1. Chapter 2- Mixed Economies
Lesson 2

2. Mixed Economies
Even though there are several different kinds of economies, there are more mixed economies—economic systems where tradition, government, and markets each answer some of the WHAT, HOW, and FOR WHOM questions—than any other kind.
Sometimes there is so much overlapping that it’s hard to know exactly what kind of economy it is.

3. Why mixed Economies Exist
Mixed economies exist for several reasons. One is that when people from one type of economy come into contact with other cultures, they often adopt technologies and ways of doing things that can benefit them.
A famous example of a revolution affecting economic change took place in Russia in 1929.
Joseph Stalin's iron control of the political apparatus transformed a largely peasant society into the massive Soviet industrial economy.
A third reason is that nations tend to evolve over time, shedding some policies that do not work and adding new ones that do. 
An economy can also evolve when people are unhappy with the way it is performing.
In the 1930s, during the Great Depression—the worst period of economic decline in U.S. history, which lasted from approximately 1929 to 1939—conditions were so harsh that a number of economic programs were created, including unemployment insurance, the minimum wage, and bank deposit insurance.

4. The what, how and for whom decisions
When we consider political parties and economic systems at the same time, the picture often becomes muddied. 
For example, the conventional name of North Korea is the Democratic People’s Republic of Korea—despite the fact that there is virtually no democracy there at all.
Some mixed economies have a political system based on democracy, while others do not.
A state’s involvement in the three economic decisions can vary considerably. Some governments intervene only in certain key sectors or industries and leave the rest to markets. The more socialist a country is, the more likely it is that its government makes all of the three major economic decisions, often with the claim that they are made for the betterment of its people. If the government intervenes too much, a mixed socialist economy can turn into a command socialist economy.

5. Shared characteristics of mixed economies
Because there are so many different kinds of mixed economies, it is sometimes difficult to describe them all.
Perhaps the most distinguishing feature of a market or capitalist economy is the private ownership of productive resources and the freedom to use them as the owner sees fit.
In this system, the allocation of these resources happens entirely in a free market comprised of self-directed individuals
Under socialism, private individuals own only some of the productive resources, while the government owns and uses the rest.

6. Shared Characteristics of Mixed Economies
The extent of government-owned resources varies from one socialist country to the next, with most socialist countries facing the highest degree of government ownership.
For example, in the former Soviet Union, none of the resources were privately owned because the government owned them all.
Yet in the socialist-leaning economy of Venezuela, only some of the major industries were nationalized by former president Hugo Chavez to help pay for his socialist programs.
In a traditional economy, almost all of the major decisions are made according to tradition, making progress and change very difficult.
Even the ownership of productive resources is determined by tradition.
Of those economies that are mixed, the majority of them are mostly capitalist with market features.

7. Why are most economies in the world today considered mixed economies?
Mixed economies usually share characteristics with all three economic systems—market, socialist, and traditional.
As such, it is sometimes difficult to describe them as uniquely belonging to one type of economic system or another.

8. Communist Economies
The communist philosophy was first laid out by the economic historian and social scientist Karl Marx and his colleague Friedrich Engels in the 1800s.
Marx viewed all of history as a class struggle between workers and property owners—a struggle that would lead to alternating periods of depression, such as the one the United States had in the 1930s, and periods of prosperity.
Marx thought that the working class would eventually rise up and overthrow the property owners.
Society would then eventually reach a theoretical ideal called communism, a state of economic and political affairs where everyone would contribute according to his or her abilities and consume according to his or her needs.

9. Communist economies
In this ideal community, no government would be needed and could therefore be eliminated.
In order to get there, however, Marx thought that a society would pass through a period of socialism that would require a strong government that served the needs of the people.
This is why so many of the so-called communist governments in China, the former Soviet Union, Cuba, and other places around the world frequently described themselves as being socialist, as if they were stepping-stones to the eventual ideal of communism.
In a communist system, labor is organized for the common advantage of the community, and everyone consumes according to his or her needs.
In practice, however, communist governments have become so involved in dictating the economic decisions of WHAT, HOW, and FOR WHOM that they can easily be called command economies.

