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Market socialism is an attempt by a Soviet-style economy to introduce market elements into its economic system to improve economic growth. It was first attempted during the 1920s in the Soviet Union as NEP, or the New Economic Policy, but soon abandoned. Later, elements of "market socialism" were introduced in Hungary (where it was nicknamed "goulash socialism"), Czechoslovakia and Yugoslavia (see Titoism) in the 1970s and 1980s. It is also the system introduced in the People's Republic of China by Deng Xiaoping in the late 1970s and has evolved into what some economists, outside of China, would argue is modern Chinese capitalism. Modern Vietnam and Laos also describe themselves as market socialist systems. The Soviet Union attempted to introduce a market socialist system with its perestroika reforms under Mikhael Gorbachev prior to the collapse of the USSR in 1991.
Historically, market socialist systems attempt to retain government ownership of the "commanding heights of the economy" such as heavy industry, energy, and infrastructure, while introducing decentralised decision making and giving local managers more freedom to make decisions and respond to market demands. Market socialist systems also allow private ownership and entrepreneurship in the service and other secondary economic sectors. The market is allowed to determine prices for consumer goods and agricultural products and farmers and sometimes other producers are allowed to sell all or some of their products on the open market and keep some or all of the profit as an incentive to increased and improved production. However, the Chinese experience with market socialism has led to another situation.
China
"Socialist market economy with Chinese characteristics" (Chinese: 具有中国特色的社会主义市场经济) is the official term for the economy of the People's Republic of China.
Although it appeared as late as the early 1990s that the government intended to retain ownership of heavy industry, entry, and infrastructure, they were ultimately privatized for a number of reasons. The most important was that with pricing reform in the late 1980s, most state owned enterprises became highly unprofitable and the government decided to close or sell them off. Thus, the PRC gradually made a transition to a system in which all resource allocations are made on the basis of prices, and in which most of the means of production are in private hands, prompting many people both communist and capitalist to wonder how does the Chinese system differ from outright capitalism.
The Chinese government, however, continues to maintain that it has not abandoned Marxism, since officially abandoning Marxism would undermine the legitimacy of the Communist Party of China. Therefore, the PRC radically redefined many of the terms and concepts of Marxist theory to justify its new economic system.
In Marxist theory, history progresses through a number of stages from slave society to feudal society to capitalist society to socialist society to communist society. In Maoist theory, the revolution of 1949 was a change from feudalism to socialism, and this change is considered to be irreversible. As a result, the Chinese Communist Party has been able to redefine socialism and to argue that socialism is not incompatible with economic policies such as private ownership of the means of production, free markets, neoliberal globalization, or anything else for that matter. In essence, they argue that socialism means anything that happened (or happens, or will happen) from the 1949 revolution onwards. In current Chinese Communist thinking, China is in the primary stage of socialism, and this redefinition allows the PRC to undertake just about any economic policy it wants without running into theoretical difficulties or without undermining its justification for existence.
However, this solution presents another problem. If the Chinese Communist Party does not use any theory and not even a set of general guidelines for how a socialist system should look like, then how does it make its economic decisions? Their answer is to use Deng Xiaoping's dictum seek truth from facts and just do whatever seems to work. In an international context, Chinese statesmen usually follow this line:
"China respects the diversity of the world. There are nearly 200 countries in the world with a population of more than 5 billion. There should not and cannot be only one mode of development, one concept of values and only one type of social system in the world due to differences in historical conditions, social systems, development levels, cultural traditions and concepts of values."
There is also one final problem with which the Chinese Communist Party is still trying to deal. The problem is that Marxism claims to be an exact, well-defined scientific theory of social and economic development, while the Chinese reformulation of Marxism clearly lacks these qualities. It is difficult for the Chinese government to build its legitimacy on a theory that amounts to "do anything that seems good". Therefore, it has moved toward Chinese nationalism as a basis for its legitimacy, and, for that matter, as an emotional motivator as well.
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