The State Socialist Challenge and Its Market Socialist Critics

Abstract

State socialism, as it appeared in the East European socialist bloc and China after the Second World War, was a hierarchical state-administered publicly-owned planned economy. The communist party state was hegemonic. State socialism is considered the first comprehensive form of state-led industrialisation, ensuring not only economic growth but a transformation of the social structure that prioritised economic growth, relatively low income differentials and a comprehensive welfare state. By the 1960s, state socialism was an effective form of welfare state industrialisation. However, as economic growth declined and real income fell, public aspirations for higher living standards were not fulfilled. State socialism was challenged ideologically by reformers who advocated market socialism and participatory electoral democracy. Criticisms of the planning system mirrored those of the neoliberal economists. The state socialist system is appraised as an effective but imperfect alternative to liberal market capitalism. Two alternatives to the difficulties of Soviet planning are outlined and discussed: market socialism as proposed by Oskar Lange and participatory socialist planning as advocated by Ernest Mandel.