Mixed economy

A mixed economy is an economy that contains both private and public, or state owned (or controlled) enterprises. According to the American Heritage Dictionary, a mixed economy is defined as:

An economic system that allows for the simultaneous operation of publicly and privately owned enterprises. ^[1]

There is not one single definition for a mixed economy ^[2], but relevant aspects include; a degree of private economic freedom (including privately owned industry) intermingled with centralized economic planning (which may include intervention for environmentalism and social justice, or state ownership of some of means of production).

For some countries, there is not a consensus on whether they are capitalist, socialist, or mixed economies. Economies in countries ranging from the United States ^[3] to Cuba ^[4] have been termed mixed economies.

Philosophy

File:The farmer's market near the Potala in Lhasa.jpg

Private investment, freedom to buy, sell, and profit, combined with economic planning by the state, including significant regulations (e.g. wage or price controls), taxes, tariffs, and state-directed investment.

A mixed economy contains private ownership of the means of production, infrastructure, and institutions but may also contain state-ownership of some of these things. It allows for private financial decisions by businesses and individuals, but not absolute nor near absolute autonomy, as many of these decisions are otherwise overridden by government.

The term mixed economy was coined to identify economic systems which stray from the ideals of either capitalism or various command economies and "mix" with elements of each other. 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. However, when a system in question 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 either toward capitalism or statism in varying degrees.

Objection to the term

Ludwig von Mises argues, in Human Action, that there is no such thing as a mixed economy. He says "the market economy or capitalism, as it is usually called, and the socialist economy preclude one another. 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 capitalist and in part socialist." He reasons that even state-owned enterprises are subject to market forces; government may tax citizens to subsidize losses but those taxes exert a market force. He says that state ownership of the some of the means of production "is a step on the way toward socialism, but not in itself socialism." As long as there are no price or wage controls, he considers an economy to be a market economy.

Which economies are mixed?

There is not a consensus on which economies are capitalist, socialist, or mixed. For example, while many would call the economy in the U.S. capitalist, others call it mixed. For example, according to economic and business historian Robert Hessen: "a fully free economy (true laissez-faire) never has existed, but governmental authority over economic activity has sharply increased since the eighteenth century, and especially since the Great Depression...Today the United States, once the citadel of capitalism, is a "mixed economy" in which government bestows favors and imposes restrictions with no clear or consistent principle in mind." [1]

Elements of a mixed economy

The elements of a mixed economy typically include a variety of freedoms:

to possess means of production (farms, factories, stores, etc.)
to travel (needed to transport all the items in commerce, to make deals in person, for workers and owners to go to where needed)
to buy (items for personal use, for resale; buy whole enterprises to make the organization that creates wealth a form of wealth itself)
to sell (same as buy)
to hire (to create organizations that create wealth)
to fire (to maintain organizations that create wealth)
to organize (private enterprise for profit, labor unions, workers' and professional associations, non-profit groups, religions, etc.)
to communicate (free speech, newspapers, books, advertizements, make deals, create business partners, create markets)
to protest peacefully (marches, petitions, sue the government, make laws friendly to profit making and workers alike, remove pointless inefficiencies to maximize wealth creation)

with tax-funded, subsidized, or state-owned services and infrastructure:

legal assistance
libraries and other information services
roads and other transportation services
schools and other education services
hospitals and other health services
personal and property protection at home and abroad (police, military)
subsidies to agriculture and other businesses
government monopolies and government-granted monopolies
state-owned industry, such as telephone service and electricity.

and providing some autonomy over personal finances but including involuntary spending and investments such as transfer payments and other cash benefits such as:

welfare for the poor
social security for the aged and infirm
government subsidies to business
mandatory insurance (example: automobile}

and restricted by various laws, regulations:

environmental regulation (example: toxins in land, water, air)
labor regulation including minimum wage laws
consumer regulation (example: product safety)
antitrust laws
intellectual property laws
incorporation laws
protectionism
import and export controls, such as tarrifs and quotas

and taxes and fees written or enforced with manipulation of the economy in mind.

