Centrally planned economies A centrally planned economy combines public ownership of the means of production with
centralized state planning. This model is usually associated with the
Soviet-type command economy. In a centrally planned economy, decisions regarding the quantity of goods and services to be produced are planned in advance by a planning agency. In the early years of Soviet central planning, the planning process was based upon a selected number of physical flows with inputs mobilized to meet explicit production targets measured in natural or technical units. This
material balances method of achieving plan coherence was later complemented and replaced by value planning, with money provided to enterprises so that they could recruit labour and procure materials and intermediate production goods and services. The Soviet economy was brought to balance by the interlocking of three sets of calculation, namely the setting up of a model incorporating balances of production, manpower and finance. The exercise was undertaken annually and involved a process of iteration (the "method of successive approximation"). Although nominally a "centrally planned" economy, in reality formulation of the plan took place on a more local level of the production process as information was relayed from enterprises to planning ministries. Aside from the Soviet Union and
Eastern Bloc economies, this economic model was also utilized by the
People's Republic of China,
Socialist Republic of Vietnam,
Republic of Cuba and
North Korea.
Soviet Union The
Soviet Union and some of its European satellites aimed for a fully centrally-
planned economy. While they dispensed almost entirely with private ownership over the means of production, workers still effectively received a wage for their labour. Some believe that according to Marxist theory this should have been a step towards a genuine workers' state. However, some Marxists consider this a misunderstanding of Marx's views on
historical materialism and of his views on the process of
socialization. Characteristics of the Soviet economic model included: • production quotas for every productive unit. A farm, mine or factory was judged on the basis of whether its production met the quota. It would be provided with a quota of the inputs it needed to start production, and then its quota of output would be taken away and given to downstream production units or distributed to consumers. • allocation through political control. In contrast with systems where prices
determined allocation of resources, the
Soviet bureaucracy determined allocation, particularly of the means of production. The prices that were constructed were determined
after the formulation of the economy plan, and such prices did not factor into choices about what was produced and how it was produced in the first place. • full employment. Every worker was ensured employment. However workers were generally not directed to jobs. The central-planning administration adjusted relative wages rates to influence job choice in accordance with the outlines of the current plan. • clearing goods by planning: if a surplus of a product accumulated, then
the central planning authority would either reduce the quota for its production or increase the quota for its use. •
five-year plans for the long-term development of key industries. The planning system in the Soviet Union developed under
Stalin between 1928 and 1934. According to historian
Sheila Fitzpatrick, the scholarly consensus was that Stalin appropriated the position of the
Left Opposition on such matters as
industrialisation and
collectivisation. After the end of the
Second World War in 1945, the seven
countries with communist governments in Central and Eastern Europe introduced central planning with five- (or six-) year plans on the Soviet model by 1951. The common features included the nationalization of industry, transport and trade, compulsory procurement in farming (but not collectivization) and government monopolies on foreign trade. Prices were largely determined on the basis of the costs of inputs, a method derived from the labour theory of value. Prices did not therefore incentivize production enterprises, whose inputs were instead purposely rationed by the central plan. This "taut planning" began around 1930 in the Soviet Union and only became attenuated after the economic reforms in 1966–1968, when enterprises were encouraged to make profits. According to communist doctrine, planning had the stated purpose of enabling the people - through the communist party and state institutions - to undertake activities that would have been frustrated by a
market economy, including the rapid expansion of universal education and health care, urban development with mass good-quality housing, and industrial development of all regions of the country. Nevertheless, markets continued to exist in Soviet-type planned economies. Even after the
collectivization of agriculture in the Soviet Union in the 1930s, members of
collective farms and anyone with a private garden plot were free to sell their own produce (
farm workers were often paid in kind). Licensed markets operated in every town and city borough where non-state-owned enterprises (such as cooperatives and collective farms) were able to offer their products and services. From 1956 and 1959 onwards, all wartime controls over manpower were removed and people could apply for and quit jobs freely in the Soviet Union. The use of market mechanisms went furthest in Yugoslavia, Czechoslovakia and Hungary. From 1975, Soviet citizens had the right to engage in private handicraft; collective farmers could raise and sell livestock privately from 1981. Households were free to dispose of their income as they chose, and incomes were lightly taxed. Historian
Robert Vincent Daniels regarded the
Stalinist period to represent an abrupt break with Lenin's government in terms of economic planning in which an deliberated,
scientific system of planning that featured former
Menshevik economists at
Gosplan had been replaced with a hasty version of planning with unrealistic targets, bureaucratic waste,
bottlenecks and
shortages. Stalin's formulations of national plans in terms of physical quantity of output was also attributed by Daniels as a source for the stagnant levels of efficiency and quality.
