Reading: Mixed Economies

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

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

  • 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.
  • 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 economies:  a system in which both the state and private sector direct the way goods and services are bought and sold.
  • 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.


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.


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 non-urgent 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, and
  • 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.

GLOSSARY

Capital
Money and wealth. The means to acquire goods and services, especially in a non-barter system. The uppermost part of a column. Money and wealth; the means to acquire goods and services, especially in a non-barter system. Already-produced durable goods available for use as a factor of production, such as steam shovels (equipment) and office buildings (structures).

Capitalism
A socio-economic system based on the abstraction of resources into the form of privately-owned money, wealth, and goods, with economic decisions made largely through the operation of a market unregulated by the state. A socio-economic system based on private property rights, including the private ownership of resources or capital, with economic decisions made largely through the operation of a market unregulated by the state.

Coordination
The resulting state of working together; cooperation; synchronization.

Corporation
A group of individuals, created by law or under authority of law, having a continuous existence independent of the existences of its members, and powers and liabilities distinct from those of its members.

Depression
A period of major economic contraction; officially, four consecutive quarters of negative, real GDP growth (according to NBER). In psychotherapy and psychiatry, a period of unhappiness or low morale which lasts longer than several weeks and may include ideation of self-inflicted injury or suicide.

Economic System
An economic system is the combination of the various agencies, entities (or even sectors as described by some authors) that provide the economic structure that defines the social community.

Economy
Collective focus of the study of money, currency and trade, and the efficient use of resources. The system of production and distribution and consumption. The overall measure of a currency system; as the national economy.

Employment
The work or occupation for which one is used, and often paid.

Enterprise
A company, business, organization, or other purposeful endeavor.

Fiscal Policy
Government policy that attempts to influence the direction of the economy through changes in government spending or taxes. In economics and political science, fiscal policy is the use of government revenue collection or taxation, and expenditure (spending) to influence the economy.

Framework
The identification and categorization of processes or steps that constitute a complex task or mindset in order to render explicit the tacit and implicit. A basic conceptual structure.

Goal
A desired result that one works to achieve.

Good
An object produced for market.

Incentive
Something that motivates, rouses, or encourages. It is used to motivate individuals (often, employees) for better performance by providing financial or other types of rewards. An anticipated reward or aversive event available in the environment. Something that motivates an individual to perform an action.

Industry
The sector of the economy consisting of large-scale enterprises.

Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. An increase in the general level of prices or in the cost of living. An increase in the quantity of money, leading to a devaluation of existing money.

Investment
The placement or expenditure of capital in expectation of deriving income or profit from its use.

Market
A group of potential customers for one's product. One of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange.

Monetary Policy
The process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The process by which the government, central bank, or monetary authority manages the supply of money, or trading in foreign exchange markets.

Planned Economy
An economic system in which government directly manages supply and demand for goods and services by controlling production, prices, and distribution in accordance with a long-term design and schedule of objectives.

Planning
The act of formulating a course of action, or of drawing up plans.

Private Sector
All organizations in an economy or jurisdiction that are not controlled by government, including privately owned businesses and not-for-profit organizations.

Public Sector
Industries or services provided or funded by the government.

Regulation
A law or administrative rule, issued by an organization, used to guide or prescribe the conduct of members of that organization. Can specifically refer to acts in which a government or state body limits the behavior of businesses. A regulation is a legal provision that creates, limits, or constrains a right; creates or limits a duty; or allocates a responsibility.

Scope
The extent of the area or subject matter that something deals with or to which it is relevant. The breadth, depth, or reach of a subject; a domain. The breadth, depth or reach of a subject; a domain.

Services
That which is produced, then traded, bought or sold, then finally consumed and consists of an action or work.

Socialism
A political philosophy based on principles of community decision making, social equality, and the avoidance of economic and social exclusion, with preference to community goals over individual ones. Any of various economic and political philosophies that support social equality, collective decision-making, distribution of income based on contribution and public ownership of productive capital and natural resources, as advocated by socialists. The intermediate phase of social development between capitalism and full communism. This is a strategy whereby the state has control of all key resource-producing industries and manages most aspects of the economy, in contrast to laissez-faire capitalism.

Standard
Something used as a measure for comparative evaluations A level of quality or attainment.

System
A whole composed of relationships among the members. The part of the universe being studied, arbitrarily defined to any size desired.

Tariff
A system of government-imposed duties levied on imported or exported goods; a list of such duties, or the duties themselves.

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