Market socialism

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Market socialism is a type of economic system where the means of production are either publicly owned or socially owned as cooperatives and 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.12 There are many models of market socialism. 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.3 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.5 Market socialism is also contrasted with social democratic policies implemented within capitalist market economies: while social democracy aims to achieve greater economic stability and 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.6

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 labor, while removing the market-distorting effects of concentrating ownership and wealth in the hands of private owners.7 Among early advocates of market socialism were Ricardian socialist economists and mutualist philosophers.

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 cost to 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. 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.

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. 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,8 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".9

Theoretical history

Classical economics

The key theoretical basis for market socialism is the negation of the underlying expropriation of surplus value present in other, exploitative, modes of production. Socialist theories that favored the market date back to the Ricardian socialists and anarchist economists, who advocated a free-market combined with public ownership or mutual ownership of the means of production.

Proponents of early market socialism include the Ricardian socialist economists, the classical liberal philosopher John Stuart Mill, and the anarchist philosopher Pierre-Joseph Proudhon. These models of socialism entailed "perfecting" or improving the market-mechanism and free-price system by removing distortions caused by exploitation, private property, and alienated labor.

This form of market socialism has been termed "free-market socialism" because it does not involve planners.1011

Mutualism

Pierre-Joseph Proudhon developed a theoretical system called mutualism, which attacks the legitimacy of existing property rights, subsidies, corporations, banking, and rent. Proudhon envisioned a decentralized market where people would enter the market with equal power, negating wage slavery.12 Proponents believe that cooperatives, credit unions, and other forms of worker ownership would become viable without being subject to the state. Market socialism has also been used to describe some individualist anarchist works13 which argue that free markets help workers and weaken capitalists.

American anarchism

For American anarchist historian Eunice Minette Schuster "It is apparent ... that Proudhonian Anarchism was to be found in the United States at least as early as 1848 and that it was not conscious of its affinity to the Individualist Anarchism of Josiah Warren and Stephen Pearl Andrews ... William B. Greene presented this Proudhonian Mutualism in its purest and most systematic form.".14 Josiah Warren is widely regarded as the first American anarchist,15 and the four-page weekly paper he edited during 1833, The Peaceful Revolutionist, was the first anarchist periodical published,16 an enterprise for which he built his own printing press, cast his own type, and made his own printing plates.16 Warren was a follower of Robert Owen and joined Owen's community at New Harmony, Indiana. Josiah Warren termed the phrase "Cost the limit of price," with "cost" here referring not to monetary price paid but the labor one exerted to produce an item.17 Therefore, "[h]e proposed a system to pay people with certificates indicating how many hours of work they did. They could exchange the notes at local time stores for goods that took the same amount of time to produce.".15 He put his theories to the test by establishing an experimental "labor for labor store" called the Cincinnati Time Store where trade was facilitated by notes backed by a promise to perform labor. The store proved successful and operated for three years after which it was closed so that Warren could pursue establishing colonies based on mutualism. These included "Utopia" and "Modern Times." Warren said that Stephen Pearl Andrews' The Science of Society, published in 1852, was the most lucid and complete exposition of Warren's own theories.18 Later Benjamin Tucker fused the economics of Warren and Proudhon and published these ideas in Liberty calling them "Anarchistic-Socialism".19 Tucker said, "the fact that one class of men are dependent for their living upon the sale of their labour, while another class of men are relieved of the necessity of labour by being legally privileged to sell something that is not labour. . . . And to such a state of things I am as much opposed as any one. But the minute you remove privilege. . . every man will be a labourer exchanging with fellow-labourers . . . What Anarchistic-Socialism aims to abolish is usury . . . it wants to deprive capital of its reward.".19