Relation to form of government

While governments with harsh restrictions on economic and civil liberties can choose to begin a process to implement a mixed economy, many believe that it cannot be long sustained without causing that government to also implement more and more of the elements of a liberal democracy (or, conversely, that implementing liberal democractic reforms inevitably leads to liberalization of the economy). For example, "the mainstream view holds that China’s WTO entry and the opening of its media system to foreign owners will inevitably undermine the CCP’s authoritarian control and facilitate press freedom." [2]

The economic freedoms that are a necessary part the capitalist portion of a mixed economy are part of a continuum of freedoms, ranging from those that require no governance to those that require very substantial governance in regard to (for example) establishing rule of law that protects private property and free markets (the details are beyond the scope of this article). Many say that economic freedoms are themselves important defining elements of a liberal democracy. [3]

The western democracies implemented elements of capitalism and democracy over the last 300 years or so and perhaps are an example of this.

While the future of China is anyone's guess, many think China can not long follow the economic path the western democracies took without also, perhaps in spite of itself, implementing - over time, incrementally - the elements of liberal democracy. U.S. Secretary of State Condoleezza Rice was quoted by the New York Times as saying on March 19, 2005 in Tokyo, "[When China's leaders] look around them in Asia, they will see that freedom works....They will see that freedom of religion and respect for human rights are part of the foundation of decent and successful societies". [4]

Historic examples

The American System is an economic policy that dominated the United States policies from 1861 until 1970 that consisted of a three-part policy of: protecting industry through high tariffs (1861-1932) or subsidies (1932-1970's), government investment in infrastructure through internal improvements, and a national bank to promote the growth of productive enterprises. (Boritt, Richardson, Lind) During this period the United States grew into the largest economy in the world with the highest standard of living, surpassing the British Empire by the 1880's. (Gill 39)

Dirigisme is an economic policy initiated under Charles DeGaulle 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 it's influence France experience what is called "Thirty Glorious Years" of profound economic growth. (Gardner)

Social market economy is the economic policy of modern Germany that steeres a middle path between socialism and liberalism and aimes 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 it's influence Germany has emerged from desolation and defeat to become an industrial giant within the European Union. (Gardner)

Sources

Buchanan, Patrick J., The Great Betrayal (1998)
Curry, Leonard P. Blueprint for Modern America: Nonmilitary Legislation of the First Civil War Congress (1968)
Croly, Herbert, The Promise of American Life (2005-reprint)
Joseph Dorfman. The Economic Mind in American Civilization, 1606-1865 (1947) 2 vol
Joseph Dorfman. The Economic Mind in American Civilization, 1865-1918 (1949) vol 3
Gardner, Stephen H. Comparative Economic Systems (1988)
Gill, William J. Trade Wars Against America: A History of United States Trade and Monetary Policy (1990)
Lauchtenburg, William E. Franklin D. Roosevelt and the New Deal 1932-1940 (1963)
Lind, Michael Hamilton's Republic: Readings in the American Democratic Nationalist Tradition (1997)
Lind, Michael What Lincoln Believed: The Values and Convictions of America's Greatest President (2004)
List, Friedrich, Outlines of American Political Economy (1980-reprint)
List, Friedrich National System of Political Economy (1994-reprint)
Richardson, Heather Cox. The Greatest Nation of the Earth: Republican Economic Policies during the Civil War (1997)

Notes

^ Dictionary.com - Mixed Economy
^ A variety of definitions for mixed economy.
^ How the U.S. Economy Works article says "The United States is said to have a mixed economy because privately owned businesses and government both play important roles. Indeed, some of the most enduring debates of American economic history focus on the relative roles of the public and private sectors. The American free enterprise system emphasizes private ownership. Private businesses produce most goods and services, and almost two-thirds of the nation's total economic output goes to individuals for personal use (the remaining one-third is bought by government and business). The consumer role is so great, in fact, that the nation is sometimes characterized as having a 'consumer economy'."
^ The Challenges of Cuba's Economy - An Interview with Dr. Antonio Romero 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."

[1] Dictionary.com - Mixed Economy

[2] A variety of definitions for mixed economy.

[3] How the U.S. Economy Works article says "The United States is said to have a mixed economy because privately owned businesses and government both play important roles. Indeed, some of the most enduring debates of American economic history focus on the relative roles of the public and private sectors. The American free enterprise system emphasizes private ownership. Private businesses produce most goods and services, and almost two-thirds of the nation's total economic output goes to individuals for personal use (the remaining one-third is bought by government and business). The consumer role is so great, in fact, that the nation is sometimes characterized as having a 'consumer economy'."

[4] The Challenges of Cuba's Economy - An Interview with Dr. Antonio Romero 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."

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