Market socialism

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Market socialism refers to various economic systems where the means of production are publicly owned, managed, and administered and the market is utilized to distribute resources and economic output.[1] Market socialism generally refers to two related but distinct systems.

In a traditional market socialist economy, prices would be determined by a government planning ministry and enterprises would either be state-owned or cooperatively-owned and managed by their employees. Within this model, the public enterprises are free from excessive mandates by central planners, with decision-making on what to produce being left to the management of individual enterprises, with the planning board setting prices equal to marginal cost thus achieving pareto efficiency.

Market socialism is also used to refer to an economic system that utilizes market forces, including a free price system, for allocation and distribution of all resources, with public ownership in at least "strategic" sectors of an economy. The state will also often utilize market mechanisms to direct economic activity, which procures (external) regulation over the otherwise autonomously-operating enterprises. This allows for the public enterprises to function more autonomously in a more decentralized fashion than in other state-oriented socialist economic systems.

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Theoretical history

The earliest models of this form of market socialism were developed by Enrico Barone (1908)[2][3] and Oskar R. Lange (c. 1936).[4] Lange and Fred M. Taylor[5] proposed that central planning boards set prices through "trial and error," making adjustments as shortages and surpluses occurred rather than relying on a free price mechanism. If there were shortages, prices would be raised; if there were surpluses, prices would be lowered.[6] Raising the prices would encourage businesses to increase production, driven by their desire to increase their profits, and in doing so eliminate the shortage. Lowering the prices would encourage businesses to curtail production to prevent losses, which would eliminate the surplus. Therefore, it would be a simulation of the market mechanism, which Lange thought would be capable of effectively managing supply and demand[7] but could not work as efficiently or as effectively as the true thing. Time delays due to bureaucracy, distortions due to politics, and the lack of an entrepreneurial process that would come up with newer, better and cheaper products would seriously hamper the results of this approach vis-a-vis the real thing, which would also avoid the financial cost of paying for inessential government administrative staff.

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