, was not to abandon the capitalist mode of production 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 and bust cycles, unemployment, and economic inequality.[8] In this framework, varying degrees of public utilities and essential services are provided by the government, with state activity providing public goods and universal civic requirements, including education, healthcare, physical infrastructure, and management of public lands.[9] This contrasts with laissez-faire capitalism, where state activity is limited to maintaining order and security, providing public goods and services, as well as the legal framework for the protection of property rights and enforcement of contracts.[10][11]

About Western European economic models as championed by conservatives (Christian democrats), liberals (social liberals and neoliberals), and socialists (social democrats - social democracy was created as a combination of socialism and liberal democracy)[12] as part of the post-war consensus,[13] a mixed economy is in practice a form of capitalism where most industries are privately owned but there is a number of utilities and essential services under public ownership,[14] usually around 15 to 20 percent.[15] In the post-war era, Western European social democracy became associated with this economic model.[16] As an economic ideal, mixed economies are supported by people of various political persuasions, in particular social democrats.[17] 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 not a key feature or component of the welfare state.[18]

  1. ^ Gorman, Tom. The Complete Idiot's 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."
  2. ^ Schiller, Bradley. The Micro Economy Today, McGraw-Hill/Irwin, 2010, p. 15. "Mixed economy - 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.
  3. ^ Stilwell, Frank J. B. (2006). Political Economy: The Contest of Economic Ideas (2 ed.). Oxford University Press. ISBN 9780195551273. Retrieved 12 November 2018.[need quotation to verify]
  4. ^ 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".
  5. ^ a b Young, Greg. "Mixed Economy". Encyclopædia Britannica Online. Retrieved 30 December 2021. Alternatively, a mixed economy can emerge when a socialist government makes exceptions to the rule of state ownership to capture economic benefits from private ownership and free-market incentives. A combination of free market principles of private contracting and socialist principles of state ownership or planning is common to all mixed economies.
  6. ^ Mander, Jerry (2012). The Capitalism Papers: Fatal Flaws of an Obsolete System. Counterpoint. pp. 213–217. ISBN 978-1582437170.
  7. ^ Brown, Douglas (11 November 2011). Towards a Radical Democracy (Routledge Revivals): The Political Economy of the Budapest School. Routledge. pp. 10–11. ISBN 978-0415608794. The apolitical definition of 'mixed economy' generally refers to the mix of public and private ownership forms. ... Here 'mixed economy' itself does not specify a political form. it means an economy characterized by a combination of public and private ownership as well as planning and markets.
  8. ^ Pollin, Robert (2007). "Resurrection of the Rentier" Archived 12 April 2019 at the Wayback Machine (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."
  9. ^ Rees, Merlyn (1973). The Public Sector in the Mixed Economy. Bratsford. p. 240. ISBN 978-0713413724.
  10. ^ "Laissez-faire" Archived 1 October 2019 at the Wayback Machine. Encyclopædia Britannica Online. 2 March 2021. Retrieved 14 October 2022.
  11. ^ Wu, Yu-Shan (1995). Comparative Economic Transformations: Mainland China, Hungary, the Soviet Union, and Taiwan. Stanford University Press. p. 8. In laissez-faire capitalism, the state restricts itself to providing public goods and services that the economy cannot generate by itself and to safeguarding private ownership and the smooth operation of the self-regulating market.
  12. ^ "social democracy". Encyclopedia Britannica. Archived from the original on 27 August 2015. Retrieved 30 October 2021.
  13. ^ "Mixed economy". Britannica.com. Retrieved 5 February 2022.
  14. ^ Miller, David (1998). "Social Democracy". In Craig, Edward (ed.). Routledge Encyclopedia of Philosophy. 8. Routledge. ISBN 9780415187138.
  15. ^ Batson, Andrew (March 2017). "The State of the State Sector" Archived 12 November 2020 at the Wayback Machine. Gavekal Dragonomics. p. 4. Retrieved 19 August 2020. "While some may find these estimates low, they are not. Even in the statist 1960s–70s, SOEs in France and the UK did not account for more than 15–20% of capital formation; in the 1980s the developed-nation average was around 8%, and it dropped below 5% in the 1990s. SOEs' role in China is many times larger."
  16. ^ Craig, Edward (June 1998). Routledge Encyclopedia of Philosophy, Volume 8. Routledge. p. 827. ISBN 978-0415187138. In the second, mainly post-war, phase, social democrats came to believe that their ideals and values could be achieved by reforming capitalism rather than abolishing it. They favored a mixed economy in which most industries would be privately owned, with only a small number of utilities and other essential services in public ownership.
  17. ^ "Social democracy". Jason P. Abbot. Routledge Encyclopedia of International Political Economy. Ed. R. J. Barry Jones. Taylor & Francis, 2001. 1410
  18. ^ O'Hara, Phillip Anthony, ed. (1999). "Welfare state". Encyclopedia of Political Economy. Routledge. p. 1247. ISBN 0-415-24187-1. The welfare state emerged in the twentieth century as one institutional form of this socially protective response. In the 1930s, the responses of emerging welfare states to the Great Depression were to the immediate circumstances of massive unemployment, lost output, and collapse of the financial and trading systems. Planning was not a key element in the response to the crisis of capitalism. Instead, the character of welfare state intervention can best be described as an 'interventionist drift', reflecting the spontaneous, uncoordinated reactions of the protective response.
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