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Journal Title: The Indian economic journal: the quarterly journal of the Indian Economic
Association.
Volume: 37 Issue: 4
MonthlYear: April1990
Article Author:
Article Title: Sen, Amartya: SOCIALISM, MARKETS AND DEMOCRACY
Pages: 1

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THE INDIAN ECONOMIC JOURNAL
VOLUME 37 APRIL - JUNE 1990 No.4

SOCIALISM, MARKETS AND DEMOCRACYI

, By

Amartya Sen2

Socialist ideas have taken a good deal of beating lately. The new praise of capitalism
is based both on the successes of market-reliant economies and the problems of socialist
C(,'IUlluics. The retreat from the traditional socialist systems has gathered considerable
momentum already in the Soviet Union, eastern Europe and China. The changes have
. •tOme abOut largely through inlernal criticism and scrutiny in these countries and have not
been imposed from outside. Indeed. what must be particularly disturbing from the
sOcialist perspective is the fact that the reverses in the battle of ideas are at least as great
as 1.boSe in the realm of institutional practice.

• . And yet the basic issues in socialist beliefs have rarely been re-examined explicitly
inlhe contemporary disputes. Socialist ideas have been mauled more by the experience
ofuncomforlable and embarrassing facts than by reasoned analyses of diverseexperi-
cAces and their relevance to fundamental soc~alist ideas. The problem is made more
ctitrlCUll by the confounding of ends and means In the political literature, including the
.SOCialistliterature, making it hard to distinguish fundamental socialist ideas from the
instrUmental claims contingently associated with those ideas. This paper is aimed at
sorting out a few of the basic distinctions.
Market vis-a-vis Democracy

In the reforms that are being introduced in the USSR, east Europe and China, two
distinct issues have of len been considered together, viz, (l) the use of markets, and (2) a

1. Presidential Address at the annual meeting ofthe Indian Economic Association inTrivandrum,
on December 30, 1989.
2. Amartya Sen is Lamont University Professor at Harvard University and Honorary Professor
.8t Delhi University.

1
.2 THE INDIAN ECONOMIC JOURNAL

democratic political base. In fact, the two are often seen as constituting an indivisible
programme. But democracy and the use of markets raise very different types of consi-
derations and cannot but have rather different status in social evaluation. Indeed, there is
even a basic contradiction in seeing both as fundamental requtrements. If there, is
democracy, then it is up to the people to determine whether or not (and to what extent) to
use markets. It would be contradictory to leave the choice of institutions to the people,and
at the same time, to pre-close that choice by insisting that the market form of organization
be, in fact, chosen. If democracy is to be an irresistible force, then the market system
cannot be an immovable object.

That conflict need not be entirely theoretical.even though it is quite possible that
in many circumstances a democratic deeision procedure will indeed lead to the choice of
market forms (at least a greater usc of markets than has been the case in, say, the USSR
and east Europe). There are circumstances in which the absence of conflict cannot be
presupposed. A good example is China since the economic reforms of 1979. There is
considerable evidence that the wholesale introduction of the markel-based "responsi-
bility system" in China has, on the one hand, provided good economic incentives for
agricultural production, and on the other, deeply undercut the organizational support and
financial security of rural health services. Just when agricultural output has boomed and
GNP growth stimulated in the years following the reforms in 1979, mortality rates in
China have also gone up and life expectancy at birth has declined between 1979 and the
mid 1980s. This is brought out both by Chinese official statistics, and also by estimations
.by independent scholars, such as Judith Banister, Athar Hussain and Nicholas Stem, and
others. Indeed, it appears that the Chinese mortality rates since the market-oriented
reforms have been consistently higher every year than they were just before the reforms
in 1979. While there are several causal factors involved in this development (including
the compulsory popUlationcontrol policy in China), the decimation of China's commu-
nal health services in the rural areas is certainly a causal factor of great importance. That
decimation bas been directly linked with the big push towards market-based allocation in
the Chinese rural economy. leading inter alia to a dramatic reduction of public health
services and communal medical insurance for the rural population. (Jean Dreze and Ihave
discussed this question in some detail in our forthcoming book,HungerandPub lie A ction ,
to be published by Oxford University Press.)

