Mixed Economy

A mixed economy is typically a market system of resource allocation, commerce, and trade in which the government intervenes to disrupt the “invisible hand” of free market forces. Examples of such intervention may include state-owned enterprises (such as public health or education systems), regulations, subsidies, tariffs, and tax policies. Alternatively, a mixed economy may emerge when a socialist government makes exceptions to the rule of state ownership to capture economic benefits from private ownership and free market incentives. In addition to a variety of forms, mixed economies have come about from a variety of motives and historical causes.

The British Corn Laws of the early 1800s, for example, were government interventions in the free market to protect native agricultural interests by limiting imports. The negative consequences of foreign protectionist responses and higher food and labor costs at home led to an invigorated laissez-faire and free trade movement. However, at roughly the same time, abuses of factory workers led to government intervention to reform child and female labor conditions.

In developed Western economies after the Industrial Revolution and before the Great Depression of 1929–1933, most political economists and governments believed that social prosperity progressed best in economic systems composed of free markets whose social and monetary order was protected by the actions of governmental and banking institutions. This belief was profoundly shaken by the system's twin catastrophic failures that we call the Great Depression—failing first to prevent the global economic collapse and then failing to recover communities from the horrendous human tragedies of unemployment and poverty wrought by the collapse. The New Deal, a series of interventionist legislation and government programs in the United States, was championed by President Franklin Delano Roosevelt to head off social unrest caused by the widespread unemployment of the Great Depression in the 1930s.

In the mid-20th century, many people agreed that the Great Depression arose from fundamental flaws in the free market theory of equilibrating supply and demand, and that this meant that the free market alone would be incapable of recovering from the Great Depression. In developed Western economies, the historical development of the mixed economy is the evolutionary change of the free market concept as it adapted to avoid the risks of widespread social unrest and potential revolutionary socialist or Marxist change. Social democratic programs that arose in continental Europe at this time created coalitions of business interests with major social groups to improve social welfare without jettisoning private property and the market economy. This mixed economic approach included economic planning, high tariffs, guarantees of group rights, and social welfare programs.

Mixed economies also arose in many countries that formerly had centrally planned and socialist economies. The mixed economies in modern China and Russia, for example, evolved from communist systems that were too inefficient to compete in the modern global economy. The recent social experience of the Chinese and Russian people is a profound [Page 1397]testament to the personal difficulties and turmoil that people endure when a country makes a transition to a mixed economy.

As the historical examples above suggest, mixed economies have public, private, legislative, judicial, and regulatory components, but there is not a single ideal, standard, or typical set of economic features, and the mix may vary from country to country. Components in the mix may include government subsidies, fees, taxes, set-aside programs and regulations, stateowned enterprises, mandatory social security, or national health programs.

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