The mixed economy describes an economic system combining private ownership and market allocation with significant state intervention, public ownership, and welfare provision. The post-war welfare states of Western Europe — the British NHS and National Insurance, the German social market economy, the Scandinavian social democratic model — were the most developed expressions of the mixed economy ideal.

The post-war settlement

Between 1945 and the mid-1970s, Western European governments broadly accepted a Keynesian model of economic management: the state would use fiscal policy to manage demand, maintain full employment, and provide a welfare safety net. This ‘post-war settlement’ or ‘embedded liberalism’ rested on a political compromise between capital and labour: workers would accept capitalism’s basic structures; capitalists would accept the welfare state and trade union rights. The Attlee government’s welfare reforms, the National Health Service, and the nationalisation of key industries were the British version of this settlement.

Its erosion

The post-war settlement broke down in the 1970s under the combined pressures of stagflation (simultaneous inflation and unemployment, which Keynesian theory could not easily handle), the oil shocks of 1973 and 1979, and the political mobilisation of neoliberal ideas through think tanks, the Republican Party in the US, and the Conservative Party in Britain. Thatcher and Reagan explicitly challenged the settlement’s premises, arguing that the state had overreached and that markets should be freed from welfare and regulatory constraints.

Further reading: Keynesianism · Social Democracy · Neoliberalism
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