Neoclassical economics

Early 20th Century

The earliest models of neoclassical socialism were developed by Leon Walras, Enrico Barone (1908)2021 and Oskar R. Lange (c. 1936).22 Lange and Fred M. Taylor (1929) 23 proposed that central planning boards set prices through "trial and error", making adjustments as shortages and surpluses occurred rather than relying on a free price mechanism. If there were shortages, prices would be raised; if there were surpluses, prices would be lowered.24 Raising the prices would encourage businesses to increase production, driven by their desire to increase their profits, and in doing so eliminate the shortage. Lowering the prices would encourage businesses to curtail production to prevent losses, which would eliminate the surplus. Therefore, it would be a simulation of the market mechanism, which Lange thought would be capable of effectively managing supply and demand.25

Although the Lange-Lerner model was often labelled as "market socialism", it is better described as "market simulation" because factor markets did not exist for the allocation of capital goods. The objective of the Lange-Lerner model was explicitly to replace markets with a non-market system of resource allocation.26

H. D. Dickinson published two articles proposing a form of market socialism: "Price Formation in a Socialist Community" (The Economic Journal 1933) and "The Problems of a Socialist Economy" (The Economic Journal 1934). Dickinson proposed a mathematical solution whereby the problems of a socialist economy could be solved by a central planning agency. The central agency would have the necessary statistics on the economy, as well as the capability of using statistics to direct production. The economy could be represented as a system of equations. Solution values for these equations could be used to price all goods at marginal cost and direct production. Hayek (1935) argued against the proposal to simulate markets with equations. Dickinson (1939) adopted the Lange-Taylor proposal to simulate markets through trial and error.

The Lange-Dickinson version of market socialism kept capital investment out of the market. Lange (1926 p65) insisted that a central planning board would have to set capital accumulation rates arbitrarily. Lange and Dickinson saw potential problems with bureaucratization in market socialism. According to Dickinson "the attempt to check irresponsibility will tie up managers of socialist enterprises with so much red tape and bureaucratic regulation that they will lose all initiative and independence" Dickinson 1938 p214). In the Economics of Control (1944) Abba Lerner admitted that capital investment would be politicized in market socialism.

Late 20th Century

Economists active in the former Yugoslavia, including Czech-born Jaroslav Vanek and Croat-born Branko Horvat, promoted a model of market socialism dubbed the Illyrian model, where firms were socially owned by their employees and structured on workers' self-management, and competed with each other in open and free markets.

American economists in the latter half of the 20th century developed models based such as "Coupon Socialism" (by the economist John Roemer) and "Economic Democracy" (by the philosopher David Schweickart).

Pranab Bardham and John Roemer proposed a form of Market Socialism where there was a "stock market" that distributed shares of the capital stock equally among citizens. In this stock market, there is no buying or selling of stocks, which leads to negative externalities associated with a concentration of capital ownership. The Bardham and Roemer model satisfied the main requirements of both Socialism (workers own all the factors of production – not just labour) and market economies (prices determine efficient allocation of resources). A New Zealand Economist, Steven O'Donnell, expanded on the Bardham and Roemer model and decomposed the capital function in a general equilibrium system to take account of entrepreneurial activity in market socialist economies. O'Donnell (2003) set up a model that could be used as a blueprint for transition economies, and the results suggested that although market socialist models were inherently unstable in the long term, in the short term they would provide the economic infrastructure necessary for a successful transition from planned to market economies.

In the early 21st century, the Marxian economist Richard D. Wolff has promoted a variation of market socialism based on autonomous employee-owned and self-managed enterprises.

Anti-Equilibrium economics

Another form of market socialism was promoted by critics of central planning and neoclassical general equilibrium theory, the most notable economists being Alec Nove and Janos Kornai. In particular, Alec Nove proposed what he called feasible socialism, a mixed economy consisting of state-run enterprises, autonomous publicly owned firms, cooperatives, and small-scale private enterprise operating in an economy consisting of both markets and indirect macroeconomic planning.27

Implementation

The economy of the former Socialist Federal Republic of Yugoslavia is widely considered to be a model of market-based socialism.

The Mondragon Cooperative Corporation in the Basque Country is widely cited as a highly successful co-operative enterprise based on worker-ownership and democratic management.

