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A mixed economy also called social capitalism is defined as an economic system consisting of a mixture of either markets and economic planning, public ownership and private ownership, or markets and economic interventionism. . In general, a mixed economy or social capitalism is characterized by a pragmatic division of the means of production between private ownership and public ownership. Profit-seeking enterprise and the accumulation of capital remain the fundamental driving force behind economic activity, while markets are subject to varying degrees of regulatory control. Unlike a free-market economy, the government wields indirect macroeconomic influence over the economy through fiscal and monetary policies designed to counteract capitalism's history of boom/bust cycles, unemployment, and growing income and wealth disparities, along with playing a role in interventions and civic institutions that promote social welfare. Subsequently, many mixed economies have expanded in scope to include a role for indicative economic planning or large public enterprise sectors. Development of the public sector in mixed economies has tended to concentrate across universal civic requirements, such as health services, mass transportation, physical infrastructure, and management of public lands and resources.
In reference to post-war Western and Northern European economic models, as championed by Christian democrats and social democrats, the mixed economy is defined as a form of capitalism where most industries are privately owned with only a minority of public utilities and essential services under public ownership. In the post-war era, European social democracy became associated with this economic model.
Economies ranging from the United States to Cuba have been catalogued as 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.
There is not one single definition for 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 precludes an extension to non-capitalist systems and is concerned with public policy and state influence in a market system, whereas the apolitical definition relates to patterns of ownership and management of economic enterprises in a society. The apolitical definition of mixed economy refers to a mix of public and private ownership of enterprises in the economy and is unconcerned with political forms and public policy.
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, 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 mixed economy, including Ludwig von Mises and Friedrich von Hayek, argued that there can be no lasting middle ground between economic planning and a market economy, and any move in the direction of socialist planning is an unintentional move toward what Hilaire Bloc called "the servile state".
In the apolitical sense, the term "mixed economy" is used to describe economic systems which combine various elements of market economies and planned economies. 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. 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.
The concept of a mixed economy is not exclusive to capitalist economies (economies structured upon capital accumulation and privately owned, profit-seeking enterprises), and the phrase has been used to characterise some socialist economic systems. A number of proposals for socialist systems call for a mixture of different forms of enterprise ownership. For example, Alec Nove's conception of feasible socialism provides an outline for an economic system based on a combination of state-enterprises for large industries, worker and consumer cooperatives, private enterprises for small-scale operations, and individually owned enterprises.
The social democratic theorist Eduard Bernstein advocated a form of mixed economy, believing that a mixed system of public, cooperative, and private enterprise would be necessary for a long period of time before capitalism would evolve of its own accord into socialism.
The mixed economy is most commonly associated with social democratic policies or governments led by social democratic parties. However, given the broad range of economic systems that can be described by the term, most forms of government are consistent with some form of mixed economy. In contemporary uses, "social democracy" usually refers to a social corporatist arrangement and a welfare state in the context of a developed capitalist economy.
Authors John W. Houck and Oliver F. Williams of the University of Notre Dame have argued that Catholic social teaching naturally leads to a mixed economy in terms of policy. They referred back to Pope Paul VI's statement that government "should supply help to the members of the social body, but may never destroy or absorb them". They wrote that a socially just mixed economy involves labor, management, and the state working together through a pluralistic system that distributes economic power widely.
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. It consisted of three core policy initiatives: protecting industry through high tariffs (1861–1932) (changing to subsidies and reciprocity from 1932–1970s), 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 social democracy 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. Under its influence Germany emerged from desolation and defeat to become an industrial giant within the European Union.
Numerous economists have questioned the validity of the entire concept of a "mixed economy" when understood to be a mixture of socialism and capitalism, as opposed to a mixture of state interventionism and free market capitalism.
In his magnum opus Human Action, Ludwig von Mises argued that there can be no mixture of capitalism and socialism—either market logic or economic planning must dominate an economy. Mises elaborated on this point by contending that, even if a market economy contained numerous state-run or nationalized enterprises, this would not make the economy "mixed" because the existence of such organizations does not alter the fundamental characteristics of the market economy. These publicly owned enterprises would still be subject to market sovereignty, would have to acquire capital goods through markets, strive to maximize profits (or at the least try to minimize costs) and utilize monetary accounting for economic calculation.
Classical and orthodox Marxist theorists also dispute the viability of a mixed economy as a "middle ground" between socialism and capitalism. From this perspective, irrespective of enterprise ownership, either the capitalist law of value and accumulation of capital drives the economy, or conscious planning and non-monetary forms of valuation ultimately drive the economy. Therefore, extant "mixed economies" in the Western world, from the Great Depression onwards, are still functionally capitalist because they operate on the basis of capital accumulation.
In the second, mainly post-war, phase, social democrats came to believe that their ideals and values could be achieved by reforming capitalism rather than abolishing it. They favored a mixed economy in which most industries would be privately owned, with only a small number of utilities and other essential services in public ownership.
There are in general two broad yet distinguishable definitions of 'mixed economy': a political definition and an apolitical definition. The political definition refers to the degree of state intervention in what is basically a market economy. Thus this definition 'portray[s] the phenomenon in terms of state encroaching upon the market and thereby suggest[s] that market is the natural or preferable mechanism...The political definition of 'mixed economy' precludes extending it to non-capitalist systems
The apolitical definition of 'mixed economy' generally refers to the mix of public and private ownership forms...Here 'mixed economy' itself does not specify a political form. it means an economy characterized by a combination of public and private ownership as well as planning and markets
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 capitalistic and in part socialist.
The fact that the state or municipalities own and operate some plants does not alter the characteristic features of a market economy. These publicly owned and operated enterprises are subject to the sovereignty of the market. They must fit themselves, as buyers of raw materials, equipment, and labor, and as sellers of goods and services, into the scheme of the market economy. They are subject to the laws of the market and thereby depend on the consumers who may or may not patronize them. They must strive for profits, or at least, to avoid losses.
To be sure, 'orthodox Marxism' maintains that the mixed economy is still the capitalism of old, just as 'orthodox' bourgeois theory insists that the mixed economy is a camouflaged form of socialism. Generally, however, both the state-capitalist and mixed economies are recognized as economic systems adhering to the principle of progress by way of capital accumulation.
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