From Socialism to Capitalism: Eight Essays

3 Market Socialism? Socialist Market Economy?

3 Market Socialism? Socialist Market Economy?* Introduction The linking of the two terms socialism and market has a long history . Various combinations and ties between them have emerged in long-lasting, sometimes rather heated debates, in academic circles and in the political sphere, including “market socialism” and “socialist market economy,” to mention but two frequent ones.[1] To look at recent experience in China and Vietnam and the study of their actual history may help in a reconsideration of the relationship between socialism and the market. An opposite approach may also prove useful. Recalling past political and academic debates may contribute to a better understanding of the realities of contemporary history. Analysts are at risk of getting lost in minor details. Confronting today’s experience with intense, century-old debates will help to place Chinese and Vietnamese development in a wider historical context. The debates so far have always been blurred by conceptual confusion . This study attempts to apply some conceptual clarification to them. 47 * [The author gratefully acknowledges the valuable assistance of Yingyi Qian and Ágnes Schönner.] 1 [The terminology (“market socialism”)—as it is going to be dealt with in this study— has originally been used by academic economists, while the expression “socialist market economy” is characteristic of the language of the official Chinese ideology.] Interpretation of the Term “Market” The interpretation of the concept of market is not too difficult. There is more or less a consensus. The market is a mechanism for coordinating human activities. It is a social arrangement for integration of society.2 The market is not the only mechanism of coordination and integration . Let me mention just one alternative, the feasible and powerful one of bureaucratic coordination, as an example of special relevance in the context of Chinese and Vietnamese experience. It served as the main coordinator in these two countries for decades. Bureaucratic and market coordination display many important differences, in degree of centralization or decentralization, in the nature of information flows, and in the incentives associated with the coordination type. Market and bureaucratic coordination are only two, albeit especially relevant types; history has generated other coordination mechanisms as well. As time goes by, societies choose between alternative coordination mechanisms—deliberately or spontaneously. Reform in China and Vietnam includes, among other changes, a shift away from the predominance of bureaucratic coordination toward predominance of market coordination. While there is wide consensus on the meaning of the term market , there are great difficulties with the concept of “socialism.” Several interpretations coexist, in what is not simply hairsplitting linguistic disagreement. On the surface the controversy seems to be about the interpretation of a single word, but in fact the conceptual debate is heavily loaded with political values, with the struggle to realize alternative visions of a “good society,” and with sharp divisions on the strategy for creating the new order. It is not about words, but about political rhetoric and ideologies.[3] 48 S T U D Y 3 2 Most textbooks and dictionaries of economics offer a concise characterization of the concept of “market,” and also various classifications of markets. See, for example, Mankiw (2004), or Samuelson and Nordhaus (2004). I am using here, and in later parts of the paper, the conceptual framework of my book The Socialist System (1992b). 3 [There was a large number of Chinese and Vietnamese economists and other social scientists present at the 2004 conference in Hong Kong at which the previous version of this paper was presented. I therefore saw it as important in that venue to make the following observation, which I quote: “I understand that some of my colleagues have pay heed to tactical considerations, cannot be entirely outspoken, and may see it as more expedient to avoid clearly circumscribed definitions. My personal situation is easier. So I can allow myself to lay aside ‘diplomatic’ considerations and address the real problems.”] I will discuss five interpretations of the term “socialism.” There are many more, but most of the others can be treated as blends or combinations of these five, pure interpretations, or as intermediate, temporal, or transitional stages between them. Interpretation 1: Marx’s Concept Let us start with Karl Marx. He was not the first to use the term “socialism.” Official courses in Marxism as practiced in the countries under the rule of a Communist party liked to use the somewhat pejorative label “Utopian socialists” for such towering figures in...