Mixed economy
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.
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 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 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]
Typology[edit]
Mix of free markets and state intervention[edit]
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.[8] Other examples of common government activity in this form of mixed economy include environmental protection, maintenance of employment standards, a standardized welfare system, and economic competition with antitrust laws. Most contemporary market-oriented economies fall under this category, including the economy of the United States.[58][59] 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.[60][61]
The American School is the economic philosophy that dominated United States national policies from the time of the American Civil War until the mid-20th century.[62] 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.[63][64][65] The 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, and 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.[66]
Mix of private and public enterprise[edit]
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 can also refer to a mixture of state capitalism with private capitalism. Examples include the economies of China, Norway, Singapore, and 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.[67]
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.[68]
Mix of markets and economic planning[edit]
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 Hungary's Goulash Communism, which 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. 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. 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.[66]
Green New Deal (GND) proposals call for social and economic reforms to address climate change and economic inequality using economic planning with market forces for the guiding of production. The reforms involve phasing out fossil fuels through the implementation of a carbon price and emission regulations, while increasing state spending on renewable energy. Additionally, it calls for greater welfare spending, public housing, and job security. GND proposals seek to maintain capitalism but involve economic planning to reduce carbon emissions and inequality through increased taxation, social spending, and state ownership of essential utilities such as the electrical grid.[69]
Within political discourse, mixed economies are supported by people of various political leanings, particularly the centre-left and centre-right. Debate reigns over the appropriate levels of private and public ownership, capitalism and socialism, and government planning within an economy. The centre-left usually supports markets but argues for a higher degree of regulation, public ownership, and planning within an economy. The centre-right generally accepts some level of public ownership and government intervention but argues for lower government regulation and greater privatisation. 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."[70]
Criticism[edit]
Numerous economists have questioned the validity of the entire concept of a mixed economy when understood to be a mixture of capitalism and socialism. Critics who argue that capitalism and socialism cannot coexist believe either market logic or economic planning must be prevalent within an economy.[71]
In Human Action, Ludwig von Mises argued that there can be no mixture of capitalism and socialism.[72] 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.[73] Friedrich von Hayek and 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".[74]
Classical and 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 non-monetary forms of valuation, such as calculation in kind, ultimately drive the economy. From the Great Depression onward, extant mixed economies in the Western world are still functionally capitalist because the economic system remains based on competition and profit production.[75]