Economics

Non-Market Economy: Best system for social development?

Non-Market Economy, an economic system determined to play the welfare role and eliminate the exploitation of laborers and help the poor, an economic system determined to eliminate the capitalists and redistribute their wealth, to eliminate the ‘profit-motive’, which is considered as the root of the evil. Sounds very good right? Indeed it is, but perhaps, just in principle, not in practicality. In this blog, we’ll be discussing the non-market economy, its advantages, and implications.

Mixed Economy
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Non-Market Economy

The idea of a non-market economy was presented, indirectly, by the works of Karl Marx. This economic system has two variants- Socialism and Communism. The principles of a non-market economy are completely opposed to the Market Economy.

The Socialist model of a non-market economy was tried and had been successful for a long time in the Socialist USSR(Union of Soviets Socialists Republic). And the Communist model was also prevalent in Communist China. Some would argue that China is still a non-market economy, but it isn’t really as it has moved a long way from that system and the government does not have total control over the economy and plays a very limited role in controlling production and prices.

Non-Market Economy
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The Principles of Non-Market Economy are-

  • All the resources of the country shall be controlled by the society i.e. the state/government. So, all the economic roles such as production and supply of goods and services would be done by the government.
  • As the state has total control over the production and supply, there is no free market, and the goods are not traded in a free market but rather allocated directly to the people by the state.
  • As opposed to the market economy, the idea of monopoly is prevalent as the state has a total monopoly over all means of production. However, this raises a serious question about the quality of goods produced, as there is no competition checking the quality and pricing of goods produced. But, as the prime role of the state is public welfare, we can very well assume that unchecked pricing is not a real concern in this economic system.
  • Non-Market Economy
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  • The individuals, in the non-market economy being barred from playing any economic roles and having no property right, can only work as employees in the state-owned enterprises.
  • The individuals are barred from property rights, due to the belief that individual property right is the root of evil (income inequality), with a small portion of the society being rich, and the majority remaining poor.
  • Due to the absence of a free market, the forces of demand and supply are totally absent. Hence, what to produce, and how much is determined by the state. And as the decision on what and how much to produce is taken by the state, the price volatility, caused by the interlinkage of demand and supply, is rare.

Advantages of non-market economy

As you can conclude from its principles, the non-market economic system is determined for the welfare of the population. The non-market economic system is pro-labor and aims to enhance their conditions and secure their rights, and most importantly, prevent their exploitation. So, a non-market economy is probably a haven for the laborers. Contrary to the market economy, the government strictly regulates and limits the working hours, and maintains their minimum wages.

Non-Market Economy
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The absence of property rights to individuals in order to prevent income inequality and exploitation makes sense. A non-market economy aims to prevent a small minority from getting richer over time and having more power and influence over the minority, and this is a reaction to the prevailing income inequality in a market economy. And as income inequality recedes in an economy, so does social inequality.

The idea of no competition and complete monopoly also protects the laborers from getting exploited. Due to the competition, the companies try their best to reduce their production costs. And as we know that companies cannot control the prices of raw materials, the ax eventually falls on the laborers, as they try to reduce the labor costs. So, they force the laborers to work for lower wages, and due to prevailing unemployment and income inequality, laborers are forced to do so.

Due to the absence of demand and supply and the central regulation on prices, the prices of goods are not volatile in a non-market economy, as the state decides what to produce and how much. And the price manipulation by the private companies, taking advantage of the needs of the people, is totally absent.

The shortcomings

Non-Market Economy
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As the system of non-market economy opposed the very idea of profit and wealth creation, hence, there are literally no incentives for the people to invest the capital in assets such as machinery or land used for production. So, after the initial years of its commencement, there was an acute scarcity of investible capital.

What keeps the prices and quality of goods produced in check? Competition. But in a non-market economy, the very idea of competition is absent. So, the question arises on the quality of goods produced in a non-market economy, as the people have no other option other than buying goods produced by the state-owned production units. But however, as stated earlier, due to its motive of social welfare, unchecked pricing isn’t really a concern in this economic system.

With the absence of property rights, people had no incentive to work hard and give their hundred percent. And due to the absence of the idea of the creation of wealth and no competition, there is no incentive for the individuals for innovation in the economic sphere that would lead to economic development. And all these factors lead to the deterioration of the economy and eventually harms an individual’s income.

All these shortcomings in a non-market economy outweigh the pros as the economy itself deteriorates and the income generated gets reduced, which would ultimately lead people to poverty. The non-market economic system faces the problem of internal decay, the system and its principles decay itself.

China and USSR

Non-Market Economy
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China and the USSR, the frontiers of socialism and communism i.e. non-market economy, after facing these problems eventually moved towards the mixed economic system by adopting certain traits of Market Economy in their economic policies. And this move was followed by other non-market economies of Europe.

  • The USSR adopted the policies of Perestroika (Restructuring) and Glasnost (Openness), moving towards the mixed economic system.
  • Similarly, China also introduced the Open-Door policy which included traits of the Market Economic System.

Some famous quotes by Karl Marx-

Image by – Zedge

“While the miser is merely a capitalist gone mad, the capitalist is a rational miser.”

“The theory of the Communists may be summed up in a single sentence: Abolition of private property.”

“Civil servants and priests, soldiers and ballet dancers, schoolmasters and police constables, Greek Museums and Gothic steeples, civil list and services list- the common list within which all these fabulous beings  slumber in embryo is taxation.”

“The history of all previous societies has been the history of class struggles.”

“Let the ruling classes tremble at a Communistic revolution. The proletarians have nothing to lose but their chains. They have a world to win.”

Ending the article with probably the most aggressive and famous quote by Karl Marx-

“The last capitalist we hang shall be the one who sold us the rope.”

Learn about other economic systems-

Market Economy

Mixed Economy

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