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A Market Alternative

Socialist Market Economy


By: EconomyWatch


Socialist Economics or Socialist Theories are one of the most controversial theories for the economic development of a nation with the concomitant growth in social welfare.


Originally perceived as an idea for the upliftment of the working class who seemed to be destined to be driven down to subsistence wages by the “capitalists” who owned capital and rented land, Socialist Economics has undergone many changes in the course of time.


Socialist economy is a structure of the economy which aims at providing greater equality and giving the “proletariat” or working class greater ownership over the means of production.


In a normative sense, a socialist economy or a socialist state believes that socialism is the most equitable and socially serviceable form of an economic arrangement designed to achieve human potentialities.


Unlike “capitalism” where the means of production are owned by the capitalists, Socialist economies are characterized by the means of production owned by the state or by the workers collectively.


Marx called socialism an intermediary stage between “capitalism” and the ultimate outcome of “communism.”


The basic doctrine of Socialism of producing according to ones capacity and receiving according to ones want was replicated in the Soviet Union who became the first socialist state in 1936.


It was followed later in certain eastern European countries and later moved to China under Mao Zedong.


While some western economies experimenting with socialism had adopted measures such as nationalization, redistribution of wealth among the poor, minimum wage measures and policies of demand management along Keynesian lines, erstwhile USSR was a centrally planned economy.


It functioned by the imposition of production quotas and the clearing of goods was done was by a central planning authority.


Even prices for allocation of goods and services were predetermined by the state.



The socialist states were later deemed to be corrupt with government mandarins appropriating too much power and with excessive state controls, the state of “communism” or distributing power evenly among the population with decentralization of power from the state never really occurred.


Some economic models within the framework of Socialism are:


Public-enterprise centrally planned economy

Public-enterprise state managed market economy

Mixed economy

Public enterprise employee managed market economies

Public enterprise participatory planning


Of the models mentioned above, the public enterprise state managed market economy or a form of social market economy and the model of mixed economy are the most popular in contemporary times.


The “social market economy” or “market socialism” has the state owning the means of production but there is a market directed and guided by socialist planners.



The market is given the free hand to allocate and distribute the country’s resources based on the forces of supply and demand. It thus retains the essential feature of efficiency, growth and production of surplus value generally associated with capitalist economies.


This model was effectively launched in China after reform, Hungary, Yugoslavia and Czechoslovakia in the 1970’s and 80’s and is presently adopted in Germany.


Government ownership is retained in key sectors such as heavy industry, energy and infrastructure while private ownership or entrepreneurship with public-private participation is followed along the lines of the mixed economy model.


India also follows a model of a mixed economy.


The greatest asset of this sort of economy is the decentralization of decision making and giving local managers more freedom to respond to market conditions.


This also sometimes called a mild version of state socialism and are called social democracies where the socialists do not overthrow the capitalist system altogether bit mould it to social purpose

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