Market Socialism and Self-Management 1. Introduction 2. Three cases of market socialism and selfmanagement: Yugoslavia, Hungary, China 3. Similarities and differences among the three cases 4. Performance under market socialism 1
Three Major Cases of Market Socialism 1) Yugoslavia starting in 1950, until its breakup in 1991. 2) Hungary starting in the mid 1960s until the late 1980s, when it shifted to capitalism. 3) China starting in 1978, until around the early 1990s when it began a transition to capitalism. 2
Market Socialism and Self-Management Market Socialism: Social ownership of the means of production Allocation of resources is predominantly done by market forces. Worker Self-Management: The labor process is directed by the producers themselves. 3
Overview: Yugoslavia 1944: Communist Party takes power 1945-50: Soviet-type model 1950: Workers self-management introduced but significant central control of economy was retained. 1965: Market system introduced, economy is opened to trade and capital movements, kept only indicative planning. 1974-76: Further decentralization to level of BOAL (Basic Organ of Associated Labor) -- smallest unit that could construct its own financial accounts. 4
Overview: Hungary 1950: Soviet-type central planning introduced. 1965-68: Introduced New Economic Mechanism : Market mechanism with some indicative planning, some control over investment, some price controls. 1973: Reintroduced central controls. 1980: Returned to market mechanism, with fewer central controls. 5
Overview: China 1949-52: New Democracy period 1953-57: Soviet-type model. 1958-60: Great Leap Forward (decentralization, local self-reliance) 1961-65: Return to Soviet-type model. 1966-74: Great Proletarian Cultural Revolution 1975-77: Transition period 1978-early 1990s: Gradual building of market socialism Early 1990s: China begins transition to capitalism 6
Similarities among the Three Cases 1. None had an economic crisis, or even stagnation, directly before the adoption of market socialism. Yugoslavia: 5.8% per year GDP growth 1960-65 Hungary: 4.2% per year GDP growth 1960-65 China: 6.5% per year GDP growth 1974-78 2. All resulted in growing inequality, especially by region in Yugoslavia and China. 3. All involved a return to predominantly private agriculture. 4. There was no major change in the political system Communist Party rule continued. 5. All went back to capitalism in the late 1980s early 1990s. 7
Differences among the Three Cases 1. Only Yugoslavia made a serious attempt to introduce self-management. 2. Only Hungary vacillated about market socialism. Yugoslavia and China stayed with it until capitalism came. 3. Only China approached market socialism gradually. Yugoslavia and Hungary introduced it relatively rapidly and comprehensively. 8
China s Two-Sector Approach China developed 2 sectors in its economy after 1978: State owned and largely planned sector of large state-owned enterprises Sector of non-state, market-oriented enterprises State-owned enterprises became more market-oriented over time. New entry was the means to create a non-state, fully-marketized sector. The state maintained significant regulation of the economy as a whole. Means: State investment, price controls, control of foreign trade and investment, state ownership & control of banking system. 9
How China s Two-Sector Structure Developed Percent of Total Industrial Output Size of Enterprise 1978 1991 State Non-State State Non-state Large-scale 41.5 0.0 40.7 2.9 Urban medium/small 35.8 13.6 12.1 13.0 Rural medium/small 0.0 8.7 0.0 20.6 Other Medium/small 0.0 0.0 0.0 2.9 Very small Scale 0.0 0.4 0.0 7.8 Total 77.3 22.7 52.8 47.2 10
Interpreting the Table Large scale enterprises remained state owned and basically maintained their share of total industrial output Two-thirds of the share of output from medium/small urban state-owned enterprises disappeared, while medium/small urban collective enterprises maintained their share. The reduced share of urban medium/small state-owned enterprises was replaced by the expansion of TVE s (rural medium/small enterprises), very small scale enterprises, and the other category (foreign invested firms and joint ventures between different ownership forms). 11
Growth Rates: Yugoslavia Period Plan/Market GDP Growth Rate per Year 1950-55 Plan 4.3% 1955-60 Plan 7.2% 1960-65 Plan 5.8% 1965-70 Market 5.0% 1970-75 Market 6.1% 1975-80 Market 5.5% 1980-85 Market 1.3% 12
Growth Rates: Hungary Period Plan/Market GDP Growth Rate per Year 1950-55 Plan 5.4% 1955-60 Plan 3.8% 1960-65 Plan 4.2% 1965-73 Market 3.4% 1973-80 Plan 2.1% 1980-85 Market 0.7% 13
Growth Rates: China Period Phase GDP Growth Rate per Year 1953-58 Soviet model 10.3% 1958-62 Great Leap Forward -7.1% and aftermath 1962-66 Soviet model 14.0% 1966-74 Cultural Revolution 5.6% 1974-78 Transition 6.5% 1978-92 Market socialism 9.4% 1953-78 Entire planned period 5.8% 14