Non-Market Economy

 Non-Market Economy

Rooted (immediately) in the ideas of Karl Marx (1818-83), it had two variants—socialist and

communist. While in the socialist model (ex-USSR, 1917-89) state was having ownership control

on only natural resources, in the communist model (China, 1949-85) the state used to have

ownership control over labour also. It got also known by its other names such as State Economy,

Command Economy, Centrally Planned Economy. Basically, this system evolved in ‘reaction’ to

the market economy and was based on the following main beliefs—

■ Resources of a country should be used for the wellbeing of all.

■ Resources are best used once they are under the ownership of society/community

(Socialism/Communism). Thus, all economic roles will be played by the state only.

■ No property rights given to individuals guided by the belief that it promotes exploitation

of the labourers (i.e., proletariat) and helps a small minority (i.e., bourgeoisie) to get

richer over time—resulting into increasing economic inequality.

■ Absence of market (i.e., inter-play of demand and supply was totally absent).

■ No idea of competition (i.e., total state monopoly is economic sphere).

■ People to play economic role (employed in the state-owned enterprises) according to

their ability and in return to get all facilities from the state as per their needs.

■ The decisions such as what to produce, how much to produce and how to supply them to

people were taken by the state itself.

This system first got tried by the Bolsheviks in the ex-USSR (in 1919) from where it spread

across the whole eastern Europe (the so-called socialist bloc countries) of the time, finally getting

its purest form in the communist China (in 1949)—emergence of the socialist and communist

models of the non-market economy.

Cons of this System Even after being fully committed to the ‘wellbeing of masses’ with virtual

absence of poverty this system had its own limitations which can be summarised briefly in the

following way—

■ Though, the aim was to serve all there was no idea of creating capital or wealth—which

created a scarcity of investible capital in the coming times.

■ State used to prioritise the uses of resources—thus the best or optimum uses of resources

(driven by market forces) were denied leading to their misallocation and wastage.

■ In the absence of property rights there was no motivation to work hard and tap the animal

spirit of the people (as no money was paid to them)—leading to virtual absence of

innovation (i.e., research and development)—a process of internal decay.

■ Being non-democratic political systems the things like liberty and freedom were totally

absent. Aimed at avoiding exploitation of the labourers at the hand of the capitalist state

itself emerged as the sole agent of exploitation—critics called this ‘State Capitalism’.

A process of internal decay was being faced by these economies since early 1970s caused by the

in-built shortcomings they had. It was way back in mid-1950s that the Polish philosopher Oskar

Lange had advised these economies to embrace ‘market socialism’ which was outrightly

rejected by both Soviet Bloc and China. At last by mid-1980s state economies moved to modify

their economic systems by including certain traits of the market economy—

■ Ex-USSR, by late 1980s, announced the twin policies of Perestroika (restructuring) and

Glasnost (openness) switching over to mixed economy with fundamental traits of market

economy. Similar changes were adopted by the existing East European socialist

economies and the CIS (Confederation of Independent States).

■ China, by mid-1980s, announced its Open-Door Policy embracing mixed economy with

fundamental traits of the market economy. Rather China had started preparations for this

change by mid-1970 itself but they were not explicit in nature.

In a way the two major and contrasting economic systems of the time had completed the full

circle and moved closer to borrowing traits from each other—the evolution of the mixed

economy (where we find the mixture of traits of both of the economic systems). This event has

been also termed as the end of ideology—as the ideological divide between these economic

systems looked bridged now—eventually ending the long-drawn Cold War which originated

from this ideological difference .