A mixed economy is an economic system that includes both elements associated with capitalism, such as private businesses, and ones associated with socialism, such as nationalized government services.
More specifically, a mixed economy may be variously defined as an economic system blending elements of a market economy with elements of a planned economy,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." markets with state interventionism,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. or private enterprise with public enterprise.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". Common to all mixed economies is a combination of free-market principles and principles of socialism. A mixed economy can be a reformist transitionary phase of 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 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.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." 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. This contrasts with laissez-faire capitalism, where state activity is limited to maintaining order and security, and providing public goods and services, as well as the legal framework for the protection of property rights and enforcement of contracts."Laissez-faire" . Encyclopædia Britannica Online. 2 March 2021. Retrieved 14 October 2022.
In reference to 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) as part of the post-war consensus, 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,Miller, David (1998). "Social Democracy". In Craig, Edward (ed.). Routledge Encyclopedia of Philosophy. 8. Routledge. . usually around 15 to 20 percent.Batson, Andrew (March 2017). "The State of the State Sector" . 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."
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, in particular social democrats."Social democracy". Jason P. Abbot. Routledge Encyclopedia of International Political Economy. Ed. R. J. Barry Jones. Taylor & Francis, 2001. 1410 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.
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, and Southern France, among others, 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 Roman Empire, the Byzantine Empire in its eastern part continued to have a mixed economy until its destruction by the Ottoman Empire.
Medieval Islamic societies drew their primary material basis from the classical Mediterranean mixed economies that preceded them, and 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 have supported centralized states or mixed economies and instead a primarily agrarian feudalism predominated for the centuries following the collapse of Rome. 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, mixed economies, which had grown out of the medieval communes, were beginning to emerge in Europe by the 15th century 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 American 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. After 1851, Napoleon III began the process of replacing the old agricultural economy of France with one that was mixed and focused on industrialization. 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 that argued more government intervention in the economy. Harold Macmillan, a British politician in the Conservative 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 in the United Kingdom. During the post-war period and coinciding with the 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