Peter Drucker described the U.S. system of regulated pension funds providing capital to financial markets as "pension fund socialism".28 William H. Simon characterized pension fund socialism as "a form of market socialism", concluding that it was promising but perhaps with prospects more limited than those envisioned by its enthusiasts.29

Similar policies to the market socialist proposal of a social dividend and basic income scheme have been implemented on the basis of public ownership of natural resources in Alaska (Alaska Permanent Fund) and in Norway (The Government Pension Fund of Norway).

Relation to political ideologies

Marxism-Leninism

The phrase "market socialism" has occasionally been used in reference to any attempt by a Soviet-type planned economy to introduce market elements into its economic system. In this sense, "market socialism" was first attempted during the 1920s in the Soviet Union as the New Economic Policy (NEP) before being abandoned. Later, elements of "market socialism" were introduced in Hungary (where it was nicknamed "goulash communism"), Czechoslovakia and Yugoslavia (see Titoism) in the 1970s and 1980s. The Economy of Belarus has been described as a "market socialist" system. The Soviet Union attempted to introduce a market system with its perestroika reforms under Mikhail Gorbachev. During the later stages there was talk within top circles that the USSR should move toward a market-based socialist system.

Historically, these kinds of "market socialist" systems attempt to retain state ownership of the commanding heights of the economy, such as heavy industry, energy, and infrastructure, while introducing decentralised decision making and giving local managers more freedom to make decisions and respond to market demands. Market socialist systems also allow private ownership and entrepreneurship in the service and other secondary economic sectors. The market is allowed to determine prices for consumer goods and agricultural products, and farmers are allowed to sell all or some of their products on the open market and keep some or all of the profit as an incentive to increase and improve production.

Socialism with Chinese Characteristics

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 China and Socialist Republic of Vietnam, respectively. Officially these economic systems represent market economies that are in the long-term process of transition toward socialism.30 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.9

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. 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.31

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.31 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.32 These state-owned corporations have been reformed and become increasingly dynamic and a major source of revenue for the state in 2008,3334 leading the economic recovery in 2009 during the wake of the global financial crises.35

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.36 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.37

Anarchism

Portrait of philosopher Pierre-Joseph Proudhon (1809–1865) by Gustave Courbet. Proudhon was the primary proponent of anarchist mutualism, and influenced many later individualist anarchist and social anarchist thinkers.

The French philosopher Pierre Joseph Proudhon is the first person to call himself an "anarchist", and considered among its most influential theorists. He is considered by many to be the "father of anarchism".38 He became a member of the French Parliament after the revolution of 1848, whereon he referred to himself as a "federalist".39 His best-known assertion is that Property is Theft!, contained in his first major work, What is Property? Or, an Inquiry into the Principle of Right and Government (Qu'est-ce que la propriété? Recherche sur le principe du droit et du gouvernement), published in 1840. The book's publication attracted the attention of the French authorities. It also attracted the scrutiny of Karl Marx, who started a correspondence with its author. The two influenced each other: they met in Paris while Marx was exiled there. Their friendship finally ended when Marx responded to Proudhon's The System of Economic Contradictions, or The Philosophy of Poverty with the provocatively titled The Poverty of Philosophy. The dispute became one of the sources of the split between the anarchist and Marxian wings of the International Working Men's Association.

