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ABSTRACT
The recent economic experience of countries such as China, Vietnam, Laos, etc., has invoked some interest in the economic system in these countries. This economic system which is often characterised as the socialist market economy is first conceptually distinguished from a centrally planned socialist economy as well as from a market socialist economy. Then a simple macroeconomic framework of a stylised socialist market economy is set out and its principal properties are highlighted. The paper concludes with a brief examination of the political economy of the socialist market economy.
Acknowledgements
A previous version of this paper was presented at the Third World Conference on Marxism, July 17–18, 2021 at the Peking University, Beijing, China.
Disclosure Statement
No potential conflict of interest was reported by the author(s).
Notes
1 Boer (Citation2021b) provides a recent detailed examination of socialism with Chinese characteristics.
2 However, it is also the case that content of socialism is not exhausted by its economic dimension.
3 Saratchand (Citation2020) had argued that the absence of a large scale privatisation programme, especially in terms of the public sector’s share in output, is one indicator of why any characterisation of China as a capitalist economy would be inapposite. A recent critique of the notion that China is not a socialist economy is set out in Boer and Yan (Citation2021). Further an evaluation of China or Vietnam or Laos as a state capitalist or dirigiste economy is also contradicted by widespread reports about the “discrimination” faced by the (especially foreign) private sector in China. Dirigisme after all was about the use of the capitalist (or capitalist led) state to try and further the accumulation of capital and in the process contingently reproducing both (Ghosh Citation1995).
4 Only the relevant literature in the English language will be considered in this paper.
5 This issue of the definition of decisiveness of public ownership of the means of production is taken up for discussion in section 3.
6 But Dobb (Citation2008, 159) pointed out:
But experience has also shown that there is a place for market-relations in the supply of producers’ goods internal to industry, both as regards contractual trading relations (instead of centralised direct allocation) between industries and industrial enterprises and as regards a considerable range of detailed decisions about output that are best decentralised to the enterprise level (these latter being governed by market decisions in the shape of khozraschot or balance-sheet considerations, costs and prices, credit-facilities, and the like). Exactly where the line is to be drawn between centralised decision and decentralised one, although partly a question of principle, is, I believe, in large degree a matter of experimentation.
7 Cockshott (Citation2019) argues that the problem of computing a feasible plan is now computationally tractable.
8 Basic needs (arguably nutrition, health, education, etc.) were often provided as per a non-market social process (of estimating need), subject to feasibility.
9 Lebowitz (Citation2012) in fact distinguishes between three agents in a centrally planned socialist economy: the central planning board, the managers of publicly owned firms and workers in publicly owned firms. Patnaik (Citation1997) argues that the problems (and eventual demise) of the centrally planned socialist economy were due to the working of such economies which resulted in the depoliticisation of workers.
10 Yeo (Citation2020) provides one perspective on how the Chinese state governs state owned enterprises.
11 It also follows that over time, the development of new technologies would depend on the mode of employment of existing resources and the sustainability of the production processes in which these technologies are directly or indirectly incorporated. Wallis (Citation2000) provides a discussion of the role of technology in a socialist economy.
12 It is arguable therefore that the recourse to a socialist market economy is one type of defensive policy strategy available to the socialist project when it has attained state power in a few countries in a world that is dominated by the capitalist system.
13 There were also some trends at work in the metropolitan countries to partially relocate production capacity in some branches of production involving low and intermediate levels of technology to non-metropolitan countries (Hymer Citation1982; Kozul-Wright and Rowthorn Citation1998). Malkin (Citation2020) discusses subsequent developments with special reference to the role of China in world economic activity. But a detailed consideration of these trends is outside the scope of this paper.
14 The maximum magnitude of investment that is possible may be determined by either the minimum level of consumption (with due account of how much income inequality is socially acceptable) or the state of the balance of payments.
15 Reference to a technological ladder does not imply that the past trajectory of technical change in the metropolis will always be replicated in every country.
16 If the expected rate of return in the non-priority branches of production declines (relative to its previous level) and small private firms in these non-priority branches cannot enter the priority branches of production due to various barriers to entry (such as minimum capital required), then the owners of these firms may choose to hold financial assets or money which will, other things remaining the same, reduce aggregate demand, output and therefore employment.
17 The expected rate of return on financial activities, in this context, will be considered in the following.
18 The variables in question, namely, ,
,
and
may not be independent of each other. Thus the state in a socialist market economy may not be able to achieve independently determined target levels of all of them.
19 Here it is being assumed that geographical location of production capacity does not determine market access. This is not historically inapposite since a significant destination of output produced using this production capacity was the metropolis.
20 The political economy consequences of this increase in inequality are briefly considered in section 3.
21 Some issues concerning the practice of social wages are dealt with in Shaikh and Tonak (Citation1987).
22 There would also arise a related problem of “round-tripping.” It involves the repatriation of profits appropriated by foreign capital in the domestic economy to the metropolis and its re-entry into the domestic economy as nominally fresh investment. This phenomenon will arise if the expected rate of return on new investment by foreign capital is often higher than that on re-investment of profits by existing foreign capital in the domestic economy. An offer of symmetrical conditions for deployment of fresh and existing foreign capital may have excessively adverse consequences on the tax revenue of the state. However, the socialist market economy could discourage this type of round-tripping if its domestic market is sufficiently large and if the extent of access to this market is linked to re-investment of foreign capital. Therefore this policy option may not be fully available to the state in the initial phase of growth of a socialist market economy.
