INTERNATIONAL BUSINESS & TRADE

Module 3: Different Strokes …. Political and Economic

Systems around the Globe

LEARNING OUTCOMES
Students will be able to:
 Identify and explain the different political systems around
the globe
 Identify and compare market, command and mixed
economies
 Summarize the characteristics of political structures

Free-Enterprise

A free-enterprise system is based on private ownership as the means of

production.

Terms
 Laissez-faire:  A policy of governmental non-interference in economic
affairs.
 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. Most mixed economies can
be described as market economies with strong regulatory oversight, in
addition to having a variety of government-sponsored aspects.
 State capitalism:  The term state capitalism has various meanings, but is
usually described as commercial (profit-seeking) economic activity
undertaken by the state with management of the productive forces in a
capitalist manner, even if the state is nominally socialist. State capitalism is
usually characterized by the dominance or existence of a significant number
of state-owned business enterprises.
Examples
 China is seen as the primary example of a successful state capitalist system.
Political scientist Ian Bremmer describes China as the primary driver for the
rise of state capitalism as a challenge to the free market economies of the
developed world, particularly in the aftermath of the 2008 financial crisis. 
Bremmer states, “In this system, governments use various kinds of state-
owned companies to manage the exploitation of resources that they
consider the state’s crown jewels and to create and maintain large numbers
of jobs. They use select privately owned companies to dominate certain
economic sectors. They use so-called sovereign wealth funds to invest their
extra cash in ways that maximize the state’s profits. In all three cases, the
state is using markets to create wealth that can be directed as political
officials see fit. And in all three cases, the ultimate motive is not economic
(maximizing growth) but political (maximizing the state’s power and
the leadership’s chances of survival). This is a form of capitalism but one in
which the state acts as the dominant economic player and uses markets
primarily for political gain. “
Free-Enterprise Defined 

The definition of free enterprise is a business governed by the laws of supply and
demand, where the government has no involvement in its decisions or actions.
This economic system is based solely on private ownership as the means of
production.

It is a private system in which all means of production are privately owned and
operated.

Link to Capitalism

This is an example of capitalism in which government policies generally target the

regulation and not the money.

Capitalism is generally considered to be an economic system that is based on

private ownership of the means of production and the creation of goods or
services for profit by privately-owned business enterprises.

Some have also used the term as a synonym for competitive markets, wage labor,
capital accumulation, voluntary exchange, and personal finance. The designation
is applied to a variety of historical cases, varying in time, geography, politics, and
culture.

Variations of Capitalism

There are multiple variants of capitalism, including laissez faire, mixed economy,
and state capitalism. There is, however, a general agreement that capitalism
became dominant in the Western world following the demise of feudalism.

Economists, political economists, and historians have taken different perspectives

on the analysis of capitalism. Economists usually emphasize the degree to which
government does not have control over markets (laissez faire), as well as the
importance of property rights.

Most political economists emphasize private property as well, in addition to

power relations, wage labor, class, and the uniqueness of capitalism as a historical
formation.

The extent to which different markets are free, as well as the rules defining
private property, is a matter of politics and policy. Many states have what are
termed mixed economies, referring to the varying degree of planned and market-
driven elements in a state’s economic system.

A number of political ideologies have emerged in support of various types of

capitalism, the most prominent being economic liberalism.

Capitalism gradually spread throughout the Western world in the 19th and

20th centuries.
Socialism is characterized by social ownership of the means of production.

Terms
 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.
 Planned economy:   An economic system in which government directly
manages supply and demand for goods and services by controlling
 production, prices, and distribution in accordance with a long-
term design and schedule of objectives.
Examples
 There are few clear examples of purely socialist economies; nonetheless,
many of the industrialized countries of Western Europe experimented with
one form of social democratic mixed economies or another during the
twentieth century, including Britain, France, Sweden, and Norway. They can
be regarded as social democratic experiments, because they universally
retained a wage-based economy and private ownership and control of the
decisive means of production. Variations range from social democratic
welfare states, such as in Sweden, to mixed economies where a major
percentage of GDP comes from the state sector, such as in Norway, which
ranks among the highest countries in quality of life and equality of
opportunity for its citizens.
Planned Economy

A planned economy is a type of economy consisting of a mixture of public

ownership of the means of production and the coordination of production and
distribution through state planning.

