Mixed Economies
Mixed Economies
No economy is purely market determined or centrally planned. The United
States and the Soviet Union (prior to recent reforms) represented opposite
ends along the spectrum of mixed economies. In practice, however, what we
call mixed economies generally have a higher degree of government inter-
vention than is found in the United States and a greater degree of reliance on
market forces than is found in the Soviet Union. Government intervention
can be regarded in two ways: actual government ownership of means of pro-
duction and government influence in economic decision making. Ownership
is easy to quantify statistically, but since influence is a matter of policy and
custom, it is difficult to measure precisely.
Many industrial countries such as Germany and Sweden have relatively
low levels of government ownership but a strong tradition of social welfare.
The United Kingdom also has a strong welfare system supported by taxes,
although the government is involved more heavily in corporate ownership
than the Swedish and German governments are.
Sometimes, the role of government in the economy can cause some se-
rious problems. In 1990, Faul Gardini, the chairman of Ferruzzi Finanziaria
S.p.A., the second-largest private company in Italy, resigned. One of his com-
panies, Montedison, had formed a joint venture in chemical production with
E.N.I., the state-controlled energy company. Montedison tried to cut costs by
selling unprofitable plants and laying off workers, while E.N.I, was hesitant
to cut workers because of likely political ramifications. When Gardini decided
that it was impossible for him to make market-oriented decisions in a political
environment, he quit.15
Another illustration of state intervention is found in Japan, a nation
often called "Japan, Inc." At the close of World War II, Japan, unlike many
countries, such as France and Italy, decided to leave investment in the private
sector rather than nationalizing key sectors and industries. Japanese policy-
makers focused more on setting targets and using fiscal incentives to direct
investment flows. The Ministry of International Trade and Industry (MITI)
was organized to guide industrial development through "strategic planning
and authority (both formal and informal) over investment and production
priorities."
MITI seemed to be more concerned with developing a vision than with
setting up a blueprint for the economy. During MITI's early years in the 1950s
and 1960s, a policy of protectionism was invoked so that industries could
achieve economies of scale free of outside competition. During the 1960s
however, MITI implemented selective liberalization that involved MITI-in-
spired industrial reorganizations. These reorganizations led to the creation of
industries, such as automobiles and steel, that became formidable world com-
petitors. Structural adjustment to the oil price increase of the 1970s was also
inspired and encouraged' by MITI as it forced companies to become more
energy efficient.
Two indicators of the role of government in capitalist societies are centra!
government disbursements and revenues as a percentage of gross national
product. Figure 2.3 compares data from several countries. Note the wide di-
vergence among countries, with Japan showing the lowest percentages and
the Netherlands the highest. As noted earlier, however, Japan's influence in
the economy extends beyond actual expenditures.
No economy is purely market determined or centrally planned. The United
States and the Soviet Union (prior to recent reforms) represented opposite
ends along the spectrum of mixed economies. In practice, however, what we
call mixed economies generally have a higher degree of government inter-
vention than is found in the United States and a greater degree of reliance on
market forces than is found in the Soviet Union. Government intervention
can be regarded in two ways: actual government ownership of means of pro-
duction and government influence in economic decision making. Ownership
is easy to quantify statistically, but since influence is a matter of policy and
custom, it is difficult to measure precisely.
Many industrial countries such as Germany and Sweden have relatively
low levels of government ownership but a strong tradition of social welfare.
The United Kingdom also has a strong welfare system supported by taxes,
although the government is involved more heavily in corporate ownership
than the Swedish and German governments are.
Sometimes, the role of government in the economy can cause some se-
rious problems. In 1990, Faul Gardini, the chairman of Ferruzzi Finanziaria
S.p.A., the second-largest private company in Italy, resigned. One of his com-
panies, Montedison, had formed a joint venture in chemical production with
E.N.I., the state-controlled energy company. Montedison tried to cut costs by
selling unprofitable plants and laying off workers, while E.N.I, was hesitant
to cut workers because of likely political ramifications. When Gardini decided
that it was impossible for him to make market-oriented decisions in a political
environment, he quit.15
Another illustration of state intervention is found in Japan, a nation
often called "Japan, Inc." At the close of World War II, Japan, unlike many
countries, such as France and Italy, decided to leave investment in the private
sector rather than nationalizing key sectors and industries. Japanese policy-
makers focused more on setting targets and using fiscal incentives to direct
investment flows. The Ministry of International Trade and Industry (MITI)
was organized to guide industrial development through "strategic planning
and authority (both formal and informal) over investment and production
priorities."
MITI seemed to be more concerned with developing a vision than with
setting up a blueprint for the economy. During MITI's early years in the 1950s
and 1960s, a policy of protectionism was invoked so that industries could
achieve economies of scale free of outside competition. During the 1960s
however, MITI implemented selective liberalization that involved MITI-in-
spired industrial reorganizations. These reorganizations led to the creation of
industries, such as automobiles and steel, that became formidable world com-
petitors. Structural adjustment to the oil price increase of the 1970s was also
inspired and encouraged' by MITI as it forced companies to become more
energy efficient.
Two indicators of the role of government in capitalist societies are centra!
government disbursements and revenues as a percentage of gross national
product. Figure 2.3 compares data from several countries. Note the wide di-
vergence among countries, with Japan showing the lowest percentages and
the Netherlands the highest. As noted earlier, however, Japan's influence in
the economy extends beyond actual expenditures.
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