23 It has been assumed here that there is always some surplus labour that can be drawn on to produce the increasing level of output in the socialist market economy. This will be the case as long as the rate of growth of labour productivity is sufficiently high or if immigration is possible or if there is an adequate (policy supported) increase in fertility.
24 If the wage rate in the capitalist metropolis declines as a result of this shift or other factors that are characteristic of the neoliberal project (Barradas Citation2019), then the average wage gap between the capitalist metropolis and the socialist market economy may decline further.
25 In the absence of the requirement to enter into joint ventures with public sector firms, metropolitan capitalist firms tend to choose, as joint venture partners, the relatively smaller domestic private firms which are less able to both surmount the hurdles to technology transfer and engage in the resultant indigenous innovation process.
26 Even if the alternative location is another socialist market economy this second socialist market economy need not be one where the expected rate of return on such relocated production capacity is necessarily higher.
27 If in a value chain a clutch of sequential activities are in a socialist market economy, if one activity in this sequence is sought to be relocated to an alternative location the transportation and other costs of coordination may be too significant to induce such a shift.
28 Since the surplus product is heterogeneous in terms of output composition and concrete labour is also heterogeneous, the computation of a greater or lesser share of the surplus product in a social formation would require a scalar estimation of the total magnitude of the surplus product.
29 This question was posed in Saratchand (Citation2020).
30 Differential experiences of capitalist economies may be attributed to two interdependent factors (Patnaik and Patnaik Citation2021): the organic interaction between different capitalist economies and the organic interaction between different modes of production in a social formation where the capitalist mode of production is dominant. Saratchand (Citation2021) terms the social formation where the capitalist mode of production is dominant as bourgeoisdom.
31 It will be ill suited to such an exercise to confine oneself to juridical concepts of ownership in a socialist market economy, due to issues such as private property claims that tend to be less impregnable from social control when compared to capitalist economies, taxation of the private sector, interest paid on loans advanced by public sector banks to private firms, etc. Pei (Citation2014) seeks to argue that the share of the public sector in China, broadly defined, has a dominant share in the productive assets of the economy.
32 In this regard, it was argued in Saratchand (Citation2020) that in China, the state is engaged in a quest to extend social control over the functioning of private sector firms by establishing party cells, etc., inside these firms. Likewise the system of joint ventures between domestic (public sector) firms and foreign firms not only enables technology transfer but also gives effect to some restraints on metropolitan capital (from acting in ways to undermine the working of the socialist market economy).
33 Laibman (Citation2020) argues in the case of China that workers in the public sector have working conditions that are superior to that in the private sector. Also migrant workers in urban areas have an alternative source of income based on their collective property rights in rural areas. It may also be added that the larger the share of employment in the public sector with respect to the total labour force, the greater will be the ability of workers employed in the private sector to secure higher real wages.
34 This is also the period when the capitalist takeover of the state in the country under discussion is most possible but not inevitable. The prevention of this takeover involves a whole host of measures (Cheng and Liu Citation2017). For instance, Weber (Citation2021) examines the process through which shock therapy was averted in China. Among these measures to prevent capitalist takeover, ensuring that the capitalist mode of production does not become dominant is the key. A counterpart of this process is the debate over ideas involving Marxist and bourgeois approaches to the socialist market economy. Two views on this issue in the case of China are presented in Pei, Yang, and Yang (Citation2019) and Cohn (Citation2020).
35 Naughton provides a discussion of industrial policy in China. He defined industrial policy as follows: “Industrial policy is any type of selective, targeted government intervention that attempts to alter the sectoral structure of production toward sectors that are expected to offer better growth than would occur in the (non-interventionist) market equilibrium.” He goes on to make the astonishing claim that: “Until 2006, China never had ‘industrial policy’” (Naughton Citation2021, 19). However, a discussion of this claim is outside the scope of this paper.
36 In this respect, a distinction may be made between the fate of industrial policy in Japan and China. It is arguable that the international dimension (US imperialism) has played a greater role in the relative decline of industrial policy in Japan when compared to China.
37 Thirlwall (Citation1979) clearly distinguishes between price and income in the demand for exports.
38 The state in a socialist market economy would need to combat this possible undermining by administrative measures that ensure that it can continue to “discipline” the private sector. Besides, other participative mobilisation measures of the working people would also play a key role in this respect.
39 This “disciplining” principally involves the ability of the state in a socialist market economy to decisively influence the actions of the private sector along the lines set out in the previous section.
40 It is arguable that this underlies the policy of “common prosperity” in China.
41 This would be possible only for those socialist market economies whose research and development system is comparable to that in the metropolis. It is possible to argue that this is a crucial component of the “dual circulation” strategy in China. For instance, Fang, Collins, and Yao (Citation2021) point out that: “In order to cope with multiple crises, China is shaping a new dual circulation development pattern, in which domestic economic circulation is regarded as the principal focus and foundation, thereby buffering and complementing the external circulation.”
Additional information
Notes on contributors
C. Saratchand
C. Saratchand is Professor at the Department of Economics, Satyawati College, University of Delhi, Delhi, India. His main areas of interest are in political economy and macroeconomics.