Market Socialism

Socialism is an economic philosophy developed in 19th-century Europe that diagnosed many social ills—poverty, inequality, injustice, and unemployment—as consequences of the capitalist system's private ownership of the means of production. There are many forms of socialism, all of which eliminate private ownership of capital and replace it with collective ownership. These many forms, all focused on advancing distributive justice for long-term social welfare, can be divided into two broad types of socialism: nonmarket and market.

The historical collapse of nonmarket socialism in the 20th-century history of the Soviet Union, Eastern Europe, and China was due, in part, to their inefficiencies caused by information problems of centrally planned complex economies, motivational problems of self-interested people in societies purporting to transcend individualism, innovation problems of change-resistant bureaucracies, and social problems of individual liberty subordinated to coercive, repressive, and corrupt central planning. After the rise and fall of these nonmarket socialist systems, some who remain committed to the ideals of socialism believe that it may be revitalized as a feasible alternative to capitalism if they are perceived to be more accepting of democratic institutions and successful market economies. The proponents of market socialism claim that it is such a viable alternative.

Market socialism has its emphasis on workers' rights and distributive justice for long-term social welfare that is true to socialism's ideals. Rather than central planning, however, production and exchange decision making is located in worker-owned enterprises that transact with local buyers and profit-seeking sellers whose negotiations are informed by the market's prices for goods and services.

In practice, the implementation of market socialism replaces private ownership with worker collectives and profit sharing. Collectives are vested with business decisionmaking authority that workers exercise in a democratic process. In small firms, decision making might be “one worker-one vote.” In large complex businesses, there may be a general manager appointed [Page 1346]by elected representatives of the workers. Market socialism is sometimes called economic democracy because of this style of decision making.

Market socialism claims to resolve the flaws of capitalism that motivated original socialist philosophers to seek a better alternative. These flaws include alienation of the worker class, wealth disparities, and unequal distribution of critical goods to the poor who cannot afford market prices. It is not clear, however, what enterprise-level mechanisms will resolve these issues and introduce a compassion for community without the need for some social intervention. Workers must still satisfy their tasked performance objectives whether the business is owned by a workers' collective seeking profit from its investment in labor or owned by private shareholders seeking profit from their investment in labor. Similarly, profit under market socialism remains vulnerable to the forces of market competition, and businesses need to adjust their costs and capacity to fit with these forces. Employees may lose their jobs in times of adjustment and need to apply for new employment with other profit-seeking businesses. In these circumstances, market socialism applies democratic social institutions to guide industrial policy when social needs are not satisfied by enterprise-level decision making. For example, socially owned banking institutions allocate capital funds to worker collectives in areas needing stimulus and growth, even while worker collectives plan and operate production according to the incentives of market-based prices.

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