Planned Socialist Economy

Economic planning in socialism takes a different form than economic planning in
capitalist mixed economies. In socialism, planning  refers to production of use-
value directly (planning of production), while in capitalist mixed economies,
planning refers to the design of capital accumulation in order to stabilize or
increase the efficiency of its process. While many socialists advocate for economic
planning as an eventual substitute for the market for factors of production, others
define economic planning as being based on worker-self management, with
production being carried out to directly satisfy human needs. Enrico Barone
provided a comprehensive theoretical framework for a planned socialist
economy. In his model, assuming perfect computation techniques, simultaneous
equations relating inputs and outputs to ratios of equivalence would provide
appropriate valuations in order to balance supply and demand.

Hierarchy of Needs
Worker self-management and production to satisfy human needs are key.
 

The command economy is distinguished from economic planning. Most notably, a

command economy is associated with bureaucratic collectivism, state capitalism,
or state socialism.

Socialism

Socialism is an economic system characterized by social ownership, control of the

means of production, and cooperative management of the economy. A socialist
economic system would consist of an organization of production to directly satisfy
economic demands and human needs, so that goods and services would be
produced directly for use instead of for private profit driven by the accumulation
of capital. Accounting would be based on physical quantities, a common physical
magnitude, or a direct measure of labor-time. Distribution of output would be
based on the principle of individual contribution.

There are many variations of socialism and as such there is no single definition
encapsulating all of socialism. They differ in:

 The type of social ownership they advocate;

 The degree to which they rely on markets versus planning;
 How management is to be organised within economic enterprises; and
 The role of the state in constructing socialism.

The Disadvantages of Socialism

Despite the theoretical benefits of socialist economic systems, there are also
disadvantages that may arise in application.

Terms
 Economy:   The system of production and distribution and consumption.
The overall measure of a currency system.
 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.
Examples
 Austrian school economists, such as Friedrich Hayek and Ludwig Von Mises,
have argued that the elimination of private ownership of the means of
production would inevitably create worse economic conditions for the
general populace than those that would be found in market economies.
Without the price signals of the market, they state that it is impossible to
calculate rationally how to allocate resources.
The Disadvantages of  Socialism

Economic liberals and pro-capitalist libertarians see private ownership of the

means of production and the market exchange as natural entities or moral rights
which are central to their conceptions of freedom and liberty. They, therefore,
perceive public ownership of the means of production, cooperatives and
economic planning as infringements upon liberty. Some of the primary criticisms
of socialism are claims that it creates distorted or absent price signals, results in
reduced incentives, causes reduced prosperity, has low feasibility, and that it has
negative social and political effects.

Critics from the neoclassical school of economics criticize state-ownership and

centralization of capital on the grounds that there is a lack of incentive in state
institutions to act on information as efficiently as capitalist firms because they
lack hard budget constraints, resulting in reduced overall economic welfare for
society. Economists of the Austrian school argue that socialist systems based on
economic planning are unfeasible because they lack the information to perform
economic calculations in the first place, due to a lack of price signals and a free-
price system, which they argue are required for rational economic calculation.

Thus, Socialism can have several disadvantages:

SocialismSome of the primary criticisms of socialism are claims that it creates

distorted or absent price signals, results in reduced incentives, causes reduced
prosperity, has low feasibility, and that it has negative social and political effects.
 The national economy develops relatively slowly;
 There is an inability to obtain the upmost profit from the use of resources,
labors and land;
  Places that have a geographical advantage lose chances to develop better
and people who have intelligence and wealth lose chances to make their
businesses become bigger and more powerful;
 People lose initiative to work and enthusiasm to study as doing more isn’t
rewarded.

The Communist Economic System

The communist economic system is one where class distinctions are eliminated
and the community as a whole owns the means to production.

