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= Market socialism = From Wikipedia, the free encyclopedia Jump to navigation		Jump to search For the left-libertarian proposals sometimes described as market socialism, see Mutualism (economic theory). Market socialism is a type of economic system involving the public, cooperative, or social ownership of the means of production in the framework of a market economy. Market socialism differs from non-market socialism in that the market mechanism is utilized for the allocation of capital goods and the means of production. Depending on the specific model of market socialism, profits generated by socially owned firms (i.e., net revenue not reinvested into expanding the firm) 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.

Market socialism is distinguished from the concept of the mixed economy because models of market socialism are complete and self-regulating systems, unlike the mixed economy. Market socialism also contrasts 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.

Early models of market socialism trace their roots to the work of Adam Smith and the theories of classical economics, which consisted of proposals for co-operative enterprises operating in a free-market economy. The aim of such proposals was to eliminate 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 a small class of private property owners. Among early advocates of this type of market socialism were the Ricardian socialist economists and mutualist philosophers.

Although sometimes described as "market socialism", the Lange model is a form of planned economy where a central planning board allocates investment and capital goods, while markets allocate labor and consumer goods. The system was devised by socialist economists who believed that a planned economy could neither function on the basis of calculation in natural units nor through solving a system of simultaneous equations for economic coordination, and was the subject of the socialist calculation debate.

Contents

 * 1 Theoretical history
 * 1.1 Classical economics
 * 1.1.1 John Stuart Mill
 * 1.1.2 Mutualism
 * 1.1.3 Individualist anarchism in the United States
 * 1.2 Neoclassical economics
 * 1.2.1 Early 20th century
 * 1.2.2 Late 20th century and early 21st century
 * 1.3 Anti-equilibrium economics
 * 2 In practice
 * 3 Relation to political ideologies
 * 3.1 Marxism–Leninism
 * 3.2 Socialism with Chinese characteristics
 * 3.3 Democratic socialism
 * 3.4 Anarchism
 * 4 Criticism
 * 5 See also
 * 6 References
 * 7 Further reading

Theoretical history
Market libertarian socialist mural reading "Free market, anti capitalist"

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.

John Stuart Mill
Mill's early economic philosophy was one of free markets that he moved toward a more socialist bent, adding chapters to his Principles of Political Economy in defence of a socialist outlook, and defending some socialist causes. Within this revised work he also made the radical proposal that the whole wage system be abolished in favour of a co-operative wage system. Nonetheless, some of his views on the idea of flat taxation remained, albeit altered in the third edition of the Principles of Political Economy to reflect a concern for differentiating restrictions on unearned incomes which he favoured; and those on earned incomes, which he did not favour.

Mill's Principles, first published in 1848, was one of the most widely read of all books on economics in the period. As Adam Smith's Wealth of Nations had during an earlier period, Mill's Principles dominated economics teaching. In the case of Oxford University, it was the standard text until 1919, when it was replaced by Alfred Marshall's Principles of Economics.

In later editions of Principles of Political Economy, Mill would argue that "as far as economic theory was concerned, there is nothing in principle in economic theory that precludes an economic order based on socialist policies".

Mill also promoted substituting capitalist businesses with worker cooperatives, writing:

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. 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 works which argue that free markets help workers and weaken capitalists.

Individualist anarchism in the United States
For American anarchist historian Eunice Minette Schuster, "[i]t 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". Josiah Warren is widely regarded as the first American anarchist, and the four-page weekly paper he edited during 1833, The Peaceful Revolutionist, was the first anarchist periodical published, an enterprise for which he built his own printing press, cast his own type, and made his own printing plates.

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. 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". 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.

Later, Benjamin Tucker fused the economics of Warren and Proudhon and published these ideas in Liberty calling them "Anarchistic-Socialism". Tucker said: "[T]he 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". American individualist anarchists such as Tucker saw themselves as economic market socialists and political individualists while arguing that their "anarchistic socialism" or "individual anarchism" was "consistent Manchesterism". Left-wing market anarchism is a modern branch of free-market anarchism that is based on a revival of such market socialist theories.