How was it possible to do away with such a crucial comributor to health security
in China without the affeclCd public vetoing such a change? How come the rural
population did not insist that the domain of the market economy not be extended so far
as to compromise such a vital feature of Social security on wbjch it had come to rely'! The
fact is that the Chinese people could not have blocked such a move by the government. f
The decision came largely from above. Just as in ]958-61, during the Chinese famines ".
(in which it is now estimated on the basis of official statistics that between 23 to 30 million
people had died) the population \at large did not have the option of changing Chinese
official policy that directly exacerbated the famine, similarly during the market-oriented
reforms of 1979 the population at large had little say on what social security arrangements
. /
 VOLUME 37 NO.4 3

should not
be maintained. In this sense, it is the very absence of democracy that made the .
t:8dkalmarketi~ation of the ~ural Chin~ economy easy to enforce.
h'- .

The need to distinguish clearly between the issues of marketization and democra-
tization is not only important in theory, but can also be crucial in practice. It is, of course,
possible that greater democratization will often lead to greater support for expanding the
role of the market (as is clearly happening in Hungary or Poland or East Germany), but
die relationship is circumstantial and contingent.

Further, the choice of market as an institution is main} y an instrumental one, white

die value of democracy is much more foundational than that The use or non-use of
mark,cLS has to be justified by the respective consequences, whereas the absence of
deroOcracY is an indictment in itself. Whatever may be the status of the market mecha-
nism, it cannot be at par with that of democracy.

The market is often seen as a vOling system. This in a sense it is, but with a very
unequal distribution of franchise. Indeed, the socialist argument for the abolition of
private property has much to do with precisely this undemocratic aspect of tbe market
distribution of franchise. Thus, there is a deep-seated conflict between unconditlonal
support for the market mechanism and basic socialist ideas. This is not the case in the
. ."lationship between democratic ideals and socialist goals.

Democracy a,nd Socialist Ends

The fact remains, however, that many socialist countries have had quite a terrible
record of undemocratic practice. Although the word democracy has always remained in
favour (even in the' writings of Joseph Stalin), the institutional structure and political
. practice were often anything but democratic. While there arc also excellent records of
socialist support of democratic institutions in many countries (e.g., in Scandinavia, and
also in India, including by the major communist parties), the history of the relationship
, between socialism and democracy is quite a checkered one. The ambiguity and opacity
of Such phrases as "the dictatorship of the proletariat" and "democratic centralism" have
contributed greatly to combining antidemocratic practice with democratic rhetoric. It is
not surprising that in nearly all the countries governed by communist parties, popular
demands for democracy have gathered momentum (wbetheror not they have been mel by
bulletS, as in Beijing or Bucharest), But even within the Marxian intellectual traditien
there have been strong voices (Marx's own, Rose Luxemburg's, Antonio Gramsci 's and
Olhers) in favour of asserting basic institutional forms of democracy,

Some of the themes that have come to the forefront at this lime through protest
movemenL", were discussed and defended eXp'l_icitlyin the classic Marxis; lucrature. Just
lOgive. one example, .~o~c Luxemburg bad the following to say on the monopoly of
~···~!iticalp<)worof the party: ,
. ,
4 TilE INDIAN ECONOMIC JOURNAL

"Freedom only for the supporters of the government, only for the members of one
party-however, numerous they may be - is no freedom at all. Freedom is always
an exclusively for one who thinks differently. Not because of any fanatical concept
of 'justice' but because all that is instructive, wholesome and purifying in political
freedom depends on this essential characteristics, and its effectiveness vanishes
when 'freedom' becomes a special privilege."
(The Russian Revolution, Chapter VI)

This is not the occasion to try to unravel all aspects of the relationship between
socialism and democracy, which has many facets. But it is important here not only to
distinguish the issue of democracy from that of markctization, but also to emphasize the
cole of democracy in socialism as a central issue in the reassessment of socialism. To
recognize this is not the same as disputing Marx's belief that formal political equality will
not automatically lead to an egalitarian distribution of actual political power in a society
with great economic inequality. Marx was right to be sceptical. But questioning the
SUfficiency of political equality does not amount to disputing its necessity. Support for
substantive democracy docs mili141LC against inequalities of wealth (and against the class
division between the owners Hod dispossessed), but it docs not militate in favour of
inequalities of political privilege.

Markets as Instruments

To emphasize the priority of the issue of democracy and the subsidiary nature of the
use of the market should not be seen .IS "slighting" the market issue. Murkctscan he
powerful institutions with far-reaching consequences, and the role of the market mecha-
nism .in socialist SYSLCmSmust be seen as an important instrumental question. The
incen(lve advantages of the market mechanism, in addition to it') informational economy.
are sometimescontrasted with the disincentives of socialist economic organization. Thm
contrast, taken in this simple form, is deeply misleading, since a socialist economy is free -
to usc or not usc the market mechanism consistently with public ownership.