Terms
 Proletariat:  The proletariat (from Latin proletarius, a citizen of the lowest
class) is a term used to identify a lower social class, usually the working class;
a member of such a class is proletarian. Originally it was identified as those
people who had no wealth other than their children.
 Bourgeoisie:  In sociology and political science, bourgeoisie (Fr.:
[buʁ.ʒwa’zi] | Eng.: /bʊrʒwɑziː/) and the adjective bourgeois are terms that
describe a historical range of socio-economic classes. Since the late 18th
century in the Western world, the bourgeoisie describes a social class that is
characterized by their ownership of capital and their related culture. In
contemporary academic theories, the term bourgeoisie usually refers to the
ruling class in capitalist societies. In Marxist theory, the abiding
characteristics of this class are their ownership of the means of production.
 Command economy:  Most of the economy is planned by a central
government authority and organized along a top-down administration
where decisions regarding production output requirements and investments
are decided by planners from the top, or near the top, of the chain of
command.
Examples
 The former USSR (or Soviet Union) is the typical example of a communistic,
command economy. It was formed in 1922 by the Bolshevik party of the
former Russian Empire. In 1928, Joseph Stalin achieved party leadership and
introduced the first Five Year Plan, ending the limited level of capitalism that
 still existed. In 1991, under Mikhael Gorbachev, the Soviet Union was
dissolved.
 A modern day example is China, particularly in the 70s, 80s and 90s. Today,
China is seen to be more of an authoritarian capitalist rather than
communistic command economy.
The Communist Economic System

A communist economic system is an economic system where, in theory, economic

decisions are made by the community as a whole. In reality, however, attempts to
establish communism have ended up creating state-driven authoritarian
economies and regimes which benefit single party political élite who are not
accountable to the people or community.

Communist theory was developed by a German philosopher in the 1800s named

Karl Marx . He thought that the only way to have a harmonious society was to put
workers in control. This idea was established during the Industrial Revolution
when many workers were treated unfairly in France, Germany, and England.

Communist Ideology
The Hammer and Sickle represents the communion of the peasant and the
worker.

Marx did not want there to be a difference in economic classes and he wanted
class struggle to be eliminated. His main goal was to abolish capitalism (an
economic system ruled by private ownership). Marx abhorred capitalism because
the proletariat was exploited and unfairly represented in politics, and because
capitalism allows the bourgeoisie to control a disproportionate amount of power.
Therefore, he thought that if everything was shared and owned by everyone, a
worker’s paradise or Utopia could be achieved.

Together with Friedrich Engel, a German economist, Marx wrote a pamphlet

called the Communist Manifesto. This was published in 1848 and it expressed
Marx’s ideas on communism. However, it was later realized that communism did
not work. Most interpretations or attempts to establish communism have ended
up creating state-driven authoritarian economies and regimes which benefit
single party political élite who are not accountable to the people at all.

Command Planned Economy

An economy characterized by Command Planning is notable for several

distinguishing features:

1. Collective or state ownership of capital: capital resources such as money,

property and other physical assets are owned by the State. There is no (or
very little) private ownership.
2. Inputs and outputs are determined by the State: the State has an elaborate
planning mechanism in place that determines the level and proportions of
inputs to be devoted to producing goods and services. Local planning
authorities are handed 1 year, 5 year, 10 year or, in the case of China, up to
25-year plans. The local authorities then implement these plans by meeting
with State Owned Enterprises, whereby further plans are developed specific
to the business. Inputs are allocated according to the plans and output
targets are set.
3. Labor is allocated according to state plans: in a command planning
economy, there is no choice of profession; when a child is in school (from a
very early age), a streaming system allocates people into
designated industries.
4. Private ownership is not possible: under a command planning system an
individual cannot own shares, real estate, or any other form of physical or
non-physical asset. People are allocated residences by the State.
5. Prices and paying for goods and services: prices are regulated entirely by
the State with little regard for the actual costs of production. Often a
currencydoes not exist in a command planning economy and when it does,
its main purpose is for accounting. Instead of paying for goods and services
when you need to buy them, you are allocated goods and services. This is
often also called rationing.

In western democratic and capitalist societies, the price mechanism is a

fundamental operator in allocating resources. The laws of demand and supply
interact, the price of goods (and services) send signals to producers and
consumers alike to determine what goods and quantities are produced, and helps
determine what the future demands and quantities will be.

The law of demand states that the higher the price of a good or service, the less
the amount of that good or service will be consumed. In other words, the quantity
of a good or service demanded, rises when the price falls and falls when the price
increases.

The Benefits of Communism

Communism ideology supports widespread universal social welfare, including

improvements in public health and education.

