Mixed economy

A mixed economy is variously defined as an economic system consisting of a mixture of either markets and economic planning, public ownership and private ownership, or free markets and economic interventionism.[1] However, in most cases, "mixed economy" refers to market economies with strong regulatory oversight and governmental provision of public goods, although some mixed economies also feature a number 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, unemployment, and growing income and wealth disparities, along with playing a role in interventions that promote social welfare.[2] Subsequently, some mixed economies have expanded in scope to include a role for indicative economic planning and/or large public enterprise sectors.

In reference to post-war Western and Northern European economic models, as championed by Christian democrats and Social democrats, the mixed economy is defined as a form of capitalism where most industries are privately owned with only a minority of public utilities and social services under public ownership. In the post-war era, European social democracy became associated with this economic model.[3]

Economies ranging from the United States[4][5] to Cuba[6] have been catalogued as 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.[7][8] 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[9] 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. Around the world, the most prosperous countries with the highest average standard of living tend to have mixed economic systems with democratically elected governments.

Etymology

There is not one single definition for a mixed economy;[10] there are generally two major definitions, one being political and the other apolitical. 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,[11] 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.[12]

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.[13] Supporters of the mixed economy, including R. H. Tawney,[14] Anthony Crosland,[15] and Andrew Shonfield were mostly associated with the British Labour Party, although similar views were expressed by Conservatives including Harold Macmillan. Critics of the mixed economy, including Ludwig von Mises and Friedrich von Hayek, 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 Bloc called "the servile state".[16]

Philosophy

In the apolitical sense, the term "mixed economy" is used to describe economic systems, which combine elements of market and various 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 toward a market economy or command economy in varying degrees.[17]

Mixed socialist economies

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.[18]

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.[19]

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.[20]

Historic examples

The American School (also known as the National System)[21] is the economic philosophy that dominated United States national policies from the time of the American Civil War until the mid-twentieth century.[22] 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.[23][24][25]

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.[26]

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.[26]

Criticism

Numerous economists have questioned the validity of the entire concept of a "mixed economy" when understood to be a mixture of socialism and capitalism, as opposed to a mixture of state interventionism and free market capitalism.

In his magnum opus 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.[27] Mises elaborated on this point by contending that, even if a capitalist 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, 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.[28]

Classical and orthodox Marxist theorists also dispute the viability of a mixed economy as a "middle ground" between socialism and capitalism. From this perspective, irrespective of enterprise ownership, either the capitalist law of value and accumulation of capital drives the economy, or conscious planning and non-monetary forms of valuation ultimately drive the economy. Therefore, extant "mixed economies" in the Western world, from the Great Depression onwards, are still functionally capitalist because they operate on the basis of capital accumulation.[29]

See also

Mixed economic systems

Further reading

  • 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

  1. ↑ (NB)
    • 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."
  2. ↑ 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."
  3. ↑ 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.
  4. ↑ 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.
  5. ↑ (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.
  6. ↑ 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."
  7. ↑ Lahti, Arto. Globalization & the Nordic Success Model: Part II. 2010. Arto Lahti & Ventus Publishing ApS. p 60. ISBN 978-87-7681-550-9.
  8. ↑ Eds. Johan Fritzell, Bjorn Hvinden, Mikko Kautto, Jon Kvist, Hannu Uusitalo. Nordic Welfare States in the European Context. 2001. Routledge. p 3. ISBN 0-415-24161-8.
  9. ↑ "social democracy". Jason P. Abbot. Routledge Encyclopedia of International Political Economy. Ed. R. J. Barry Jones. Taylor & Francis, 2001. 1410
  10. ↑ A variety of definitions for mixed economy.
  11. ↑ Brown, Douglas (November 11, 2011). Towards a Radical Democracy (Routledge Revivals): The Political Economy of the Budapest School. Routledge. pp. 10–11. ISBN 978-0415608794. There are in general two broad yet distinguishable definitions of 'mixed economy': a political definition and an apolitical definition. The political definition refers to the degree of state intervention in what is basically a capitalist market economy. Thus this definition 'portray[s] the phenomenon in terms of state encroaching upon market and thereby suggest[s] that market is the natural or preferable mechanism...The political definition of 'mixed economy' precludes extending it to non-capitalist systems
  12. ↑ Brown, Douglas (November 11, 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
  13. ↑ Reisman, David A. Theories of the Mixed Economy (Theories of the mixed economy). Pickering & Chatto Ltd. ISBN 1-85196-214-X.
  14. ↑ Tawney, R. H. (1964). Equality. London: Allen and Unwin. ISBN 0-04-323014-8.
  15. ↑ Crosland, A. (1977). The Future of socialism. Westport, Conn: Greenwood Press. ISBN 0-8371-9586-1.
  16. ↑ Gardner, Martin. Whys of a Philosophical Scrivener, St. Martin's Press (1991), p. 126
  17. ↑ 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.
  18. ↑ Feasible Socialism: Market or Plan – Or Both: http://www.whatnextjournal.co.uk/Pages/Ratner/Feassoc.html
  19. ↑ 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.
  20. ↑ 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.
  21. ↑ The Library of Economics and Liberty on-line Book titled The National System of Political Economy by Friedrich List
  22. ↑ "The Progressive Movement". United States History. Retrieved February 12, 2011.
  23. ↑ The Making of Modern British Politics, Martin Pugh
  24. ↑ Global Political Economy, Robert O'Brien and Marc Williams
  25. ↑
    • 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
  26. 1 2 (Gardner)
  27. ↑ Mises, Ludwig. Human Action: A Treastise on Economics. Liberty Fund. p. 259. ISBN 978-0865976313. There is no mixture of the two systems possible or thinkable; there is no such thing as a mixed economy, a system that would be in part capitalistic and in part socialist.
  28. ↑ Mises, Ludwig. Human Action: A Treastise on Economics. Liberty Fund. p. 259. ISBN 978-0865976313. The fact that the state or municipalities own and operate some plants does not alter the characteristic features of a market economy. These publicly owned and operated enterprises are subject to the sovereignty of the market. They must fit themselves, as buyers of raw materials, equipment, and labor, and as sellers of goods and services, into the scheme of the market economy. They are subject to the laws of the market and thereby depend on the consumers who may or may not patronize them. They must strive for profits, or at least, to avoid losses.
  29. ↑ Paul Mattick (1969). "The Limits of the Mixed Economy". Marxism.org. Retrieved 17 January 2014. To be sure, 'orthodox Marxism' maintains that the mixed economy is still the capitalism of old, just as 'orthodox' bourgeois theory insists that the mixed economy is a camouflaged form of socialism. Generally, however, both the state-capitalist and mixed economies are recognized as economic systems adhering to the principle of progress by way of capital accumulation.
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