Mixed Economy

The term mixed economy typically describes an economic system that combines the use of market and command mechanisms to guide economic activity. A mixed economy is typically considered a middle ground—a “third way”—between laissez-faire capitalism and state socialism. Virtually all developed economies, including that of the United States, fall into this category. Most modern manifestations of the mixed economy incorporate varying degrees of private economic activity, such as privately owned enterprises, and state regulation and control of the economy, such as social welfare programs, economic and industrial planning and development, and state ownership of economic enterprises. The modern welfare state is often viewed as a type of mixed economy, one that mitigates the vagaries and inequalities that arise in a free market economy.

In 1949, Sir Richard Stafford Cripps coined the term as a way to describe the British postwar economy. As Britain's chancellor of the exchequer from 1947 to 1950, Sir Cripps advocated and implemented a rigid austerity program to revive Britain's economy. The term countered the perception that some of the elements of the program resembled socialism and communism, which were both seen as anathema in the postwar political environment. Earlier, John Maynard Keynes established the intellectual foundations of the approach in his advocacy of an active role for state intervention in guiding and shaping the economy.

Throughout the 1950s and 1960s, the mixed economy was widely embraced as a strategy for economic policy. Initially, the strategy was legitimized due to the economic success of the countries that adopted the strategy. However, a series of economic crises, starting in the late 1960s and continuing through the 1970s, weakened support for the mixed economy. Since the 1980s, the rise of neoliberal economic policies has led to a greater emphasis on the primacy of the market and a growing aversion to government intervention in the economy. In the United States, this was partly manifested in a drive to divest the government of federal assets, such as the sale of Conrail to private investors in 1987.

The literature on the mixed economy is vast. In economics, the contributions range from arguments defending the mixed economy, such as Japan's active role in industrial policy, to rejections of the “sickness” of the mixed economy. In sociology, a number of recent contributions document the social changes that occurred during the transition of formerly socialist economies to more market-oriented policies. These include the changes that occurred as a result of China's gradual adoption of market policies and the social impacts of the so-called shock treatment policies adopted after the fall of Soviet communism.