Review and Response to
Erik Dahmen’s Essay "Does the Mixed Economy Have a Future?"

 from "Sweden: Choices for Economic and Social Policy in the 1980s", edited by Bengt Ryden and Villy Bergstrom, George Allen & Unwin (publisher), London, 1982

 by James Denham, April 2002

Erik Dahmen, in his essay Does the Mixed Economy Have a Future? discusses problems that face western economies and what the future holds for them. His primary question asks whether or not mixed economies (defined as any western economy, since pure capitalism does not exist) will last much longer.
In addressing this question, Dahmen lists various problems facing such economies, describing the 1970s as the crucial turning point when economies world-wide began to show signs of stagnation or even failure. The only country used as an example is Sweden, but Dahmen more often refers to twentieth century capitalist economies in general. Dahmen refers to the period between World War II and 1965 as an easy era, when so-called “mixed economies” thrived on the global economic boom. Although this era spans two decades he still considers it an insufficient time period to assess the pros and cons of a mixed economy as there were few or no shocks to the economy at this time. The developed world was busy rebuilding after WWII and this demand-led economy took care of itself. During the mid-sixties, however, the business cycle finally “kicked in” and so began the ultimate test for mixed economies.
To begin his essay Dahmen chronicles the rise of the mixed economy. In the late nineteenth and early twentieth centuries most of the economies encompassed by our discussion were nearly pure capitalist societies. After excessive worker exploitation at the hands of industry leaders the middle and lower classes banded together forming unions, federations, and other anti-capitalist organizations. The resulting strikes and labor disputes resulted in a change in economic and political systems. That is what motivates Dahmen to conclude “the system [pure capitalism] fell victim to the rise in economic standards it had generated.” Popular demand brought about changes such as tax brackets, subsidies, and other welfare programs. These programs themselves will, Dahmen claims, one day spell the death of mixed markets. The ever increasing demand by workers for government-provided benefits and subsidies, coupled with their unwillingness to pay tax rates necessary to fund such benefits, will eventually end the economy as we know it.
The main fault that Dahmen cites as a reason for questioning the future of mixed markets is the government’s inability to address the needs of its people. In the case of Sweden, Dahmen points out that “demands for leisure increased, labour input declined”. Sweden was, and still is to a lesser extent, a very socialist country and boasts a multitude of welfare programs, societies and other state-sponsored agencies that are charged with helping improve Swedes’ lifestyles. As Swedish technical innovation improved and more demands were made, the Swedish government found itself spending more and more.
The only way to fund its various programs was to increase taxes to unparalleled rates, even for middle income families. Dahmen discusses how Swedes (and the people of any country with high taxes) go about avoiding them: “Many people, moreover, are quite successful at avoiding taxes altogether: there are thousands of tricks, many of them quite inventive.” To give an example, one popular method is the use of barter instead of monetary transactions. Instead of exchanging money, a transaction which is taxable, people will simply trade goods. This leads us back to Introductory economics with the question isn’t it too difficult to find someone who wants what you have to give and vice versa? The answer is yes, but it sure beats having to pay sky high taxes.
 Dahmen proceeds to connect the dots all the way to economic failure: Such high tax brackets will induce tax evasion, which leads to the government’s cheapest (and historically most popular) counter-measure: inflation. And at the end of the day, inflation is simply bad. It is inefficient and causes everyone to lose, and, most importantly, will not win an election for the ruling party.
Dahmen is careful not to overstep his bounds in predicting the future for western mixed economies. He begins by noting that change does not come quick and that for the foreseeable future (five to ten years) there will be no significant change in the economy. He proceeds to point out that the current state of the economy, with its business cycles, is inefficient as “today’s ‘mix’ does not take full advantage of the best opportunities offered by either system.”
Dahmen draws his conclusion with two options, each stunted by a giant question mark. He admits that the future is impossible to predict, but intimates his predictions: the economy will either shift to capitalism after the government fails to satisfy the demands of the workers, or (and a more likely option too) the government, spurred on by workers’ demands, will try to tighten its grip on the economy. If profit sharing between employers and employees continues to grow then there will be ever increasing pressure on the government to contain and smooth the business cycle in order to stabilize workers’ incomes. This will usher in an era marked by unparalleled government regulation in an attempt to control and stabilize everything, possibly leading so far as to reach socialist or communist levels of control.
 Upon considering Dahmen’s essay I am split between two assessments: On one side, Sweden, beginning in the 1980s, began to reduce government interference in day to day life. Relative to other western countries the Swedish government is still very visible through its various welfare programs, but there has been a reduction in the government’s role.
On the other hand, we have other western countries which are becoming more and more active in the economy. Take for example the recent Enron debacle. Each time another Enron fiasco occurs the government interferes and patches up the hole that allowed such a crisis to happen with legislative measures. Although both major US parties have, over the past decade, based their platform on the assumption that big government is bad, we continue to see steadily increasing government intervention. In this sense Dahmen is correct: Be it anti-trust legislation, SEC regulation, or even the Homeland Security Department, there is a growing presence of the Federal Government.
 Dahmen in fact hits the nail on the head when he observes that government interference will continue to grow because each time someone feels they are not having their cake and eating it too they will go whining to the government for tariffs, subsidies or other measures to ensure their relative prosperity. I believe that if nothing else, the rising global conscience for the general well-being of others will force many governments to interfere in natural cycles in an attempt to stabilize everything and prevent loss caused by circumstances outside of one’s control. Although this is a very nice and fuzzy thought, I do not think it is a possibility given the structure of today’s capitalist democracies. Alas, we will just have to wait and see.