MIXED ECONOMY

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, and many mixed economies feature a variety of government-run enterprises and governmental provision of public goods. The basic idea of the mixed economy is that the means of production are mainly under private ownership; that markets remain the dominant form of economic coordination; and that profit-seeking enterprises and the accumulation of capital remain the fundamental driving force behind economic activity. However, unlike a free-market economy, 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. There is not one single definition for a mixed economy, but the definitions always involve a degree of private economic freedom mixed with a degree of government regulation of markets. 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 the Nordic countries. Governments in mixed economies often provide environmental protection, maintenance of employment standards, a standardized welfare system, and maintenance of competition. As an economic ideal, mixed economies are supported by people of various political persuasions, typically centre-left and centre-right, such as social democrats or Christian democrats. Supporters view mixed economies as a compromise between state socialism and free-market capitalism that is superior in net effect to either of those.

Philosophy
The term "mixed economy" is used to describe economic systems which stray from the ideals of either the market, or various planned economies, and "mix" with elements of each other. As most political-economic ideologies are defined in an idealized sense, what is described rarelyif everexists 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. When a system in question, however, 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 towards either private ownership or

public ownership, toward capitalism or socialism, or toward a market economy or command economy in varying degrees.

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. Supporters of the mixed economy, including R. H. Tawney,[10] Anthony Crosland, and Andrew Shonfield were mostly associated with the British Labour Party, although similar views were expressed by Conservatives including Harold Macmillan. Critics of the British mixed economy, including Ludwig von Mises and Friedrich von Hayek, argued that what is called a mixed economy is a move toward socialism and increasing the influence of the state. Around the 1930s, fascists in Italy supported the use of a mixed economy in an effort to protect national defense and security.

Elements of a mixed economy

The elements of a mixed economy have been demonstrated to include a variety of freedoms:

A TGV train in Marseille operated by the publicly owned SNCF. In many countries, the rail network is partly or completely, owned or controlled, by the state.

A mail truck. Restrictions are sometimes placed on private mail systems by mixed economy governments. For example, in the U.S., the USPS enjoys a government monopoly on nonurgent letter mail as described in the Private Express Statutes. This hospital run by the National Health Service in the United Kingdom. In most countries the state plays some role in the provision of health care.

 to possess means of production (farms, factories, stores, etc.) to participate in managerial decisions (cooperative and participatory economics) 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, advertisements, 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 factors of production, infrastructure, and services: libraries and other information services roads and other transportation services schools and other education services hospitals and other health services banks and other financial services telephone, mail and other communication services electricity and other energy services (e.g. oil, gas) water systems for drinking, agriculture, and waste disposal subsidies to agriculture and other businesses government-granted monopolies to otherwise private businesses legal assistance government-funded or state-run research and development agencies

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 tariffs and quotas

and taxes and fees written or enforced with manipulation of the economy in mind. Country with Mixed Economy Bismarcks Germany is a good example of an early attempt to create a mixed economy. The German Empires economic system was basically capitalist, and wealthy industrialists such as the Krupp family became tremendously wealthy. As a form of insurance against a revolution, Bismarcks government stepped in to regulate working conditions and to fund welfare benefits in an effort to make the lives of workers easier. The German government also oversaw and supported large industrial enterprises, such as the creation of a national railroad system. Developed Nations: - United Kingdom - Italy - Canada - Japan - Germany - Australia Developing Nations: - Mexico - South Africa

Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a public body such as a government agency. Although a planned economy may be based on either centralized or decentralized forms of economic planning, it usually refers to a centrally planned economy. Central planning aims to improve productivity and coordination by enabling planners to take advantage of better information achieved through the consolidation of economic resources when making decisions regarding investment and the allocation of economic inputs. Planned economies are usually categorized as a particular variant of socialism, and have historically been supported by and implemented by Marxist-Leninist socialist states. Analysts argue that Soviet-type central planning did not actually constitute a planned economy in that a comprehensive and binding plan did not guide production and investment; therefore the portmanteau administrative command economy emerged as a more accurate designation for the economic system that existed in the former Soviet Union and Eastern bloc, highlighting the role of centralized hierarchical administrative decision-making in the absence of popular and democratic oversight as the essential coordinating feature of these economies. In some cases, the most extensive form of a planned economy is referred to as a command economy, or command and control economy. In such economies, central economic planning directs all major sectors of the economy and formulates decisions about the use of economic inputs and the means of production. In a centrally-planned economy, planners would decide what would be produced and would direct lower-level enterprises and ministries to produce those goods in accordance with democratically-determined national and social objectives. Implementation of this form of economy is sometimes called "planification". Planned economies are held in contrast to unplanned economies, such as the market economy and proposed self-managed economy, where production, distribution, pricing, and investment decisions are made by autonomous firms based upon their individual interests rather than upon a macroeconomic plan. Less extensive forms of planned economies include those that use indicative

planning as components of a market-based or mixed economy, in which the state employs "influence, subsidies, grants, and taxes, but does not compel." This latter is sometimes referred to as a "planned market economy". In some instances, the term planned economy has been used to refer to national economic development plans and state-directed investment in market economies. Beginning in the 1980s and 1990s, many governments presiding over planned economies began a process of marketization (or as in the Soviet Union, the system collapsed), moving toward market-based economies by allowing individual enterprises to make the decisions regarding management and pricing, granting autonomy to state enterprises, and ultimately expanding the scope of the private sector through privatization. Although most economies today are market-based mixed economies (which are partially planned), fully planned economies of the Soviet-type continue to exist in Cuba, North Korea and Laos.

Economic planning versus command economies

Main article: Economic planning Economic planning in general is defined as a mechanism for the allocation of inputs based on a direct allocation, held in contrast with the market mechanism, which is based on indirect allocation.[11] Economic planning may be carried out in a decentralized, distributed or centralized manner depending on the specific organization of economic institutions. An economy based on economic planning (either through the state, an association of worker cooperatives or another economic entity that has jurisdiction over the means of production) appropriates its resources as needed, so that allocation comes in the form of internal transfers rather than market transactions involving the purchasing of assets by one government agency or firm by another. In a traditional model of planning, decision-making would be carried out by workers and consumers on the enterprise-level. This is contrasted with the concept of a centrally planned, or a command economy, where most of the economy is planned by a central authority and organized in a top-down administrative model, where decisions regarding investment and production output requirements are decided upon by planners at the top in the chain of command, with little input from lower levels of the chain of command. Advocates of economic planning have sometimes been staunch critics of command economies and centralized planning. For example, Leon Trotsky believed that central planners, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and understand/respond to local conditions and changes in the economy, and therefore would be unable to effectively coordinate all economic activity.[12] Another key difference is that command economies are usually authoritarian in nature, whereas economic planning in general can be either participatory and democratic or authoritarian. Indicative planning is a form of planning in market economies that directs the economy through incentive-based methods. Economic

planning can be practiced in a decentralized manner through different government authorities. For example, in some predominately market-oriented and mixed economies, the state utilizes economic planning in strategic industries such as the aerospace industry. Mixed economies usually employ macroeconomic planning, while micro-economic affairs are left to the market and price system. Another example of this is the utilization of dirigisme, both of which were practiced in France and Great Britain after the Second World War. Swedish public housing models were planned by the government in a similar fashion as urban planning. A planned economy may consist of state enterprises, cooperative enterprises, or private enterprises, or a combination of different enterprise types coordinated through some form of planning. Some make the distinction that in a "command economy", enterprises need not follow a comprehensive plan or be coordinated through planning - the dominant coordinating mechanism comes in the form of a command from higher authorities. That is, a planned economy is "an economic system in which the government controls and regulates production, distribution, prices, etc."[13] but a command economy, while also having this type of regulation, necessarily has substantial public ownership of industry.[14] Therefore, command economies are planned economies, but not necessarily the reverse.

