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Market Socialism: A Case for Rejuvenation

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  • Pranab Bardhan
  • John E. Roemer

Abstract

In this paper, we will outline a feasible economic mechanism of "competitive socialism." Our claim is that competitive markets are necessary to achieve an efficient and vigorous economy, but that full-scale private ownership is not necessary for the successful operation of competition and markets. Contrary to popular impression, this claim has not yet been disproved by either history or economic theory. It is the failure of both the political right and the left to disentangle the concepts of private ownership and the competitive market that has led to the premature obituaries for socialism. In the second section, we look at the question of the "soft budget constraint" as an agency problem under market socialism. We then propose two variants of a bank-centric system of insider monitoring as a viable solution to the agency problem. The next section discusses the essential problem of political accountability and the difficulty of credible pre-commitment in avoiding the soft budget constraint problem, and suggests ways of minimizing this problem in our proposed system. We then conclude by addressing some of the other standard objections to a proposal for market socialism.

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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 6 (1992)
Issue (Month): 3 (Summer)
Pages: 101-116

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Handle: RePEc:aea:jecper:v:6:y:1992:i:3:p:101-16

Note: DOI: 10.1257/jep.6.3.101
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  1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  2. Pranab Bardhan., 1991. "Risktaking, Capital Markets, and Market Socialism," Economics Working Papers 91-154, University of California at Berkeley.
  3. Barzelay, Michael & Thomas, Lee III, 1986. "Is capitalism necessary? : A critique of the neoclassical economics of organization," Journal of Economic Behavior & Organization, Elsevier, vol. 7(3), pages 225-233, September.
  4. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 133-52, May.
  5. Roemer, J.E., 1991. "Would Economic Democracy Decrease the Amount of Public Bads?," Papers 376, California Davis - Institute of Governmental Affairs.
  6. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  7. John Vickers & George Yarrow, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-132, Spring.
  8. Jensen, Michael C & Meckling, William H, 1979. "Rights and Production Functions: An Application to Labor-managed Firms and Codetermination," The Journal of Business, University of Chicago Press, vol. 52(4), pages 469-506, October.
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