Terms
 Communism:  A political philosophy or ideology advocating holding the
production of resources collectively
 Antithetic:   Diametrically opposed.
 Bourgeois:   Of or relating to capitalist exploitation of the proletariat.
 Proletariat:   The working class or lower class.
Examples
 In theory, Communism seems to have some very desirable characteristics.
In practice, however, it has many drawbacks, and historically it seems that
only the most corrupt members of Communist governments have gained
advancement within systems. When a system depends on an entire
community but is controlled by a few corrupt bureaucrats, it cannot be
successful.
 However, this is not to say that state run enterprises in certain areas are a
bad idea. Publicly-owned utilities such as water, electricity, and
postal services have proven to be beneficial in countries, even when no
communist system exists.
The Benefits of Communism

Theoretically, there are many benefits that can be achieved through a communist
society. Communist ideology supports widespread universal social welfare.
Improvements in public health and education, provision of child care, provision of
state-directed social services, and provision of social benefits will, theoretically,
help to raise labor productivity and advance a society in its development.
Communist ideology advocates universal education with a focus on developing
the proletariat with knowledge, class consciousness, and historical understanding.
Communism supports the emancipation of women and the ending of their
exploitation. Both cultural and educational policy in communist states have
emphasized the development of a “New Man”—a class-conscious,
knowledgeable, heroic, proletarian person devoted to work and social cohesion,
as opposed to the antithetic “bourgeois individualist” associated with cultural
backwardness and social atomization.

Other theoretically beneficial ideas characteristic of communist societies include:

1. People are equal. In a communist regime, people are treated equally in the
eyes of the government regardless of education, financial standing, et
cetera. Economic boundaries don’t separate or categorize people, which can
help mitigate crime and violence.
2. Every citizen can keep a job. In a communist system, people are entitled to
jobs. Because the government owns all means of production, the
government can provide jobs for at least a majority of the people. Everyone
in a communist country is given enough work opportunities to live and
survive. Every citizen, however, must do his or her part for the economy to
receive pay and other work benefits.
3. There is an internally stable economic system. In communism, the
government dictates economic structure; therefore, economic instability is
out of the question. Every citizen is required to work in order to receive
benefits, and those who don’t have corresponding sanctions. This creates
an incentive to participate and to encourage economic growth.
4. Strong social communities are established. In communism, there are certain
laws and goals which determine resource and responsibility allocation. If the
citizens abide by these laws, this leads to a harmonious spirit of sharing one
goal. Consequently, this builds stronger social communities and an even
stronger economy.
5. Competition doesn’t exist. In communist societies, everyone can work
harmoniously without stepping on each other’s toes. Work, responsibility,
and rewards are shared equally among the citizens. If people have no sense
of envy, jealousy or ambitions that counter the goals of the state, then a
harmonious economic development can be maintained.
 6. Efficient distribution of resources. In a communist society, the sense of
cooperation allows for efficiency in resource distribution. This is very
important, especially in times of need and in emergency situations. 

The Disadvantages of Communism

Businesses under Communist system have very strict limitations as to what they
can and cannot do, which can hamper productivity and innovation.

Term
 Price mechanism:  An economic term that refers to the buyers and sellers
who negotiate prices of goods or services depending on demand and supply.
A price mechanism or market-based mechanism refers to a wide variety of
ways to match up buyers and sellers through price rationing.
Example
 Ho Chi Minh raised a guerrilla army in Vietnam, promising them a Utopian
communist future of rule by the people and a communal country. However,
what transpired was a nation ruled by corrupt Party officials, with
no rights or civil liberty. The theory peddled by Ho Chi Minh was far removed
from the practice of Communism once he was successfully elected. There
are many other examples of how Communism has failed the people of a
country. Whether this is down simply to corrupt leaders, or to a deeper flaw
in the nature of Communism is a subject debated by many scholars .
Disadvantages of Communism

The economic and political system of Communism effectively dictates what can
and cannot be done in the realm of business. There are defined limitations for the
amount a business can produce and how much money it can earn.

In addition to directly controlling the means of production, Communism places

strict rules as to how businesses operate in such a way that a classless society is
born. No matter what field a business specializes in, the same amount of funds
will be allocated to each, and each worker will receive the same amount of
money. This can cause emotional unrest between workers who wish to be
specially recognized for their work. It can serve to create uncomfortable
conditions for workers in a society without rank or varying specialty. Finally, it can
be stifling to entrepreneurial spirit, which is key to a country’s economic growth
and development. The U.S., a capitalistic nation, has greatly benefited from that
small business and entrepreneurial atmosphere, a backdrop for the American
dream.