Dispute that the Soviet model is socialism Various scholars and political economists have criticized the claim that the centrally-planned economy - and specifically the Soviet model of economic development - constitutes a form of socialism. They argue that the Soviet economy was structured upon the
accumulation of capital and the extraction of
surplus value from the working class by the planning agency in order to reinvest this surplus into the economy and to distribute to managers and senior officials, indicating the Soviet Union and other Soviet-style economies were
state-capitalist and unplanned
administrative-command economies. More fundamentally, these economies were structured around the dynamic of capitalism, i.e. the
accumulation of capital,
production for profit (as opposed to being based on
production for use—the defining criterion for socialism) and the
law of value, having not yet transcended the system of capitalism, but being in fact a variation of capitalism based on a process of state-directed accumulation. On the other side of the argument, economists contend that no surplus value was generated from labour activity or from commodity markets in the socialist planned economies; they therefore claim that there was no exploiting class, even if inequalities existed. Since prices were controlled and set below
market-clearing levels, there was no element of value added at the point of sale - as occurs in capitalist market economies. Prices were built up from the average cost of inputs, including wages, taxes, interest on stocks and working capital as well as allowances to cover the recoupment of investment and for depreciation, so there was no profit margin in the price charged to customers. Wages did not reflect the purchase price of labour, since labour was not a commodity traded in a market and the employing organizations did not own the means of production. Wages were set at a level that permitted a decent standard of living; they rewarded specialist skills and educational qualifications. In macroeconomic terms, the plan allocated the whole national product to workers in the form of wages for the workers' own use, with a fraction withheld for investment and for imports from abroad. The difference between the average value of wages and the value of national output per worker did not imply the existence of surplus value since it was part of a consciously formulated plan for the development of society. The presence of inequality in the socialist planned economies did not imply that an exploiting class existed. In the Soviet Union, communist-party members were able to buy scarce goods in special shops and the leadership elite took advantage of state property to live in more spacious accommodation - and sometimes in luxury. Although they received privileges not commonly available and some additional income in kind, there was no difference in their official remuneration in comparison to their non-party peers. Enterprise managers and workers received only the wages and bonuses related to the production targets that the planning authorities had set. Outside of the cooperative sector - which enjoyed greater economic freedoms and whose profits were shared among all members of the cooperative - there was no profit-taking class. Other analysts maintain that workers in the Soviet Union and in other Marxist–Leninist states had genuine control over the means of production through institutions such as
trade unions. Some socialist critics point to the lack of socialist social relations in Soviet-style economies (specifically the lack of
self-management), to a bureaucratic elite based on hierarchical and centralized powers of authority as well as to the lack of genuine worker control over the means of production. Such factors lead them to conclude that Soviet economies were not socialist, but examples either of
bureaucratic collectivism or of
state capitalism.
Trotskyists regard mature Soviet systems as neither socialist nor capitalist—but as
deformed workers' states. This analysis is consistent with the
April Theses of 1917, in which
Lenin stated that the prospective
Bolshevik revolution aimed not to introduce socialism (which could only be established on a worldwide scale), but to bring production and the state under the control of the
Soviets of Workers' Deputies. Trotsky himself would weigh the material benefits and challenges associated with the adoption of the
New Economic Policy for the early Soviet Union in his work,
Towards Socialism or Capitalism?. Furthermore, communist states often do not claim to have achieved
socialism in their countries; on the contrary, they claim to be building and working toward the establishment of socialism in their countries. For example, the preamble to the
Socialist Republic of Vietnam's constitution states that Vietnam only entered a transition stage between capitalism and socialism after the country was re-unified under the Communist party in 1976, and the 1992 Constitution of the
Republic of Cuba states that the role of the Communist Party is to "guide the common effort toward the goals and construction of socialism".
