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Market socialism
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Market socialism

Market socialism is an attempt by a Soviet-style economy to introduce market elements into its socialist economic system in order to address the inefficiencies of its economy. It was attempted in Hungary (where it was nicknamed "goulash socialism"), Czechoslovakia and Yugoslavia (see Titoism) in the 1970s and 1980s. It is also the system introduced in the People's Republic of China by Deng Xiaoping in the late 1970s and has evolved into what some economists, outside of China, would argue is modern Chinese capitalism. Modern Vietnam and Laos can also be described as market socialist systems. The Soviet Union attempted to introduce a market socialist systems with its perestroika reforms under Mikhael Gorbachev prior to the collapse of the USSR in 1991.

In general, market socialist systems attempt to retain government ownership of the "commanding heights of the economy" such as heavy industry, energy, and infrastructure but attempt to introduce decentralised decision making giving local managers more freedom to make decisions and respond to market demands. Market socialist systems also allow private ownership and entrepreneurship in the service and other secondary economic sectors. The market is allowed to determine prices for consumer goods and agricultural products and farmers and sometimes other producers are allowed to sell all or some of their product on the open market and keep some of the profit as an incentive to increased and improved production.

The experience of the People's Republic of China illustrates some of the issues involved in market socialism. One issue is that having both a system of administrative control of resource allocation and market prices for resources leads to imbalances and inefficiencies. The result of this is that the PRC in the early 1990's gradually made a transition to a system in which all resource allocations were made on the basis of prices, which was a step that Eastern Europe was never fully willing to take under their forms of market socialism.

Although, as late as the early-1990's, it appeared to be the intention of the leadership of People's Republic of China to retain government ownership of heavy industry, entry, and infrastructure, this proved has proven untenable for a number of reasons. The most important was that with pricing reform in the late 1980's, most state owned enterprises proved highly unprofitable forcing the government to attempt to close or sell off most state owned enterprises.


Socialist market economy with Chinese characteristics (Chinese: 社会主义市场经济) is the official term for the economy of the People's Republic of China. In order to understand what this term actually means in a Chinese context, it is necessary to first explain Chinese political theory.

First it is commonly believed by many in the West that the People's Republic of China has abandoned Marxism. From the Chinese view, this is incorrect. To do so would have cast doubt on the legitimacy of the Communist Party of China and China has not done so. Rather what the PRC did do is to radically redefine many of the terms and concepts of Marxist theory to justify its economic efforts.

In Marxist theory, history progresses through a number of stages from slave society to feudal society to capitalist society to socialist society to communist society. In Maoist theory, the revolution of 1949 was a change from capitalism to socialism. The result of this view of history is that it becomes impossible to term China to be a capitalist society without either arguing that history was regressing or to throw away Marxist theory altogether. Both were considered to be unacceptable.

So the solution that the Chinese Communist Party came upon was to redefine socialism and to argue that socialism was not incompatible with economic policies such as markets, free trade, or anything else that appears to work. In current Chinese Communist thinking, China is in the primary stage of socialism, and this redefinition allows the PRC to undertake just about any economic policy it wants without running into theoretical difficulties or without undermining its justification for existence.

Another problem with the formula is that if you can't use theory to decide what to do and the experiences of other nations is not generalizable then what do you do? The answer is to use Deng Xiaoping's dictum seek truth from facts and just do whatever seems to work. In this sense, Chinese statesmen usually follow this line: "China respects the diversity of the world. There are nearly 200 countries in the world with a population of more than 5 million. There should not and cannot be only one mode of development, one concept of values and only one type of social system in the world due to differences in historical conditions, social systems, development levels, cultural traditions and concepts of values."

The final objection is the most serious and one with which the Chinese Communist Party is still trying to deal. The problem is that much of the attraction of Marxism as a theory is that it offers a total view of the world (i.e. it claims to explain everything with scientific certainty). The Chinese reformulation of Marxism removes this attraction and therefore requires the CCP to find new sources of support to justify its rule. The general response of the CCP has been to move toward Chinese nationalism as an emotional motivator.

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