Perestroika and the future of socialism - part 2

This way of viewing markets and market economies is not wrong, but it is greatly simplified and can be seriously misleading. Markets have many purposes and consequences, and in any given context it is important not to omit or unduly neglect those that are of greatest relevance. In the kind of debates that are taking place today in both capitalist and noncapitalist societies, there are three functions of markets that are particularly important: (1) as a means of distributing goods and services to consumers; (2) as a mechanism for allocating productive resources among various uses; and (3) as a way of deciding how much individuals and groups get paid for their labor and/or other assets they own.

In capitalist societies, markets typically perform all three of the functions--modified to a greater or lesser extent (depending on the differing histories of the countries concerned) by state intervention of one sort or another. In planned societies of the Soviet type, on the other hand, only the first of these functions (distribution to consumers) is entrusted to the market (again with modifications), while the other two are for the most part discharged by executive organs of the state (presumably guided by the planners).

Capitalist markets of course operate on the principle of profit maximization. Competition supposedly forces all suppliers to sell at the same price. The more efficient gain higher profits and expand their share of the market. The less efficient stagnate or fall by the wayside. Capital (followed by labor) moves into industries with higher profit rates and out of those with lower, creating a tendency toward a uniform average rate of profit across all industries. Everywhere, in these circumstances, a system of competitive markets generates unremitting pressure on enterprises to produce at lowest possible costs and to gain advantage over rivals by introducing new products and new methods of production.

This is the textbook theory of a market economy which since the days of Adam Smith has dominated bourgeois ideology. It is easy to understand its enormous attraction for Soviet economists, confronted as they are by the rigidity, inefficiency, waste, and palpable failures of their own system of central planning and economic management. To the architects of perestroika nothing could have seemed more logical or appealing than substituting the elegant "magic" of the market for the discredited Stalinist "laws of socialism."

The trouble is, as most readers of MR surely know, that capitalist reality has never conformed with the textbook model even under the most favorable conditions, while under less favorable conditions--such as exist in most of the Third World today--the resemblance is close to nonexistent. The reasons are many and hardly need elaboration here: the universal tendency of competition to turn into monopoly, the tendency of capital accumulation to generate wealth and income at one pole and deepening poverty at the other (not only within nations but between rich nations and poor nations as well), the system's periodic crises of overproduction and mass unemployment--and much, much more.