Stalinists and their followers challenge this view - they claim that socialism was established in the Soviet Union after
Joseph Stalin came to power in the late 1920s and instituted the system of
five-year plans in 1928. The
1936 Constitution of the Soviet Union, known as the Fundamental Law of Victorious Socialism, embodied the claim that the foundations for socialism had been laid. In 1924 Stalin introduced the theory of
socialism in one country, which argued that socialism can be built in a single country, despite existing within a global capitalist economic system. Nevertheless, the Soviet orthodoxy held that the stage during which developed socialism would be built would be a lengthy one and would not be achieved by the Soviet Union on its own. According to the official textbooks, the first stage of the transition period from capitalism to socialism had been completed by the 1970s in the European socialist countries (except Poland and Yugoslavia) and in Mongolia and Cuba. The next stage of developed socialism would not be reached until "the economic integration of the socialist states becomes a major factor of their economic progress" and social relations had been reconstructed on "collectivist principles". Communist writers accepted that during the earlier stages in constructing socialism the exchange of commodities on the basis of the average socially necessary labour embodied within them occurred and involved the mediation of money. Socialist planned economies were systems of commodity production, but this was directed in a conscious way towards meeting the needs of the people and not left to the "anarchy of the market". At the stage of developed socialism, "the state of dictatorship of the proletariat changes into a state of all people reflecting the increasing homogeneity of society" and the "evening out of economic development levels" within and between socialist countries. It would provide the foundations for a further stage of perfected socialist society, where an abundance of goods permitted their distribution according to need. Only then could the world socialist system progress towards the higher phase of
communism.
World socialist economic system By the 1980s, the world economic socialist system embraced one-third of the world's population but generated no more than 15 percent of global economic output. At its height in the mid-1980s, the world socialist system could be said to comprise the following countries with a "socialist orientation", though not all were allies of the Soviet Union: Afghanistan, Albania, Angola, Bulgaria, Cambodia, China, Cuba, Czechoslovakia, East Germany, Ethiopia, Hungary, Mozambique, Nicaragua, North Korea, Laos, Mongolia, Poland, Romania, Vietnam, South Yemen, Yugoslavia and the Soviet Union. The system co-existed alongside the world capitalist system but was founded upon the principles of cooperation and mutual assistance rather than upon competition and rivalry. The countries involved aimed to even-out the level of economic development and to play an equal part in the international division of labour. An important role was played by the Council for Mutual Economic Assistance (CMEA) or
Comecon, an international body set up to promote economic development. It involved joint planning activity, the establishment of international economic, scientific and technical bodies and methods of cooperation between state agencies and enterprises, including joint ventures and projects. Allied to the CMEA were the
International Development Bank, established in 1971; and the
International Bank for Economic Cooperation, founded in 1963, which had their counterparts in the
World Bank, the
Bank for International Settlements and the
International Monetary Fund in the non-socialist world. The main tasks of the CMEA were plan coordination, production specialization and regional trade. In 1961
Nikita Khrushchev, the Soviet
leader, put forward proposals for establishing an integrated, centrally-planned socialist commonwealth in which each geographic region would specialize production in line with its set of natural and human resources. The resulting document, the "Basic Principles of the International Socialist Division of Labour" was adopted at the end of 1961, despite objections from Romania on certain aspects. The "Basic Principles" were never implemented fully and were replaced in 1971 by the adoption of the "Comprehensive Programme for Further Extension and Improvement of Cooperation and Development of Socialist Economic Integration". As a result, many specialization agreements were made between CMEA member states for investment programmes and
projects. The importing country pledged to rely on the exporting country for its consumption of the product in question. Production specialization occurred in engineering, automotive, chemicals, computers and automation, telecommunications and biotechnology. Scientific and technical cooperation between CMEA member states was facilitated by the establishment in 1969 of the International Centre for Scientific and Technical Information in Moscow. Trade between CMEA member states was divided into "hard goods" and "soft goods". The former could be sold on world markets and the latter could not. Commodities such as food, energy products and raw materials tended to be hard goods and were traded within the CMEA area at world market prices. Manufactures tended to be soft goods—their prices were negotiable and often adjusted to make bilateral payment flows balance. Other countries with privileged affiliation with the CMEA included Algeria, Benin, Burma, Congo, Finland, Madagascar, Mali, Mexico, Nigeria, Seychelles, Syria, Tanzania and Zimbabwe. The Soviet Union also provided substantial economic aid and technical assistance to developing countries including Egypt, India, Iraq, Iran, Somalia and Turkey. It supported developing countries in calling for a
New International Economic Order and backed the UN
Charter of Economic Rights and Obligations of States adopted by the
General Assembly in 1974.
