Econ model project
saizo0816
MarketSocialismSpr191.pptxMarket Socialism
Theory of Market Socialism
Market Socialism
A hybrid economic system (collective resource ownership + market allocation).
Attempts to produce the “fairness” of socialism with the efficiency and growth of capitalism.
Real world examples depend on how one defines “Market Socialism”
March 1999 People’s Republic of China: “under the people’s democratic dictatorship” will among other things “persist in reform” and “develop a socialist market economy”
Yugoslavia Experiment 1948: rejected soviet style planning for a worker managed economy where enterprises were owned, and profits shared, by the workers themselves.
Israeli Kibbutz: Jewish collectives where members agree to an equal sharing of income, noncash economy, high provision on local public goods for members and separate residences for children: represents <2% of Israeli population.
Japanese “Share Economy”: employee compensation is partly in the form of profit sharing.
Soviet/Chinese Collective Farms: delivered to the state obligatory agricultural products at prices set by the state.
Theory of Market Socialism
Lange Model
State owns all firms and non-labor resources
Firms are democratically managed by workers.
State allocates producer goods (i.e. capital, land, natural resources, etc.) using Simulated Pricing: trial and error pricing to adjust for shortages and surpluses
Returns to state owned resources (i.e. rent , interest, profits) become Social Dividend.
Markets allocate labor and consumer goods.
Oskar Lange
1904-1965
Central Planning Board (CPB)
Functions: 1) Set prices of producer goods
2) Allocates social dividend
Industrial Ministries
Function: Determine sectoral expansion of industry
State Firms
Functions: Generate output given existing production functions and these rules:
1) P=MC (allocative efficiency)
2) Minimize cost (productive efficiency)
Households
Functions:
1) Choose work vs. leisure.
2) Allocate income toward consumer goods.
Theory of Market Socialism
Lange Model Proponents
State control over investment increases capital formation and growth.
State, rather than private, control of capital and land promotes a more equal income distribution.
State can directly pursue efficiency, rather than profit, in production.
State can address negative externalities such as air and water pollution.
Lange Model Opponents
Large bureaucracy that politicizes economic decisions.
Cost to simulate prices that the markets generate for free.
Costly to monitoring firms to ensure efficiency.
Lack of motivation for enterprise managers to carry out instructions.
Soft budget constraints lead to inefficiency.
No real world data since model has not been fully implemented in any country.
Theory of Market Socialism
Vanek’s Cooperative Model
Examples (Producer Cooperatives & Israeli Kibbutz)
Worker control, profit sharing, and employee management
Participatory Economy
Primarily a market economy with privately-owned firms
State owns all non-labor resources
“Labor employs capital rather than capital employing labor”
Workers rent resources from the state.
Freedom of choice in employment.
Income sharing
Democratically determined income schedule assigning each job a relative claim on income.
Firm objective:
Maximize net income per worker (Net Income = Revenue - Costs – Rent for State Resources).
Goals
Workers are rewarded for their collective efforts, increasing cohesion and teamwork.
Greater investment in capital goods since government, rather than profiteers, collect returns capital.
Jaroslav Vanek
1930-present
Relative Performance: Market Socialism
Efficiency
Indeterminate
Lack of motivation and resources expended to determine equilibrium prices may decrease efficiency.
Dealing with externalities, imperfect competition, and worker participation may increase efficiency.
Stability
Stable
Greater state control over volatile investment rate.
Unstable
Sustained and frequent disequilibrium.
Democratically elected official's bias toward popular policies and a “political business cycle”.
Income Distribution
More equal distribution of income and wealth.
Distribution of social dividend may be uneven and lead to greater inequality.
Economic Growth
Indeterminate
Potentially higher due to savings/investment being at the discretion of the state.
Lower if democratically elected officials are pressured into providing consumption goods to populace.
Viability
Never been tried on a large scale.
Lack of real world data implies this is speculative based primarily on theory.
