Market Socialism 1234

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Market Socialism

As a pure model


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Market is a structure that

allows buyers and sellers to

exchange any type of goods,services and information.

The exchange of goods or

services for money is a

transaction. Socialism is a system of social

organization in which the

means of producing and

distributing goods is ownedcollectively or by a centralized

government that often plans

and controls the economy.


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Market socialism refers to various economic systemswhere the means of production are publicly owned, but

the market is utilized. Within this model, the commonlyowned enterprises are free from excessive planning, withdecision-making on what to produce being left to themanagement of individual enterprises, allowing them tofunction more autonomously in a more decentralizedfashion than in other socialist economic systems.


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An important base forthe first definition of

market socialism in isthe Lange Model,which states that aneconomy in which allproduction is

performed by thestate, but in whichthere is a functioningprice mechanism, has

similar properties to amarket economyunder perfectcompetition.


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The Cooperative Version of

Market Socialism Market socialist system in which

labor participates in decisions at

the enterprise level


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Major features

enterprises managed by theworkers

equitable income sharing

i.e., labor democratically decides howto distribute the enterprises income

state owns non-labor factors ofproduction

market coordination

freedom of occupational choice


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The Market Socialism of

the Former Yugoslavia


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Definition

Public ownership of non-labor factors of

production

Decentralized decision making structure Decentralized information structure

Both material and non-material rewards

primarily material Coordination by markets


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A Prototype: The Lange

ModelA more centralized version of

market socialism

Three decision-making levels

central planning board (CPB)

industrial ministries

enterprises


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Yugoslavia

Unique economic and social

structures

worker management and marketsocialism

underdeveloped by European

standards

open economy


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very diverse cultures

extreme and troubling regionaleconomic differences

northern republics (Slovenia and

Croatia) much better off

combination of cultural and

economic differences causes

troublesome labor immobility

between regions


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History

Post-war

much of Yugoslavia destroyed by

German occupation

war hero Tito emerges as leader

and head of Communist Part

initially follows Soviet mode


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1952-1965develops concept of worker

management replace central planning with indicative

planning non-binding macro goals

rapid growth

reduction of regional differences throughinvestment in lagging regions

integration into world economy


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major decentralization of decision-

making structure

however, investment remains highly

centralized

significant forced saving especially

through high taxes


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1965

year of reform in response to high

inflation and unemployment

state basically gives up

substantial decentralization and

increased reliance on marketsmuch less state control

Enterprises get control of profits for

investment or distribution


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1974

new constitutioncreation of new institutional structures to

enhance horizontal channels of

information

1990-1992

events leading to war in 1991 and

final breakup in 1992


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The Public Sector

Indicative planning

bottom up

informational Fiscal and monetary policy

minimal

no use of fiscal or monetary policyto stabilize economy


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Resource Allocation: Capital

Investment rate was high

Poor allocation of capital

during 50s and 60s many new

enterprises were set up in the

lagging south where lack of skilled

labor made these investments

inefficient


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Labour

Sharp differentials by region

cultural and other barriers prevented

market from equalizing wages skilled workers in north could not be

used in south where they were needed

unemployed workers in south could notseek jobs in north


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Differentials by enterprise

workers incomes depend onenterprise performance

Overall distribution of income

fairly equal compared to mostcapitalist economies

Excess supply of labor overall

many had to leave families forextended periods to work in Italy,Austria, etc.


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Foreign Trade

Open economy

very susceptible to world market

conditions

Trade balance worsened over

time

exports declined while imports rose


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exports fell because of

protectionist policies in WesternEurope

high inflation

opportunities to develop comparativeadvantage in labor intensive industrieswasted

poor quality

world recession of late 70s/early 80s


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Agriculture

Mostly private, peasant farms

Low investment in agriculture

highly non-mechanized

low productivity

Agricultural share declined overtime


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Performance

Good growth performance prior to

80s

structural change rapid as countryindustrialized

Relatively equal distribution of

income

major differences regional


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Poor macroeconomic stability

high inflation

high unemployment


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Thank You


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Market Socialism 1234

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