More specifically, in Communism:

 The government owns all the businesses and properties (the means of
production).
 There is no freedom of speech.
 Large or geographically-broad populations tend to be diverse, making it
difficult to maintain a common goal or set of rules for shared effort
andresources.
 Central planning is difficult to achieve.
 Consumers needs are not taken into consideration.
 Productivity and efficiency are difficult to achieve without profit motive for
the workers.
 It is difficult to achieve internal balances between supply and demand
without a price mechanism.

The Kremlin
Only the government has a say in production planning under a Communist
system.
Mixed Economies

A Mixed Economy exhibits characteristics of both market and planned

economies, with private and state sectors providing direction.

Terms
 Mixed economy:  An economic system in which both the state and private
sector direct the economy, reflecting characteristics of
both market economies and planned economies.
 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.
 Mixed economies:   a system in which both the state and private sector
direct the way goods and services are bought and sold.
 Keynesian economics:  The group of macroeconomic schools of thought
based on the ideas of 20th-century economist John Maynard Keynes.
Advocates of Keynesian economics argue that private sector decisions
sometimes lead to inefficient macroeconomic outcomes that require active
policy responses by the public sector, particularly monetary policy actions by
the central bank and fiscal policy actions by the government to stabilize
output over the business cycle.
Examples
 The American School (also known as the National System) is the economic
philosophy that dominated United States national policies from the time of
the American Civil War until the mid-twentieth century, and is an example of
a mixed economy. It consisted of a three core policy initiative:
protecting industry through high tariffs (1861–1932),
government investment in infrastructure through internal improvements,
and a national bank to promote the growth of productive enterprises. During
this period the United States grew into the largest economy in the world,
surpassing the UK (though not the British Empire) by 1880.
 Dirigisme is an economic policy initiated under Charles de Gaulle of France
designating an economy where the government exerts strong directive
influence. It involved state control of a minority of the industry, such as
transportation, energy and telecommunication infrastructures, as well as
various incentives for private corporations to merge or engage in certain
 projects. Under its influence, France experienced what is called Thirty
Glorious Years of profound economic growth.
 Social market economy is the economic policy of modern Germany that
steers a middle path between the goals of socialism and capitalism within
the framework of a private market economy and aims at maintaining a
balance between a high rate of economic growth, low inflation, low levels of
unemployment, good working conditions, public welfare and public services
by using state intervention.

Mixed Economies

What is a Mixed Economy?

A 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. Most mixed economies can be described as market
economies with strong regulatory oversight, in addition to having a variety of
government-sponsored aspects .

A mail truck
Restrictions are sometimes placed on private mail systems by mixed economy
governments. For example, in the United States, the USPS enjoys a government
monopoly on non-urgent letter mail as described in the Private Express Statutes.

While there is not one single definition for a mixed economy, the definitions
always involve a degree of private economic freedom mixed with a degree of
government regulation of markets.

The Plan Behind a Mixed Economy

The basic plan of the mixed economy is that:

 The means of production are mainly under private ownership;

 Markets remain the dominant form of economic coordination; and
  Profit-seeking enterprises and the accumulation of capital would remain
the fundamental driving force behind economic activity. However, the
government would wield considerable indirect influence over the economy
through fiscal and monetary policies designed to counteract economic
downturns and capitalism’s tendency toward financial crises and
unemployment, along with playing a role in interventions that promote
social welfare. Subsequently, some mixed economies have expanded in
scope to include a role for indicative economic planning and/or large public
enterprise sectors.

The relative strength or weakness of each component in the national economy

can vary greatly between countries. Economies ranging from the United States to
Cuba have been termed mixed economies. The term is also used to describe the
economies of countries which are referred to as welfare states, such as Norway
and Sweden.

What Do Governments Provide?

Governments in mixed economies often provide:

 Environmental protection,
 Maintenance of employment standards,
 A standardized welfare system, and
 Maintenance of competition.
Who Supports the Ideal of Mixed Economies?

As an economic ideal, mixed economies are supported by people of various

political persuasions, typically center-left and center-right, such as social
democrats or Christian democrats. Supporters view mixed economies as a
compromise between state socialism and laissez-faire capitalism that is superior
in net effect to either of those.

Keynesian economics advocates a mixed economy — predominantly private

sector, but with a significant role of government and public sector. It also served
as the economic model during the later part of the Great Depression, World War
II, and the post-war economic expansion (1945–1973), though it lost some
influence following the tax surcharge in 1968 and the stagflation of the 1970s. The
advent of the global financial crisis in 2008 has caused a resurgence in Keynesian
thought.