10. Communist economies
As for a true communist economy, there are none in the world today, and there have never been any in the past.
Communism still remains a theoretical ideal in the minds of many revolutionaries, even though in practice it has never been reached.
A pure state of communism is not possible in a world where people have unlimited wants and limited resources, so it is unlikely that we will ever see one.

11. Mixed Socialism
According to Karl Marx, socialism is the economic and political system necessary for a country to reach the ideal of communism.
Under socialism, the government owns and controls some, but not all, of the basic productive resources.
In socialist economies, the government provides some of the basic needs of its people, such as education, jobs, transportation, and health care.
China has a mixture of traditional, command, and market economies.
While tradition has a strong influence in rural areas, the government makes many of the major economic decisions and owns many of the factors of production.

12. Mixed Market Economies
There are many examples of mixed market economies, especially in democratic countries, where people have the ability to influence the makeup of the economy.
In Norway, the government owns the basic petroleum industry. It then uses the revenue from selling oil to other nations to keep its domestic gas prices low, finance education, maintain roads, and provide social welfare for its citizens.
Because the government controls just one industry, it is a mixed economy based on capitalism and markets with some elements of socialism.

13. Mixed market economies
Sweden was once known as the “socialist state that works” because of its combination of a strong private economy and the broadest range of social programs in the free world.
However, the population objected to the high taxes needed to support its social programs, and so the country cut back on these expenditures in the 1980s.
It is now a mixed market economy because it has not given up all of its socialist programs.
Because of the generous welfare benefits in Denmark, Germany, and France, these countries also qualify as having mixed market economies.
Any country that provides significant welfare benefits would also qualify, especially if the benefits received by citizens were generally paid for with taxpayer dollars.
China, South Korea, India, and Thailand also have mixed economies that combine traditional economies with elements of command and market economies.

14. Mixed market economies
Finally, the United States also falls into the category of mixed market economies.
This is because we have not only traditional elements, such as children who follow their parents into the same occupations, but also many free market features.
The United States even has socialist elements, such as federal programs that make disability payments to people injured on the job or programs that provide health insurance for most people.
Programs like these apply to large groups and are paid for out of taxpayer dollars, but by themselves they do not make the United States a socialist economy.

15. Advantages of mixed economies
One advantage of a mixed economy is that it provides assistance for some people who might be left out of the country’s economic progress.
All societies have some people who are too young, too old, or too sick to provide for themselves, and so some policies that address these concerns are usually needed.
If the society has a democracy, voters can use their power to vote to affect the WHAT, HOW, and FOR WHOM decisions even if the government owns no productive resources.
For example, the government can pass laws to provide aid to those most in need or to fund public projects like schools and road repairs.
Mixed economies have tended to grow faster than the former communist or command economies in Vietnam, Cuba, and the former Soviet Union.
Even China’s rapid economic growth since 1980 is largely because it has embraced some major market reforms.

16. Disadvantages of mixed economies
Mixed economies tend to provide more goods and services, but the costs of these benefits can be expensive.
Germany and the Scandinavian countries offer a wide range of social benefits, but they also have higher tax rates than we have in the United States.
In addition, when these countries have economic downturns, the government collects fewer taxes, and so less money is available for these programs.
As a result, some of these governments have discussed placing limits on benefits, especially unemployment and welfare programs.

17. Disadvantages of mixed economies
In some socialist countries, the availability of services may be limited or the quality may be allowed to deteriorate over time.
Today, for example, Cuba claims that it has free health care for everyone, but the quality of care is below U.S. standards for everyone except high-ranking members of the Communist Party and those willing to pay for services in dollars.
Historically, socialism and communism have proved to be less efficient than capitalism.
For example, if workers receive government guarantees of jobs, more workers may be hired in a plant than are necessary, driving up production costs.
The need to employ many people in jobs of some type is one of the reasons why growth in these countries is slower than in free market countries.
Finally, many of the governments in communist and command economies are likely to see market- oriented reforms as a threat to their own leadership.
If the introduction of market reforms makes the economy more prosperous, people may want even more reforms—reforms that may move their economies further away from communist or command-type leadership.