A Comprehensive Incentives Analysis of the Potential Performance of Market Socialism

James Yunker

Review of Political Economy, 2007, vol. 19, issue 1, 81-113

Abstract: This article evaluates the performance of contemporary capitalism relative to that of a hypothetical alternative designated 'profit-oriented market socialism.' In most respects, profit-oriented market socialism would closely mimic contemporary market capitalism. The major difference would be that most profits and interest generated by the operations of publicly-owned business enterprises would be distributed to the general public as a social dividend proportional to household wage and salary income rather than in proportion to household financial assets. The basis of the comparison is a small-scale but comprehensive computable general equilibrium model, termed the 'els model' because it encompasses three primary factors of production: capital management effort e, labor l and saving s. Numerical solutions of the model suggest that the critical issue is the numerical value of a parameter (ν) representing the output elasticity of total capital management effort in the aggregate production function. If this parameter value is relatively low, then profit-oriented market socialism out-performs capitalism. If this parameter value is relatively high, then capitalism out-performs profit-oriented market socialism. The fundamental implication of the research is that the relative performance of a profit-oriented market socialist economy is an empirical question and not a theoretical question.

Date: 2007
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DOI: 10.1080/09538250601080669

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