See also

References

  1. ^ Buchanan, Alan E. Ethics, Efficiency and the Market. Oxford University Press US. 1985. ISBN 978-0-8476-7396-4, pp. 104-105
  2. ^ Comparing Economic Systems in the Twenty-First Century, 2003, by Gregory and Stuart. ISBN 0-618-26181-8. (P.142): "It is an economic system that combines social ownership of capital with market allocation of capital...The state owns the means of production, and returns accrue to society at large."
  3. ^ Social Dividend versus Basic Income Guarantee in Market Socialism, by Marangos, John. 2004. International Journal of Political Economy, vol. 34, no. 3, Fall 2004.
  4. ^ Steele, David Ramsay (September 1999). From Marx to Mises: Post Capitalist Society and the Challenge of Economic Calculation. Open Court. p. 177. ISBN 978-0875484495. "It was in the early 1920s that the expression ‘market socialism’ (marktsozialismus) became commonplace. A special term was considered necessary to distinguish those socialists prepared to accept some role for factor markets from the now mainstream socialists who were not." 
  5. ^ Bockman, Johanna (2011). Markets in the name of Socialism: The Left-Wing origins of Neoliberalism. Stanford University Press. ISBN 978-0-8047-7566-3. 
  6. ^ Roosevelt, Frank; David Belkin (1994). Why Market Socialism?. M.E. Sharpe, Inc. p. 314. ISBN 1-56324-465-9. "Social democracy achieves greater egalitarianism via ex post government taxes and subsidies, where market socialism does so via ex ante changes in patterns of enterprise ownership." 
  7. ^ McNally, David (1993). Against the Market: Political economy, market socialism and the Marxist critique. Verso. p. 44. ISBN 978-0-86091-606-2. "...by the 1820s, 'Smithian' apologists for industrial capitalism confronted 'Smithian' socialists in a vigorous, and often venomous, debate over political economy." 
  8. ^ Market Economy and Socialist Road Duan Zhongqiao
  9. ^ a b Market socialism or Capitalism? Evidence from Chinese Financial Market Development, 2005, by Du, Julan and Xu, Chenggang. April 2005. International Economic Association 2005 Round Table on Market and Socialism, April 2005.
  10. ^ Property and Prophets: the evolution of economic institutions and ideologies, E. K. Hunt, published by M.E. Sharpe, ISBN 978-0-7656-0609-9, p.72
  11. ^ Mutualist Blog: Free Market Anti-Capitalism: "J.S. Mill, Market Socialist"
  12. ^ Mutualist Blog: Free Market Anti-Capitalism: Eugene Plawiuk on Anarchist Socialism
  13. ^ Murray Bookchin, Ghost of Anarcho-Syndicalism; Robert Graham, The General Idea of Proudhon's Revolution.
  14. ^ Native American Anarchism: A Study of Left-Wing American Individualism by Eunice Minette Schuster
  15. ^ a b Palmer, Brian (2010-12-29) What do anarchists want from us?, Slate.com
  16. ^ a b William Bailie, [1] Josiah Warren: The First American Anarchist — A Sociological Study, Boston: Small, Maynard & Co., 1906, p. 20
  17. ^ "A watch has a cost and a value. The COST consists of the amount of labor bestowed on the mineral or natural wealth, in converting it into metals…". Warren, Josiah. Equitable Commerce
  18. ^ Charles A. Madison. "Anarchism in the United States". Journal of the History of Ideas, Vol. 6, No. 1. (Jan., 1945), pp. 53
  19. ^ a b Benjamin Tucker. Instead of a Book, p. 404
  20. ^ F. Caffé (1987), "Barone, Enrico", The New Palgrave: A Dictionary of Economics, ISBN 978-1-56159-197-8, v. 1, p. 195.
  21. ^ Enrico Barone, "Il Ministro della Produzione nello Stato Collettivista", Giornale degli Economisti, 2, pp. 267-293, trans. as "The Ministry of Production in the Collectivist State", in F. A. Hayek, ed. (1935), Collectivist Economic Planning, ISBN 978-0-7100-1506-8 pp. 245-90.
  22. ^ Robin Hahnel (2005), Economic Justice and Democracy, Routlege, ISBN 978-0-415-93344-5, p. 170