The Benefits of Mixed Economies

A mixed economy allows private participation in production while ensuring that

society is protected from the full swings of the market.

Terms
 Monopoly:  An exclusive control over the trade or production of a
commodity or service through exclusive possession.
 Social Security:  A system whereby the state either through general or
specific taxation provides various benefits to help ensure the well-being of
its citizens.
 Protectionism:  A policy of protecting the domestic producers of a product
by imposing tariffs, quotas or other barriers on imports.
Examples
 The US economy is best described as a mixed economy, because even
though it strongly advocates free market principles, it relies on the
government to deal with matters that the private sector overlooks, ranging
from education to the environment. The government has also helped
nurture new industries and has played a role in protecting American
companies from competition abroad. An example of this is the heavily
subsidized agriculture industry in the US. Overall, the US has benefited from
this combination.
Overview: The Advantages of a Mixed Economy

A mixed economy permits private participation in production, which in return

allows healthy competition that can result in profit. It also contributes to public
ownership in manufacturing, which can address social welfare needs.

Marketplace
Private investment, freedom to buy, sell, and profit, combined with economic
planning by the state, including significant regulations (e.g. wage or price
controls), taxes, tariffs, and state-directed investment.
 

The advantage of this type of market is that it allows competition between

producers with regulations in place to protect society as a whole. With the
government being present in the economy it brings a sense of security to sellers
and buyers. This security helps maintain a stable economy.

Overall, businesses, as well as consumers, in mixed economies have freedoms

that are important to both. And while government is actively involved and
provides support, its control is limited, which is good for structure.

The Details: The Advantages of a Mixed Economy

 In a mixed economy, private businesses can decide how to run their
businesses (e.g. what to produce, at what price, who to employ, etc.).
 Consumers also have a choice in what they want to buy.
 In this system, there is also less income inequality.
 Monopolies, market structures that are the only producer of a certain
product, are allowed under government watch so they do not make it
impossible for entrepreneurs in the same industry to succeed.

More specifically:

The elements of a mixed economy have been demonstrated to include a variety

of freedoms:

 to possess means of production (farms, factories, stores, etc.)

 to participate in managerial decisions (cooperative and participatory
economics)
 to travel (needed to transport all the items in commerce, to make deals in
person, for workers and owners to go to where needed)
 to buy (items for personal use, for resale; buy whole enterprises to make
the organization that creates wealth a form of wealth itself)
 to sell (same as buy)
 to hire (to create organizations that create wealth)
 to fire (to maintain organizations that create wealth)
  to organize (private enterprise for profit, labor unions, workers’ and
professional associations, non-profit groups, religions, etc.)
 to communicate (free speech, newspapers, books, advertisements, make
deals, create business partners, create markets)
 to protest peacefully (marches, petitions, sue the government, make laws
friendly to profit making and workers alike, remove pointless inefficiencies
to maximize wealth creation).

They provide tax-funded, subsidized, or state-owned factors of production,

infrastructure, and services:

 libraries and other information services

 roads and other transportation services
 schools and other education services
 hospitals and other health services
 banks and other financial services
 telephone, mail, and other communication services
 electricity and other energy services (e.g. oil, gas)
 water systems for drinking, agriculture, and waste disposal
 subsidies to agriculture and other businesses
 government-granted monopoly to otherwise private businesses
 legal assistance
 government-funded or state-run research and development agencies

Such governments also provide some autonomy over personal finances, but

include involuntary spending and investments, such as transfer payments and
other cash benefits, including:

 welfare for the poor

 social security for the aged and infirm
 government subsidies to business
 mandatory insurance (e.g. automobile)
They also impose regulation laws and restrictions that help society as a whole,
such as:

 environmental regulation (e.g. toxins in land, water, air)

 labor regulation, including minimum wage laws
 consumer regulation (e.g. product safety)
 antitrust laws
 intellectual property laws
 incorporation laws
 protectionism
 import and export controls, such as tariffs and quotas
 taxes and fees written or enforced with manipulation of the economy in
mind

The Disadvantages of Mixed Economies

The disadvantages of mixed economies can be understood through examining

criticisms of social democracy.

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.

References:

Lumen Learning: International Business –

https://courses.lumenlearning.com/suny-internationalbusiness/