Early 20th century
Beginning in the early 20th 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. Although these early models did not rely on conventional 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.

The earliest models of neoclassical socialism were developed by Leon Walras, Enrico Barone (1908) and Oskar R. Lange (c. 1936). Lange and Fred M. Taylor (1929) 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. 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.

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.

H. D. Dickinson published two articles proposing a form of market socialism, namely "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, p. 214). In The Economics of Control: Principles of Welfare Economics (1944), Abba Lerner admitted that capital investment would be politicized in market socialism.

Late 20th century and early 21st century
Economists active in the former Yugoslavia, including Czech-born Jaroslav Vaněk 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 Bardhan 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 that leads to negative externalities associated with a concentration of capital ownership. The Bardhan 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). New Zealand economist Steven O'Donnell expanded on the Bardhan 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, they would provide in the short term the economic infrastructure necessary for a successful transition from planned to market economies.

In the early 21st century, the Marxian economist Richard D. Wolff refocused Marxian economics giving it a microfoundational focus. The core idea was that transition from capitalism to socialism required the reorganization of the enterprise from a top-down hierarchical capitalist model to a model where all key enterprise decisions (what, how, and where to produce and what to do with outputs) were made on a one-worker, one vote basis. Wolff called them workers self-directed enterprises (WSDEs). How they would interact with one another and with consumers was left open to democratic social decisions and could entail markets or planning, or likely mixtures of both.

Advocates of market socialism such as Jaroslav Vaněk argue that genuinely free markets are not possible under conditions of private ownership of productive property. Instead, he contends that the class differences and inequalities in income and power that result from private ownership enable the interests of the dominant class to skew the market to their favor, either in the form of monopoly and market power, or by utilizing their wealth and resources to legislate government policies that benefit their specific business interests. Additionally, Vaněk states that workers in a socialist economy based on cooperative and self-managed enterprises have stronger incentives to maximize productivity because they would receive a share of the profits (based on the overall performance of their enterprise) in addition to receiving their fixed wage or salary. The stronger incentives to maximize productivity that he conceives as possible in a socialist economy based on cooperative and self-managed enterprises might be accomplished in a free-market economy if employee-owned companies were the norm as envisioned by various thinkers including Louis O. Kelso and James S. Albus.

Anti-equilibrium economics
Another form of market socialism has been promoted by critics of central planning and generally of neoclassical general equilibrium theory. The most notable of these economists were 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 a market economy that included a role for macroeconomic planning.

In practice
A number of market socialist elements have existed in various economies. The economy of the former Socialist Federal Republic of Yugoslavia is widely considered to have been a form of market-based socialism, based on socially-owned cooperatives, workers' self-management and market allocation of capital. Some of the economic reforms introduced during the Prague Spring by Alexander Dubček, the leader of Czechoslovakia, included elements of market socialism.

Likewise, Vietnam's socialist-oriented market economy is self-described as market socialist. It has an extremely high prevalence of cooperatives, especially in agriculture and retail, with the continued state ownership of the commanding heights of the economy. Cooperative businesses in Vietnam are also incentivized and supported by the government, receiving many benefits that private companies do not.

The Mondragon Corporation in the Basque Country, Coop in Italy and cooperatives in many other countries are widely cited as highly successful co-operative enterprises based on worker- or consumer-ownership and democratic management.[citation needed] Peter Drucker described the United States system of regulated pension funds providing capital to financial markets as "pension fund socialism". 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.

The economy of Cuba under the rule of Raúl Castro has been described as attempting market socialist reforms. Similarly, the economy of Libya under Muammar Gaddafi could be described as a form of market socialism as Muammar Gaddafi's Third International Theory shared many similarities with Yugoslav self-management.

Policies similar 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). Belarus under Alexander Lukashenko is sometimes described as market socialist. Ethiopia under Abiy Ahmed has recently been described as market socialist.