Achievements of the socialist planned economies In the officially sanctioned textbooks describing the socialist planned economies as they existed in the 1980s, it was claimed as follows: • Class and national oppression had been totally eradicated. • Unemployment, hunger, poverty, illiteracy and uncertainty about the future had been eliminated. • Every citizen had a guaranteed right to work, rest, education, health care, abode and security in old age and maintenance in the event of disability. • Material standards of living were rising steadily and everyone had free access to knowledge and to the values of world and national culture. • Every citizen had a right in practice to take part in discussing and solving any problems in the life of the enterprise, region, republic and the country they lived in, including the rights to free speech, of assembly and to demonstrate. Data collected by the United Nations of indicators of human development in the early 1990s show that a high level of social development was achieved in the former socialist planned economies of Central and Eastern Europe and the Commonwealth of Independent States (CEE/CIS). Life expectancy in the CEE/CIS area in the period 1985–1990 was 68 years, while for the countries of the Organization for Economic Cooperation and Development (OECD) it was 75 years. Infant mortality in the CEE/CIS area was 25 for every 1,000 live births in 1990, compared to 13 in the OECD area. In terms of education, the two areas enjoyed universal adult literacy and full enrolment of children in primary and secondary schools. For tertiary education, the CEE/CIS had 2,600 university students per 100,000 population, while in the OECD the comparable figure was 3,550 students. Overall enrolment at primary, secondary and tertiary levels was 75 percent in the CEE/CIS region and 82 percent in the OECD countries. On housing the main problem was over-crowding rather than homelessness in the socialist planned economies. In the USSR the area of residential accommodation was 15.5 square meters per person by 1990 in urban areas but 15 percent of the population were without their own separate accommodation and had to live in communal apartments according to the 1989 census. Housing was generally of good quality in both the CEE/CIS region and in the OECD countries: 98 and 99 percent of the population in the OECD countries had access to safe drinking water and improved sanitation respectively, compared to 93 and 85 percent in the CEE/CIS area by 1990. Unemployment did not exist officially in the socialist planned economies, though there were people between jobs and a fraction of unemployable people as a result of illness, disability or other problems, such as alcoholism. The proportion of people changing jobs was between 6 and 13 percent of the labour force a year according to employment data during the 1970s and 1980s in Central and Eastern Europe and the USSR. Labour exchanges were established in the USSR in 1967 to help enterprises re-allocate workers and provide information on job vacancies. Compulsory unemployment insurance schemes operated in Bulgaria, Eastern Germany and Hungary but the numbers claiming support as a result of losing their job through no fault of their own numbered a few hundred a year. By 1988, GDP per person, measured at purchasing power parity in US dollars, was $7,519 in Russia and $6,304 for the USSR. The highest income was to be found in Slovenia ($10,663) and Estonia ($9,078) and the lowest in Albania ($1,386) and Tajikistan ($2,730). Across the whole CEE/CIS area, GDP per person was estimated at $6,162. This compared to the US with $20,651 and $16,006 for Germany in the same year. For the OECD area as a whole estimated GDP per person was $14,385. Thus, on the basis of IMF estimates, national income (GDP) per person in the CEE/CIS area was 43 percent of that in the OECD area.
Economic problems of the socialist planned economies From the 1960s onwards, CMEA countries, beginning with East Germany, attempted "intensive" growth strategies, aiming to raise the productivity of labour and capital. However, in practice this meant that investment was shifted towards new branches of industry, including the electronics, computing, automotive and nuclear power sectors, leaving the traditional heavy industries dependent upon older technologies. Despite the rhetoric about modernization, innovation remained weak as enterprise managers preferred routine production that was easier to plan and brought them predictable bonuses. Embargoes on high technology exports organized through the US-supported
CoCom arrangement hampered technology transfer. Enterprise managers also ignored inducements to introduce labour-saving measures as they wished to retain a reserve of personnel to be available to meet their production target by working at top speed when supplies were delayed. Under conditions of "taut planning", the economy was expected to produce a volume of output higher than the reported capacity of enterprises and there was no "slack" in the system. Enterprises faced a resource constraint and hoarded labour and other inputs and avoided sub-contracting intermediate production activities, preferring to retain the work in-house. The enterprise, according to the theory promulgated by
János Kornai, was constrained by its resources not by the demand for its goods and services; nor was it constrained by its finances since the government was not likely to shut it down if it failed to meet its financial targets. Enterprises in socialist planned economies operated within a "soft" budget constraint, unlike enterprises in capitalist market economies which are demand-constrained and operate within "hard" budget constraints, as they face bankruptcy if their costs exceed their sales. As all producers were working in a resource-constrained economy they were perpetually in short supply and the shortages could never be eliminated, leading to chronic disruption of production schedules. The effect of this was to preserve a high level of employment. As the supply of consumer goods failed to match rising incomes (because workers still received their pay even if they were not fully productive), household savings accumulated, indicating, in the official terminology, "postponed demand". Western economists called this "
