Market Socialism: Soft budget constrain (Essay Sample)

Market socialism
Name
Institution
Date
Thesis
Many countries since the year 1989 have beyond reasonable doubt painted the picture of dismal performance of socialism economy. Socialism failure can however be attributed to three features; state ownership of means of production, non-competitive markets and non-democratic politics, and administrative allocation of resources. Competitive socialism however negates the second and last features of socialism asserting that competitive politics and competitive allocation of resources without replacing the owner of the resources would mitigate collapse of socialism economy.
Outline
Market socialism
Soft budget constrain
Market Socialism
Market socialism is a principle that refers to economic systems where means of production are owned, managed and administered publicly. In this system, the market is usually utilized towards distribution of resources as economic output and generally refers to related but distinct systems. The first one is Traditional market socialist economy where the prices are determined by the state and are either owned by the state or owned and managed by the employees. This model does not allow for a centralized management by the planners. The second is market socialism which is used to refer a system that utilizes market forces. The pricing system, allocation and distribution of resources are directed by the public. The government offers mechanisms to direct the economic activities and regulations of other enterprises. In major economies however, the ownership is retained with the government.
Market socialism proponents argue that for an economy to grow to its full potential, competitive markets is necessary. Albeit the necessity, full scale ownership does not provide enough need for the thriving economy. Lack of understanding for this fundamental distinction between private ownership and competitive market is what has led to death of socialism in most states (Bardhan & Roemer).
The main problem with socialism, which is what results to its failure, is public ownership of resources. If we can redefine the ownership system of the public or state means of production towards a competitive market then socialism would not result to its dismal performance. Thus the proposal from these proponents includes removal of firms from the state's orbit i.e. from the politics of the state. However, no individual would be granted the right of ownership. Individuals operating the entities will have rights to profits of firms, and, in some cases, will even trade the rights given but will not capitalize on these kinds of trade for profit making purposes (Bardhan & Roemer).
Such trading might however beckon capitalism way of checking the effectiveness of the strategy. Monitoring of the institutions would therefore be done by the banks or other firms in the same financial group to assess their performance. Under this kind of market, surplus resources after payment of wages and taxes are redistributed to the workers for private consumption or social investment.
In the economic perspective, the citizens also regulate the level of public bad for instance pollution the firms may emit. This level of pollution is determined and also the competitive equilibrium maintained in the economy. In other words, the level of the public bad that is allowed will be chosen by the voters in respect to other alternative methods.
One of the reasons why this kind of market socialism does not work is because social democracy requires rather special political circumstances that are absent in many countries for which our market socialism proposal may be feasible.
Soft budget constrain
Soft budget constrain focuses on the motivation of managers in public firms. In a private firm, the entrepreneur gains or loses depending on the performance of the firm. In a salaried public firm, the manager has fewer stakes and will have their remuneration despite the performance of the firm and will have less motivation to want to perform better. That manger operates under what is called the “soft budget constraint” (Kornai, Maskin, & Roland).
In a soft budget constrain, political accountability dominates over the financial accountability. Soft budget constrain presents two problem. 1. Information problem and 2. Political problem which usually involves the state. In the first instance, a government may have the will to control and demand efficiency from the firm. However, it may not have enough information on what needs to be done for the firm’s poor performance. Private owned firms do not suffer from this problem.
Capitalist organizations with large shareholders may however face the problem of management and monitor problems. A capitalist organization with many shareholders is akin to a socialist organization which is practically owned by nobody because it is owned by everybody. Nobody takes responsibility. Thus a capitalist system with many owners would be similar to a socialist firm.
Soft budget constrain may also appear as a political problem. The problem that arises from this specific problem is the question of who monitors the bank as the monitor of the corporate groups in socialized markets....