  23. ^ Fred M. Taylor (1929). "The Guidance of Production in a Socialist State", American Economic Review, 19(1), pp. 1-8.
  24. ^ Mark Skousen (2001), Making Modern Economics, M.E. Sharpe, ISBN 978-0-7656-0479-8,pp. 414-415.
  25. ^ János Kornai (1992), The Socialist System: the political economy of communism, Oxford University Press, ISBN 978-0-19-828776-6, p. 476.
  26. ^ Steele, David Ramsay (September 1999). From Marx to Mises: Post Capitalist Society and the Challenge of Economic Calculation. Open Court. p. 151. ISBN 978-0875484495. "Finally, there is the curious circumstance that Lange’s system is widely hailed as a pioneering effort in the theory of market socialism, when it is demonstrably no such thing: even the name ‘market socialism’ predates Lange, and Lange’s system is explicitly a proposal to replace the market with a non-market system." 
  27. ^ Feasible Socialism: Market or Plan – Or Both: http://www.whatnextjournal.co.uk/Pages/Ratner/Feassoc.html
  28. ^ The unseen revolution: how pension fund socialism came to America, Peter Ferdinand Drucker, Harper Collins, 1976, ISBN 978-0-06-011097-0
  29. ^ William H. Simon, "Prospects for Pension Fund Socialism", Corporate control and accountability: changing structures and the dynamics J McCahery, et al., Oxford University Press, 1995, ISBN p.167
  30. ^ Michael Karadjis. "Socialism and the market: China and Vietnam compared". Links International Journal for Socialist Renewal. Retrieved 20 March 2013. 
  31. ^ a b "The Role of Planning in China's Market Economy", presented before the "International Conference on China's Planning System Reform", March 24 and 25, 2004 in Beijing, by Prof. Gregory C. Chow, Princeton University.
  32. ^ "Reassessing China's State-Owned Enterprises". Forbes. July 8, 2008. 
  33. ^ http://us.ft.com/ftgateway/superpage.ft?news_id=fto031620081407384075
  34. ^ David A. Ralston, Jane Terpstra-Tong, Robert H. Terpstra, Xueli Wang, "Today's State-Owned Enterprises of China: Are They Dying Dinosaurs or Dynamic Dynamos?"
  35. ^ "China grows faster amid worries". BBC News. July 16, 2009. Retrieved May 12, 2010. 
  36. ^ Market Economy and Socialist Road Duan Zhongqiao (http://docs.google.com/gview?a=v&q=cache:tWl8XGM_vQAJ:www.nodo50.org/cubasigloXXI/congreso06/conf3_zhonquiao.pdf+Socialist+planned+commodity+economy&hl=en&gl=us)
  37. ^ Vuong, Quan-Hoang. Financial Markets in Vietnam's Transition Economy: Facts, Insights, Implications. ISBN 978-3-639-23383-4, VDM Verlag, Feb. 2010, 66123 Saarbrücken, Germany.
  38. ^ Daniel Guerin, Anarchism: From Theory to Practice (New York: Monthly Review Press, 1970).
  39. ^ Binkley, Robert C. Realism and Nationalism 1852-1871. Read Books. p. 118

Further reading

  • Alejandro Agafonow (2012). “The Austrian Dehomogenization Debate, or the Possibility of a Hayekian Planner,” Review of Political Economy, Vol. 24, No. 02.
  • Bertell Ollman ed. (1998). Market Socialism: the Debate Among Socialists, with other contributions by James Lawler, Hillel Ticktin and David Schewikart. Preview.
  • Steven O'Donnell (2003). Introducing Entrepreneurial Activity Into Market Socialist Models, University Press, Auckland
  • John E. Roemer et al. (E. O. Wright, ed.) (1996). Equal Shares: Making Market Socialism Work, Verso.
  • Alec Nove (1983). The Economics of Feasible Socialism, HarperCollins.
  • David Miller (1989). Market, State, and Community: Theoretical Foundations of Market Socialism, Clarendon Press, Oxford.
  • David Schweickart (2002). After Capitalism, Rowman & Littlefield, Lanham, Maryland.
  • Johanna Bockman (2011). Markets in the Name of Socialism: The Left-Wing Origins of Neoliberalism, Stanford University Press, Stanford. Preview.







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