MARKET_SOCIALISM

1. Market socialism Class lecture 15.10.2014

2. Market socialism is a type of economic system where the means of production are either publicly owned or socially owned as cooperativesand operated in a market economy. • This differs from non-market socialism in that a market exists for allocating capital goods and the means of production. There are many models of market socialism.

3. Depending on the specific model, profits generated by socially-owned firms may variously be used to directly remunerate employees, accrue to society at large as the source of public finance, or be distributed amongst the population in a social dividend. • Although models of socialism involving factor markets have existed since the early 19th century, the term "market socialism" only emerged in the 1920s during the Socialist calculation debate.

4. Market socialism is distinguished from the concept of the mixed economy, because unlike the mixed economy, models of market socialism are complete and self-regulating systems. • Market socialism is also contrasted with social democratic policies implemented within capitalist market economies: while social democracy aims to achieve greater economic stabilityand equality through policy measures such as taxes, subsidies and social welfare programs; market socialism aims to achieve similar goals through changing patterns of enterprise ownership and management.

5. Early models of market socialism trace their roots to the works of Adam Smith and the theories of classical economics. • These consisted of proposals for cooperative enterprises operating in a free-market economy with the aim of eliminating exploitation by allowing individuals to receive the full product of their labour while removing the market-distorting effects of concentrating ownership and wealth in the hands of private owners. • Among early advocates of market socialism were Ricardian socialisteconomists and mutualist philosophers.

6. Beginning in the early twentieth century, neoclassical economic theory provided the theoretical basis for more comprehensive models of market socialism. Early neoclassical models of socialism included a role for a central planning board (CPB) in setting prices equal marginal costto achieve Pareto efficiency. • Even though these early models did not rely on genuine markets, they were labeled "market socialist" for their utilization of financial prices and calculation.

7. Alternative outlines for market socialism involve models where socially owned enterprises or producer co-operatives operate within free markets under the criterion of profitability. • In recent models proposed by American neoclassical economists, public ownership of the means of production is achieved through public ownership of equity and social control of investment.

8. Market socialism has also been used to refer to reformed economic systems in Marxist-Leninist states most notably in reference to the contemporary economy of the People's Republic of China, where a free price system is used for the allocation of capital goods in both the state and private sectors.

9. However, Chinese political and economic proponents of the "socialist market economy’ do not consider it to be a form of market socialism in the neoclassical sense, and many Western economists and political scientists question the degree to which this model constitutes a form of market socialism, often preferring to describe it as "state capitalism”

10. Socialism with Chinese Characteristics Socialism with Chinese characteristics and Socialist market economy • Although similar in name, market socialism differs markedly from the "socialist market economy and "Socialist-oriented market economy models practiced in the contemporary People's Republic of Chinaand Socialist Republic of Vietnam, respectively. Officially these economic systems represent market economies that are in the long-term process of transition toward socialism.

11. Key differences between models of market socialism and the Chinese and Vietnamese models include the role of private investment in enterprises, the lack of a social dividend or basic income system to equitably distribute state profits among the population, and the existence and role of financial markets in the Chinese model - markets which are absent in the market socialist literature.

12. The Chinese experience with socialism with Chinese characteristics is frequently referred to as a "socialist market economy" where the "commanding heights" are state-owned, but a substantial portion of both the state and private sectors of economy are governed by free market practices, including a stock exchange for trading equity, and the utilization of indirect macroeconomic market mechanisms (i.e.: fiscal monetary and Industrial policies) to influence the economy in the same manner governments affect the economy in capitalist economies.

13. The free-market is the arbitrator for most economic activity, with economic planning being relegated to macro-economic government indicative planning that does not encompass the microeconomic decision-making that is left to the individual organizations and state-owned enterprises. This model includes a significant amount of privately owned firms that operate as a business for profit, but only for consumer goods and services.

14. In the Chinese system, directive planning based on mandatory output requirements and quotas were displaced by free-market mechanisms for most of the economy, including both the state and private sectors, although the government engages in indicative planning for large state enterprises.

15. In comparison with the Soviet-type planned economy, the Chinese socialist market model is based on the corporatization of state institutions, transforming them into joint-stock companies. As of 2008, there were 150 state-owned corporations directly under the central government. • These state-owned corporations have been reformed and become increasingly dynamic and a major source of revenue for the state in 2008,leading the economic recovery in 2009 during the wake of the global financial crises.

16. This economic model is defended from a Marxist perspective, which states that a planned socialist economy can only emerge after first developing the basis for socialism through the establishment of a market economy and commodity-exchange economy, and that socialism will only emerge after this stage has exhausted its historical necessity and gradually transforms itself into socialism. • Proponents of this model argue that the economic system of the former USSR and its satellite states attempted to go from a natural economy to a planned economy by decree, without passing through the necessary market economy phase of development.