Relationship with socialist economics

Main article: Socialism While socialism is not equivalent to economic planning or to the concept of a planned economy, an influential conception of socialism involves the replacement of capital markets with some form of economic planning in order to achieve ex ante coordination of the economy. The goal of such an economic system would be to achieve conscious control over the economy by the population, specifically, so that the use of the surplus product is controlled by the producers.[15] The specific forms of planning proposed for socialism and their feasibility are the subject of debate within the broader socialist calculation debate.

Transition from a planned economy to a market economy

The shift from a command economy to a market economy has proven to be difficult; in particular, there were no theoretical guides for doing so before the 1990s. One transition from a command economy to a market economy that many[who?]consider successful is that of the People's Republic of China. By contrast, the Soviet Union's transition was much more problematic, and its successor republics faced a sharp decline in GDP during the early 1990s. One of the suggested causes is that under Soviet planning, price ceilings created major problems (shortages, queuing for bread, households hoarding money), which made the transition to an unplanned economy more difficult. While the transition to a market economy proved difficult, many of the post-Soviet states have been

experiencing strong, resource-based economic growth in recent years, though the levels vary substantially. However, a majority of the former Soviet Republics have not yet reached pre-collapse levels of economic development. Still, most of the economic hardship that struck many of the former East Bloc countries and the post-Soviet states comes from the program of shock therapy. The idea behind this program is to convert from a centrally planned economy to a market economy in a short space of time. This means mass-scale privatization, budget cuts and liberalization of economy and finance regulations. This shock therapy program was implemented in several former communist states like Poland and Russia.

Advantages of economic planning

The government can harness land, labor, and capital to serve the economic objectives of the state. Consumer demand can be restrained in favor of greater capital investment for economic development in a desired pattern. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without reliance on external financing. This is what happened in the Soviet Union during the 1930s when the government forced the share of GNP dedicated to private consumption from eighty percent to fifty percent. As a result, the Soviet Union experienced massive growth in heavy industry. The possibility of a digital planned economy was explored by Chile with the creation of Project Cybersyn. The project was a success in many ways, but due to the lack of computer technology and need for constant human input it's effect was limited in comparison to modern and more advanced technology.[neutrality is disputed]

Disadvantages of economic planning

Inefficient resource distribution: surplus and shortage
Critics of planned economies argue that planners cannot detect consumer preferences, shortages, and surpluses with sufficient accuracy and therefore cannot efficiently co-ordinate production (in a market economy, a free price system is intended to serve this purpose). This difficulty was notably written about by economists Ludwig von Mises and Friedrich Hayek, both of whom called it the "economic calculation problem". These opponents of central planning argue that the only way to satisfy individuals who have a constantly changing hierarchy of needs, and are the only ones to possess their particular individual's circumstances, is by allowing those with the most knowledge of their needs to have it in their power to use their resources in a competing marketplace to meet the needs of the most amount of consumers, most efficiently. This phenomenon is recognized as spontaneous order. Additionally, misallocation of resources would naturally ensue by redirecting capital away from individuals with direct knowledge and circumventing it into markets where a coercive monopoly influences behavior,

ignoring market signals. According to Tibor R. Machan, "Without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals."[18]

Suppression of economic democracy and self-management

Economist Robin Hahnel notes that, even if central planning overcame its inherent inhibitions of incentives and innovation, it would nevertheless be unable to maximize economic democracy and self-management, which he believes are concepts that are more intellectually coherent, consistent and just than mainstream notions of economic freedom.[19] Says Hahnel, "Combined with a more democratic political system, and redone to closer approximate a best case version, centrally planned economies no doubt would have performed better. But they could never have delivered economic selfmanagement, they would always have been slow to innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible to growing inequities and inefficiencies as the effects of differential economic power grew. Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impeding markets for final goods to the planning system enfranchise consumers in meaningful ways. But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it did only because it was propped up by unprecedented totalitarian political power."[19]

Economic instability
Studies of Eastern European planned economies in the 1950s and 1960s by both American and Eastern European economists found that, contrary to expectations, they showed greater fluctuations in output than market economies during the same period.