The question of incentives was extensively discussed by Marx himself in his

Critique ojth« Gotha Programme (leading tohis famous dcfenceofwage payments in line
with productivitics, in early socialist organization). In fact, the formal exploration of the
incentive structure and the efficiency of the market mechanism owes a great deal 10 the
pioneering writings of socialist economists, including among others Oscar Lange and
Abba Lerner in the 1930s (the definitive exploration of this question by Kenneth Arrow
and Gerard Dchrcu came later). The usc of markets is a central instrumental question in
socialism and has been seen as such. Itcalls for undogmatic consequential analysis of the
results of using markets.

As it happens, the formal economic literature on the market mechanism has also
brought out the limitations of that instrument when it comes to the allocation of "public
 VOLUME 37 Jl;O. 4 5

,i9Qds"alld of commodities yielding large "externalities" (both Paul Samuelson and

Kenneth Arrow have investigated these issues).The medical reverses in post-reform rural
:Qin" with the reduction of public medical insurance, discussed earlier, are not entirely
'out of line with standard economic theory, as analysed by Arrow and .olhers.. '

Given the limitations of market-based allocation of health services, education and

SillCialsecurity, it is not surprising that the market-reliant economics, even when very rich,
f~uently have lower achievement in terms of standard indicators of quality of life than
Joorereconomies making better use of public delivery of healthcare, education and social
iasuraDce. Contrasting the experiences of China, Sri Lanka, Costa Rica with those of
BraZil, Oman, South Africa in terms of such indicators as life expectancy clearly bring out
"cbe advantages of public delivery and social security measures (successfully USl'D in
f~r countries) .ovcr greater reliance on the market system (as in the laucr countries,
with lower "quality of life" despite higher GNP per head). Even the much-praised
achievements of the market based success stories of South Korea, Hong Kong and
Singapore can be shown to have been based on using the fruits of economic growth
(stimulated by the market, along with public planning) for public delivery of vital
necessities (going well beyond the market).

In socialist economies as well as capitalist countries, the reach and limitations of the
.mJlLrKt:;t.mechanismhave to be undogmatically investigated through consequential unaly-
While the role of the market mechanism will certainly be very much greater in the
USSR and east European countries than has been the case earlier, the question of what
~ce to choose has to be kept firmly in view not to end up making the opposite mistake
.from that made in the past. What is needed above all is a demystification and profession-
a1ization of the question of the use of markets,

To conclude, in the reassessment of socialism that is currently in progress (and

,u.rhii'~hwill undoubtedly gather furthennomentum), it is imponantto distinguish founda-
'i,,+jlc.',ii,/"i' issues from contingent, instrumental ones. To treat the use of the markct mechanism
the foundational question of social ist democracy is a serious mistake. M~lfkNs
iDStilUtions have many advantages and quite prominent disadvantages. and the
choice of markets in some spheres but not in others is a good subject for
~.lflilffi(~ntal analysis enlightened by professional investigation. It is U.''; naive to sec
'ilWdetsas a general threattosocialism as it is to sec it as a sure-fire recipe for efficiency.

In contrast, the issue of democracy is central. This includes not merely the well- .
}_"" .. _i·7I'tt importance of abolishing the class-dichotomy between the owners and the
.di1n.xJ'SS(~SSled, but also the relatively neglected question of political equality and shared
fre:ed'oms. The underemphasis of these issues in the socialist lucrarurc has been a liabi IiI Y
,'iI1"lDIII\UiJl;l. Indeed, as I have tried to argue earlier in this paper, it is precisely the ne.gk~l
6 TIlE INDIAN ECONOMIC JOURNAL

of democracy in China that has made it possible for its government to over-extend the
market mechanism in the ruraleconomy after the reforms of 1979, leading to a serious
deterioration of commtfnafme~~iCCS, ultimately affecting the general health and .
longevity of the population (\li,Nl~vislhclligh levels already reached),

The climinalion~or~lilicul inC(lu~IiiY·in--Social~' systems is an important chal-

Ienge, Michael ~ICckj had once remarked. "Here in Poland we have successfully
abolished cupiuilism; an we have to do now is to abolish feudalism-.J·;-~lt piece or lcvay
points lO'_Vaids a foundational question lhat social ist reassessment must sel10usly ,~~drcss.
'-,

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