monetary overhang" or "repressed inflation". Prices on the black market were several times higher than in the official price-controlled outlets, reflecting the scarcity and possible illegality of the sale of these items. Therefore, although consumer welfare was reduced by shortages, the prices households paid for their regular consumption were lower than would have been the case had prices been set at market-clearing levels. Over the course of the 1980s it became clear that the CMEA area was "in crisis", although it remained viable economically and was not expected to collapse. The "extensive" growth model was retarding growth in the CMEA as a whole, with member countries dependent upon supplies of raw materials from the USSR and upon the Soviet market for sales of goods. The decline in growth rates reflected a combination of diminishing returns to capital accumulation and low innovation as well as micro-economic inefficiencies, which a high rate of saving and investment was unable to counter. The CMEA was supposed to ensure coordination of national plans but it failed even to develop a common methodology for planning which could be adopted by its member states. As each member state was reluctant to give up national self-sufficiency the CMEA's efforts to encourage specialization was thwarted. There were very few joint ventures and therefore little intra-enterprise technology transfer and trade, which in the capitalist world was often undertaken by trans-national corporations. The International Bank for Economic Cooperation had no means of converting a country's trade surplus into an option to buy goods and services from other CMEA members.
Transition to market economies After the dissolution of the Soviet Union and the Eastern Bloc, many of the remaining
socialist states presiding over centrally planned economies began introducing reforms that shifted their economies away from centralized planning. In Central and Eastern Europe and the USSR the transition from a planned economy to a market economy was accompanied by the transformation of the socialist
mode of production to a capitalist mode of production. In Asia (China, Laos, North Korea and Vietnam) and in Cuba market mechanisms were introduced by the ruling communist parties and the planning system was reformed without systemic transformation. The transformation from socialism to capitalism involved a political shift: from a people's democracy (see
People's Republic and
Communist state) with a constitutionally entrenched "leading role" for the communist and workers' parties in society to a liberal
representative democracy with a separation of legislative, executive and judicial authorities and centres of private power that can act as a brake on the state's activity. Vietnam adopted an economic model it formally titled the
socialist-oriented market economy. This economic system is a form of mixed-economy consisting of state, private, co-operative and individual enterprises coordinated by the
market mechanism. This system is intended to be transitional stage in the development of socialism.
Transition economies The transformation of an
economic system from a socialist planned economy to a capitalist market economy in Central and Eastern Europe, the former Soviet Union and Mongolia in the 1990s involved a series of institutional changes. These included: • Control over the means of production was removed from the state through
privatization and private property rights were re-established. In several countries property was restored to its former owners or their legal successors. If the actual property could not be returned the former owners received compensation. This occurred in East Germany, Czechoslovakia, Hungary and Estonia. In all the countries of the Commonwealth of Independent States, the government decided against restoration or compensation on the grounds that too much time had elapsed and in many cases compensation had already been made through bilateral treaties between the USSR and foreign governments representing the former owners.
Voucher privatization in which citizens and workers in the enterprises received free or cheap shares was undertaken in most of the transition economies. • The decision-making system was de-centralized through the ending of central planning and the privatization of enterprises. Work collectives and trade unions lost much of their influence in enterprise decision-making. • Markets became the dominant coordination mechanism following price liberalization and the de-control of foreign trade that permitted more or less unrestricted importation of goods in 1990/92. Queues at retail outlets disappeared as did hoarded inventories at factories. Stock exchanges were established between 1990 and 1995. Anti-monopoly legislation was introduced. As workers lost their jobs or found their wages unpaid, informal labour markets sprang up along certain streets, particularly for construction trades. • The incentive system was modified by the legalization of private enterprise and alteration to employment laws. A large informal sphere developed estimated at comprising 21 to 30 percent of official calculations of GDP. • The organizational forms prevailing in the socialist planned economies were restructured by breaking up vertically integrated industrial and agricultural concerns and closing non-viable undertakings. The hardening of enterprise budget constraints was more significant in driving industrial restructuring than privatization according to some studies. • The distribution system became more unequal as price controls on necessities were removed fuelling the growth of poverty among people on fixed incomes such as pensioners and the unemployed. Redistributive measures through taxation and social safety nets proved unable to counteract the growth of poverty and, at the other end of the income scale, the emergence of a rich business elite (see also
business oligarch). • The public choice mechanism was overhauled to rescind the communist party's leading role and introduce a liberal constitution entrenching civil rights and representative democracy in almost all transition economies except Belarus, Turkmenistan and Uzbekistan.
