Reading: The Disadvantages of Mixed Economies

The disadvantages of mixed economies can be understood through examining criticisms of social democracy.

KEY points

  • One disadvantage of mixed economies is that they tend to lean more toward government control and less toward individual freedoms.
  • While most modern forms of government are consistent with some form of mixed economy, the mixed economy is most commonly associated with social democratic parties or nations run by social democratic governments.
  • Some critics of contemporary social democracy argue that when social democracy abandoned Marxism it also abandoned socialism and has become, in effect, a liberal capitalist movement.
  • Marxian socialists argue that because social democratic programs retain the capitalist mode of production they also retain the fundamental issues of capitalism, including cyclical fluctuations, exploitation and alienation.
  • The democratic socialist critique of social democracy states that capitalism could never be sufficiently “humanized” and any attempt to suppress the economic contradictions of capitalism would only cause them to emerge elsewhere.
  • Market socialists criticize social democracy for maintaining a property-owning capitalist class, which has an active interest in reversing social democratic policies and a disproportionate amount of power over society to influence governmental policy as a class.

Terms

  • Social democracy:  a moderate political philosophy or ideology that aims to achieve socialistic goalswithin capitalist society such as by means of a strong welfare state and regulation of private industry.
  • Regulation:  A law or administrative rule, issued by an organization, used to guide or prescribe the conduct of members of that organization.
  • 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.

Examples

  • Many pubs in Britain are suffering due to drinking and smoking regulations imposed by the government for the good of society. As a result, many question whether pubs have a future.

Disadvantages of Social Democratic Policy In a Mixed Economy

While most modern forms of government are consistent with some form of mixed economy, given the broad range of economic systems that can be described by the term, the mixed economy is most commonly associated with social democratic parties or nations run by social democratic governments. In contemporary terms, “social democracy” usually refers to a social corporatist arrangement and a welfare state in developed capitalist economies.

Critics of contemporary social democracy argue that when social democracy abandoned Marxism it also abandoned socialism and has become, in effect, a liberal capitalist movement. They argue that this has made social democrats similar to center-left, but pro-capitalist groups, such as the U.S. Democratic Party .

The Democratic Party Logo
The Democratic party in the United States is seen by some critics of contemporary social democracy (and mixed economies) as a watered-down, pro-capitalist movement.

 

Marxian socialists argue that because social democratic programs retain the capitalist mode of production they also retain the fundamental issues of capitalism, including cyclical fluctuations, exploitation and alienation. Social democratic programs intended to ameliorate capitalism, such as unemployment benefits or taxation on profits and the wealthy, create contradictions of their own through limiting the efficiency of the capitalist system by reducing incentives for capitalists to invest in production.

Others contrast social democracy with democratic socialism by defining the former as an attempt to strengthen the welfare state and the latter as an alternative socialist economic system to capitalism. The democratic socialist critique of social democracy states that capitalism could never be sufficiently “humanized” and any attempt to suppress the economic contradictions of capitalism would only cause them to emerge elsewhere. For example, attempts to reduce unemployment too much would result in inflation, and too much job security would erode labor discipline. In contrast to social democracy, democratic socialists advocate a post-capitalist economic system based either on market socialism combined with workers self-management, or on some form of participatory-economic planning.

Social democracy can also be contrasted with market socialism. While a common goal of both systems is to achieve greater social and economic equality, market socialism does so by changes in enterprise ownership and management, whereas social democracy attempts to do so by government-imposed taxes and subsidies on privately owned enterprises. Market socialists criticize social democracy for maintaining a property-owning capitalist class, which has an active interest in reversing social democratic policies and a disproportionate amount of power over society to influence governmental policy as a class.

GLOSSARY

Active

Having the power or quality of acting; causing change; communicating action or motion; acting.

Benefit

An advantage, help or aid from something. Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, perqs or perks) are various non-wage compensations provided to employees in addition to their normal wages or salaries.

Capitalism

A socio-economic system based on the abstraction of resources into the form of privately-owned money, wealth, and goods, with economic decisions made largely through the operation of a market unregulated by the state.

Economic system

An economic system is the combination of the various agencies, entities (or even sectors as described by some authors) that provide the economic structure that defines the social community.

Economy

Collective focus of the study of money, currency and trade, and the efficient use of resources. The system of production and distribution and consumption. The overall measure of a currency system; as the national economy.

Efficiency

The extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended. The extent to which time is well used for the intended task. Improved efficiency was a principle goal of progressives, one they thought attainable by the application of scientific and rational thought to social problems.

Enterprise

A company, business, organization, or other purposeful endeavor.

Fluctuation

A motion like that of waves; a moving in this and that direction.

Goal

A desired result that one works to achieve.

Good

An object produced for market.

Incentive

Something that motivates, rouses, or encourages. It is used to motivate individuals (often, employees) for better performance by providing financial or other types of rewards. An anticipated reward or aversive event available in the environment. Something that motivates an individual to perform an action.

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. An increase in the general level of prices or in the cost of living. An increase in the quantity of money, leading to a devaluation of existing money.

Interest

The price paid for obtaining, or price received for providing, money or goods in a credit transaction, calculated as a fraction of the amount or value of what was borrowed. A great attention and concern from someone or something; intellectual curiosity.

Lead

Potential opportunity for a sale or transaction, a potential customer.

Management

The act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively. Administration; the process or practice of managing administration; the process or practice of managing. Administration; the process or practice of managing.

Market

A group of potential customers for one’s product. One of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange.

Mixed economies

A system in which both the state and private sector direct the way goods and services are bought and sold.

Planning

The act of formulating a course of action, or of drawing up plans.

Price

The price is the amount a customer pays for the product. The quantity of payment or compensation given by one party to another in return for goods or services. The cost required to gain possession of something.

Product

Any tangible or intangible good or service that is a result of a process and that is intended for delivery to a customer or end user. Anything, either tangible or intangible, offered by the firm as a solution to the needs and wants of the consumer; something that is profitable or potentially profitable; goods or a service that meets the requirements of the various governing offices or society.

Profits

Collective form of profit.

Recession

A period of reduced economic activity. A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, and industrial production.

Security

Proof of ownership of stocks, bonds, or other investment instruments. The condition of not being threatened, especially physically, psychologically, emotionally, or financially.

Socialism

Any of various economic and political philosophies that support social equality, collective decision-making, distribution of income based on contribution and public ownership of productive capital and natural resources, as advocated by socialists. A political philosophy based on principles of community decision making, social equality, and the avoidance of economic and social exclusion, with preference to community goals over individual ones. The intermediate phase of social development between capitalism and full communism. This is a strategy whereby the state has control of all key resource-producing industries and manages most aspects of the economy, in contrast to laissez-faire capitalism.

System

A whole composed of relationships among the members. The part of the universe being studied, arbitrarily defined to any size desired.

Welfare state

A social system in which the state takes overall responsibility for the welfare of its citizens, providing health care, education, unemployment compensation, and social security.