Mixed Economies

A Mixed Economy exhibits characteristics of both market and planned economies, with private and state sectors providing direction.

Learning Objective

Outline the plan behind and what governments provide in a mixed economy

Key Points

The term Mixed Economy is very broadly defined and has been used to describe economies as diverse as the United States and Cuba.
The means of production are privately owned, and markets remain the dominant form of economic coordination. However, governments wield significant influence over the economy through monetary and fiscal policy and regulation.
Characteristics of mixed economies include welfare systems, employment standards, environmental protection, publicly owned enterprises, and antitrust policies.
Keynesian economics advocates the presence of a mixed economy. This line of thought subsided between 1970 and 2000, but has regained considerable popularity after the financial crisis of 2008.

Terms

Keynesian Economics
The group of macroeconomic schools of thought based on the ideas of 20th-century economist John Maynard Keynes. Advocates of Keynesian economics argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes that require active policy responses by the public sector, particularly monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.
welfare state
A social system in which the state takes overall responsibility for the welfare of its citizens, providing health care, education, unemployment compensation and social security.
mixed economy
An economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies.
mixed economies
a system in which both the state and private sector direct the way goods and services are bought and sold

Examples

The American School (also known as the National System) is the economic philosophy that dominated United States national policies from the time of the American Civil War until the mid-twentieth century, and is an example of a mixed economy. It consisted of a three core policy initiative: protecting industry through high tariffs (1861–1932), 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.
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.
Social market economy is the economic policy of modern Germany that steers a middle path between the goals of socialism 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.

Full Text

Mixed Economies

What is a Mixed Economy?

A mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety of government-sponsored aspects .

A mail truck

Restrictions are sometimes placed on private mail systems by mixed economy governments. For example, in the United States, the USPS enjoys a government monopoly on nonurgent letter mail as described in the Private Express Statutes.

While there is not one single definition for a mixed economy, the definitions always involve a degree of private economic freedom mixed with a degree of government regulation of markets.

The Plan Behind a Mixed Economy

The basic plan of the mixed economy is that:

The means of production are mainly under private ownership;
Markets remain the dominant form of economic coordination; and
Profit-seeking enterprises and the accumulation of capital would remain the fundamental driving force behind economic activity. However, the government would wield considerable indirect influence over the economy through fiscal and monetary policies designed to counteract economic downturns and capitalism's tendency toward financial crises and unemployment, along with playing a role in interventions that promote social welfare. Subsequently, some mixed economies have expanded in scope to include a role for indicative economic planning and/or large public enterprise sectors.

The relative strength or weakness of each component in the national economy can vary greatly between countries. Economies ranging from the United States to Cuba have been termed mixed economies. The term is also used to describe the economies of countries which are referred to as welfare states, such as Norway and Sweden.

What do Governments Provide?

Governments in mixed economies often provide:

Environmental protection,
Maintenance of employment standards,
A standardized welfare system,
Maintenance of competition.

Who Supports the Ideal of Mixed Economies?

As an economic ideal, mixed economies are supported by people of various political persuasions, typically center-left and center-right, such as social democrats or Christian democrats. Supporters view mixed economies as a compromise between state socialism and laissez-faire capitalism that is superior in net effect to either of those.

Keynesian economics advocates a mixed economy — predominantly private sector, but with a significant role of government and public sector. It also served as the economic model during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the tax surcharge in 1968 and the stagflation of the 1970s. The advent of the global financial crisis in 2008 has caused a resurgence in Keynesian thought.

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