People's Republic of China China embraced a socialist planned economy after the Communist victory in its Civil War. Private property and private ownership of capital were abolished, and various forms of wealth made subject to state control or to workers' councils. The Chinese economy broadly adopted a similar system of production quotas and full employment by fiat to the Russian model. The
Great Leap Forward saw a remarkably large-scale experiment with rapid collectivisation of agriculture and other ambitious goals. Results were less than expected (e.g. there were food shortages and mass starvation) and the program was abandoned after three years. In the common program set up by the
Chinese People's Political Consultative Conference in 1949, in effect the country's interim constitution, state capitalism meant an economic system of corporatism. It provided as follows: "Whenever necessary and possible, private capital shall be encouraged to develop in the direction of state capitalism". In recent decades, China has opened its economy to foreign investment and to market-based trade, and has continued to experience strong economic growth. It has carefully managed the transition from a socialist planned economy to a market economy, officially referred to as the
socialist commodity market economy which has been likened to
state capitalism by some outside observers. The current Chinese economic system is characterized by state ownership combined with a strong
private sector that privately owned enterprises that generate about 33% (People's Daily Online 2005) to over 50% of GDP in 2005, with a BusinessWeek article estimating 70% of GDP, a figure that might be even greater considering the
Chengbao system. Some western observers note that the private sector is likely underestimated by state officials in calculation of GDP due to its propensity to ignore small private enterprises that are not registered. Most of the state and private sectors of economy are governed by free market practices, including a stock exchange for trading equity. The free-market is the arbitrator for most economic activity, which is left to the management of both state and private firms. A significant amount of privately owned firms exist, especially in the consumer service sector. The state sector is concentrated in the
commanding heights of the economy with a growing private sector engaged primarily in commodity production and light industry. Centralized directive planning based on mandatory output requirements and production quotas has been superseded by the free-market mechanism for most of the economy and directive planning is utilized in some large state industries. By 2008, these state-owned corporations had become increasingly dynamic largely contributing to the increase in revenue for the state. The state-sector led the economic recovery process and increased economic growth in 2009 after the financial crises. Proponents of this model distinguish themselves from market socialists who believe that economic planning is unattainable, undesirable or ineffective at distributing goods, viewing the market as the solution rather than a temporary phase in development of a socialist planned economy. This type of economic system is defended from a
Marxist–Leninist perspective which states that a socialist planned economy can only be possible after first establishing the necessary comprehensive commodity market economy, letting it fully develop until it exhausts its historical stage and gradually transforms itself into a planned economy.
Cuba The
Republic of Cuba under the leadership of
Raúl Castro began from 2006 to encourage co-operatives, worker-ownership and self-employment in a move to reduce the central role of state enterprise and state management within the economy, with the goal of building a "deeper" or more co-operative form of socialism. By 2018, there were 429 co-operatives in Cuba, many of which were previously state-owned enterprises.
Vietnam The
Socialist Republic of Vietnam has pursued similar economic reforms to China, though less extensively, resulting in a
socialist-oriented market economy, a mixed economy in which the state plays a dominant role intended to be a transitional phase in establishment of a socialist economy.
