Social Market Economy
may be a familiar term or concept but the other concept might be new.
As I perceive it, both concepts have very similar economic components
but there is one significant difference. What is it?
Social Market Economy will continue to link the distribution of
distributable output significantly to the ownership of means of
production. On the contrary “Social Market Socialism”
will separate the distribution of distributable output significantly
from the ownership of means of production. This difference is not just
theoretical; instead it has very far reaching practical impact. The
impact is related to the efficiency of the economy. Let us discuss this
matter further.
The UNFGG
(United National Front for Good Governance) proposes an economic model
which they define as “Social Market Economy.” If you are an interested
reader of this subject, you may easily browse internet to read many
scholarly articles written on the subject. Yet, my purpose here, in this
article is to direct this discussion towards a possible application.
In regard to the concept of Social Market Economy, the word “Market”
intimates in achieving economic efficiency through market mechanism and
the word “Social” should stand for “public services and the state’s
intervention in the economy.” In other words the efficiency of the
economy would be primarily attained through “market mechanism” and the
efficiency of fair distribution of distributable (or consumable) output
would be attained through the intervention of the state or the
government. Is this the economic model what UNFGG proposes? I guess it
is. Then, what was the model existed under the previous regime?
Priorities and components might vary, but previous regime too stood for
Social Market Economy; no economist can deny it, even if so called
corruption and nepotism existed under the previous regime. If this is
the case, then this type of economic system must be properly defined not
as “Social Market Economy” but as “Social Market Capitalism.”
Hence, my point is that Social Market Economy is only a useless label. In fact, it doesn’t explain any serious fundamental difference; capitalism is capitalism with two-tier production system in which almost all national proceeds are generated through “market-based-production” while society’s “common interests” such as general administration, law and order, health-care, education etc. are produced by the state using the money derived mainly from national proceeds. As a production system even socialism would retain this basic model of two-tier production. This means, in regard to economic production both systems would use same principles. Therefore I do not believe that envisioning a “Social Market Economy” has something new.
However, contemporary capitalism and true socialism are not the same.
In money based economic system, the most fundamental and significant
difference is that capitalism will continue to link the distribution of
consumable output to the ownership of the means of production and on the
contrary the scientific-socialist-system would de-link the distribution
of distributable output from the ownership of means of production. This
is the most significant difference between capitalism and true
socialism. I am not sure whether JVP knows about this difference.
Both systems retain “market mechanism” to ensure the basic economic
efficiency which efficiency we define as the efficient allocation of
productive resources among numerous production processes. Perhaps, you
may now wonder about the ownership of the means of production under the
socialist system because, so far you had been indoctrinated that the
main difference between capitalism and socialism is the ownership of
means of production. It is not true.
Socialists talk about a phenomenon known as exploitation. The
exploitation does not mean the expansion of productive capital and owned
it by capitalist elite. Instead the exploitation is a question of the
distribution of distributable income. In the final analysis exploitation
means that you (the owner of businesses) allocate more consumable
income for you or it is distributed as per your wish. In order to do it
you must own the means of production or the government or both.
However, in money based well-functioning democracy the distribution
of consumable output can be done fairly without any significant relation
to the ownership of the means of production, such as factories, banks,
etc. More intelligent capitalist elite know that this is technically and
economically possible through maneuvering three economic variables,
namely, wage structure, taxation and consumer credit. In regard to these
variables “wage structure” relates to the entrepreneurial (or private)
sector wages and the wages of government employees are included in the
parameter of “taxation.” In regard to “consumer credit”, it relates to
the employees in both sectors.
However, capitalists say that if you do de-link the distribution of
distributable output from the ownership of means of production
completely or to a greater degree, then you can’t ensure economic
efficiency. Yet, the economic crisis erupted in the United States in
2008, clearly showed, that private ownership of means of production has
nothing to do with ensuring economic efficiency. All major banks and
businesses in the U.S. which are privately owned, such as Bank of
America, Citibank, JP Morgan Chase, Wells Fargo, General Motors,
Chrysler etc. should have bankrupted by now if not supported by the U.S.
government. Hence, economic efficiency is not a thing directly related
to private ownership.
In fact capitalism will continue to link the distribution of
consumable income to the ownership of means of production through which
exploitation become possible. The exploitation distort social
production, waste resources, prevents socially necessary innovations and
inventions.
On the contrary, a serious socialist might argue that if the
distribution of distributable output is de-linked at least to a greater
degree from the ownership of means of production, then, such an economic
system would have more efficiency than contemporary capitalism in
regard to the production, fair distribution of distributable output,
full employment, protection of environment, direction of productive
resources to make human friendly technological innovations and
inventions, harnessing comparative advantages of global production etc.
He or she will further argue that the separation of the distribution of
distributable output from the ownership of means of production must be a
goal of socialism, no matter whether factories, banks etc. are owned by
private individuals or workers or corporations or unions or the
government or workers’ cooperatives. For theoretical reasons I have to
agree with this notion. In fact, this should be written in the election
manifesto of JVP but I did not find it there.
This means the separation (or de-linking) of the distribution of
distributable output from the ownership of means of production must be a
goal in socialism. If the socialism can achieve this goal, then there
is no need to bother about the question of ownership – because the so
called exploitation does not mean the expansion of productive capital
and owned it by capitalist elite, instead in the final analysis the
exploitation means that you allocate more consumable output for yourself
but you can’t do it now since the distribution or the allocation of
consumable output has now been de-linked from the ownership of means of
production. Can any economy do this? In regard to this question let me
quote Noble Prize winning economist Professor Joseph Stieglitz. He is
basically a capitalist economist.
Stieglitz says that, “… for total American consumption to be restored
on a sustainable basis, there would have to be a large redistribution
of income, from those at the top who can afford to save, to those who
spend every penny they can get” (Free Fall, 2010). What does this mean?
He says that redistribution of income must be separated from the owners
of businesses. He further observes that, this would not only restore the
consumption on a sustainable basis but also “help stabilize the
economy.” In fact, Stieglitz was talking about the parameter of
“taxation” which is one of the three parameters I mentioned above
pointing out that those parameters or variables could be used to de-link
the distribution of distributable income in a well-functioning
democracy.
Therefore, the point I want to make here is that the said three
variables namely, wage structure, taxation and consumer credit should be
effectively used to the optimum separation of the distribution of
distributable output. In such an economy entrepreneurs would be more
enthusiastic than otherwise because when the consumption is restored on a
sustainable basis, employers/entrepreneurs would get back what they
expect from consumer spending. Is this what the UNFGG envisioning to do
under whatever economic model? I do not know. But let us hope that they
are going to do it. (Hema Senanayake)
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