Social democratic mixed economies Many of the industrialized, open countries of Western Europe experimented with one form of social democratic
mixed economies or another during the 20th century. These include Britain (mixed economy and welfare state) from 1945 to 1979, France (state capitalism and indicative planning) from 1945 to 1982 under dirigisme, Sweden (social democratic welfare state) and Norway (state social democratic mixed economy) to the present. They are regarded as
social democratic and
reformist socialist experiments because they universally retained a wage-based economy and private ownership and control of the decisive means of production. Nevertheless, these western European countries tried to restructure their economies away from a
purely private capitalist model. Variations range from social democratic
welfare states such as in Sweden to
mixed economies where a major percentage of GDP comes from the state sector such as in Norway which ranks among the highest countries in quality of life and equality of opportunity for its citizens. Elements of these efforts persist throughout Europe, even if they have repealed some aspects of public control and ownership. They are typically characterized by the following features: •
Nationalization of key industries such as mining, oil, steel, energy and transportation. A common model is for a sector to be taken over by the state and then one or more
state-owned enterprises set up for its day-to-day running. Advantages of nationalization include the ability of the state to direct
investment in key industries, the distribution of state
profits from nationalized industries for the overall national good, the ability to direct producers to social rather than market goals and greater control of the industries by and for the workers as well as the benefits and burdens of publicly funded research and development are extended to the wider populace. •
Redistribution of wealth, through both tax and spending policies that aim to reduce economic inequalities. Social democracies typically employ various forms of
progressive taxation regarding wage and business income, wealth, inheritance, capital gains and property. On the spending side, a set of social policies typically provides free access to public services such as education, health care and child care, while subsidized access to housing, food, pharmaceutical goods, water supply, waste management and electricity is also common. •
Social security schemes where workers contribute to a mandatory public insurance program. The insurance typically include monetary provisions for retirement pensions and survivor benefits, permanent and temporary disabilities, unemployment and
parental leave. Unlike private insurance, governmental schemes are based on public statutes and not contracts, so that contributions and benefits may change in time and are based on solidarity among participants. Its funding is done on an ongoing basis, without direct relationship with future liabilities. •
Minimum wages, employment protection and
trade union recognition rights for the benefit of workers. The objectives of these policies are to guarantee living wages and help produce
full employment. There are a number of different models of trade union protection which evolved, but they all guarantee the right of workers to form unions, negotiate benefits and participate in strikes. Germany appointed union representatives at high levels in all corporations and had much less industrial strife than the United Kingdom, whose laws encouraged
strikes rather than negotiation. •
National planning for industrial development. •
Demand management in a
Keynesian fashion to help ensure economic growth and employment.
State capitalism Various social democratic mixed economies are state capitalist, consisting of large commercial
state enterprises that operate according to the laws of capitalism and pursue profits, that have evolved in countries which have been influenced by various
elected socialist political parties and their economic reforms. While these policies and reforms did not change the fundamental aspect of capitalism and non-socialist elements within these countries supported or often implemented many of these reforms themselves, the result has been a set of economic institutions that were at least partly influenced by socialist ideology.
India After gaining independence from Britain,
India adopted a broadly socialist-inspired approach to economic growth. Like other countries with a democratic transition to a
mixed economy, it did not abolish private property in capital. India proceeded by nationalizing various large privately run firms, creating state-owned enterprises and redistributing income through progressive taxation in a manner similar to social democratic Western European nations than to planned economies such as the Soviet Union or China. Today, India is often characterized as having a
free-market economy that combines economic planning with the
free market. However, it did adopt a very firm focus on
national planning with a series of broad
five-year plans.
Norway Modern Norwegian state capitalism has its origins in public ownership of the country's oil reserves and in the country's
post-World War II social democratic reforms. The
government of Norway has ownership stakes in many of the country's largest publicly listed companies, owning 37% of the Oslo stockmarket and operates the country's largest non-listed companies including
Statoil and
Statkraft. The government also operates a sovereign wealth fund, the
Government Pension Fund of Norway, whose partial objective is to prepare Norway for a post-oil future. Originally, there was also infighting between moderates and radicals, including a left-wing and communist wing in the party which saw many imprisoned. The socialist policies practised the PAP during its first few decades in power were of a pragmatic kind as characterized by its rejection of nationalization. Despite this, the PAP was a member of the
Socialist International and still claimed to be a
socialist party, pointing out its regulation of the private sector, state intervention in the economy and social policies as evidence of this. The prime minister
Lee Kuan Yew also stated that he has been influenced by the democratic socialist British
Labour Party. Singapore's economy is dominated by state-owned enterprises and government-linked companies through
Temasek Holdings which generate 60% of Singapore's GDP. Temasek Holdings operates like any other company in a market economy. Managers of the holding are rewarded according to profits with the explicit intention to cultivate an ownership mindset. The state also provides substantial public housing, free education and health and recreational services as well as comprehensive public transportation. Today, Singapore is often characterized as having a
state capitalist economy that combines economic planning with the free market. While government-linked companies generate a majority of Singapore's GDP, moderate state planning in the economy has been reduced in recent decades. Nonetheless, while being the most right-wing of the Singaporean parties, the PAP has been described as centre-left and adopted a left tack in certain areas in order to remain electorally dominant.
Taiwan Taiwan's economy has been classified as a state capitalist system influenced by its Leninist model of political control, with some Taiwanese economists referring to Taiwan's economy model as
party-state capitalism, a legacy which still lingers in the decision-making process.
Taiwan's economy includes a number of state-owned enterprises, but the Taiwanese state's role in the economy shifted from that of an entrepreneur to a minority investor in companies alongside the democratization agenda of the late 1980s.
Paris Commune The Paris Commune was considered to be a prototype mode of economic and political organization for a future socialist society by Karl Marx. Private property in the means of production was abolished so that individuals and co-operative associations of producers owned productive property and introduced democratic measures where elected officials received no more in compensation than the average worker and could be recalled at any time. Anarchists also participated actively in the establishment of the Paris Commune.
George Woodcock manifests that "a notable contribution to the activities of the Commune and particularly to the organization of public services was made by members of various anarchist factions, including the mutualists Courbet, Longuet, and Vermorel, the
libertarian collectivists Varlin, Malon, and Lefrangais, and the
bakuninists Elie and
Elisée Reclus and
Louise Michel".
Social ownership and peer-to-peer production Various forms of socialist organization based on co-operative decision making,
workplace democracy and in some cases,
production directly for use, have existed within the broader context of the capitalist mode of production since the Paris Commune. New forms of socialist institutional arrangements began to take form at the end of the 20th century with the advancement and proliferation of the internet and other tools that allow for collaborative decision-making.
Michel Bauwens identifies the emergence of the open software movement and
peer production as an emergent alternative
mode of production to the capitalist economy that is based on collaborative self-management, common ownership of resources, and the (direct) production of use-values through the free cooperation of producers who have access to distributed capital.
Commons-based peer production generally involves production with no aim to profit directly, but freely contribute to a project relying upon an open common pool of resources. Production is carried out directly for use— ex. open source software is produced solely for its
use-value.
Wikipedia, being based on collaboration and cooperation and
freely associated individuals, has been cited as a template for how socialism might operate. This is understood by some as a modern example of what the Paris Commune—a template for possible future organization—was to Marx in his time. Others, like Stefan Meretz, believe that
commons-based peer production transcends socialism, no only capitalism.
Socialist Federal Republic of Yugoslavia The
Socialist Federal Republic of Yugoslavia pursued a socialist economy based on
autogestion or
worker self-management. Rather than implementing a centrally planned economy, Yugoslavia developed a market socialist system where enterprises and firms were
socially owned rather than publicly owned by the state. In these organizations, the management was elected directly by the workers in each firm, and were later organized according to
Edvard Kardelj's theory of associated labor.
Self-managed enterprises The
Mondragon Corporation, a federation of cooperatives in the
Basque region of Spain, organizes itself as an employee-owned, employee-managed enterprise. Similar styles of decentralized management which embrace cooperation and collaboration in place of traditional hierarchical management structures have been adopted by various private corporations such as
Cisco Systems. Unlike Mondragon, Cisco remains firmly under private ownership. More fundamentally, employee-owned, self-managed enterprises still operate within the broader context of capitalism and are subject to the accumulation of capital and profit-loss mechanism.
Anarchist Spain In Spain, the national anarcho-syndicalist trade union
Confederación Nacional del Trabajo initially refused to join a popular front electoral alliance and abstention by CNT supporters led to a right wing election victory. In 1936, the CNT changed its policy and anarchist votes helped bring the popular front back to power. Months later, the former ruling class responded with an attempted coup causing the
Spanish Civil War (1936–1939). In response to the army rebellion, an
anarchist-inspired movement of peasants and workers, supported by armed militias, took control of
Barcelona and of large areas of rural Spain where they
collectivised the land. Even before the fascist victory in 1939, the anarchists were losing ground in a bitter struggle with the
Stalinists, who controlled the distribution of military aid to the Republican cause from the
Soviet Union. The events known as the Spanish Revolution was a workers'
social revolution that began during the outbreak of the
Spanish Civil War in 1936 and resulted in the widespread implementation of
anarchist and more broadly
libertarian socialist organizational principles throughout various portions of the country for two to three years, primarily
Catalonia, Aragon,
Andalusia, and parts of
the Levante. Much of
Spain's economy was put under worker control and in anarchist strongholds such as
Catalonia, the figure was as high as 75%, although it was lower in areas with heavy
Communist Party of Spain influence as the
Soviet-allied party actively resisted attempts at
collectivization enactment. Factories were run through worker committees,
agrarian areas became collectivised and run as
libertarian communes. Anarchist historian
Sam Dolgoff estimated that about eight million people participated directly or at least indirectly in the Spanish Revolution which he claimed "came closer to realizing the ideal of the free stateless society on a vast scale than any other revolution in history". == Criticism ==