WAN RUNNEN AND OSCAR LANGE: MARKET SOCIALISM REVISITED -- NEO-MARXIST ALTERNATIVES IN THE PEOPLE'S REPUBLIC OF CHINA Wan Runnen is a young Chinese businessman who took advantage of Deng Xiaoping's economic reform program to found Stone Industries, producing one of the most successful new high technology industries in the new China. Stone produces an innovative matrix printer which can print excellent quality Chinese, Japanese, Hindi, and Arabic characters at virtually the same rate of speed as Roman letters, something previous methods of printing found both difficult and time consuming. A substantial export market quickly developed for the Stone matrix printer in each of the countries employing the complex ideographic characters for which Runnen's device was uniquely suited. Regrettably, Stone Industries has fallen on hard times, together with any number of other budding enterprises, as a result of the June 4 events in Tiananmin Square. But many observers were already worried that the Chinese economy was headed for rough waters even before the student massacre and subsequent retreat from market liberalization. Provisions for ownership and management of private industries had not yet been institutionalized in the new China. Mr. Wan had no assured control over the profits from his rising sales, was dependent on government goodwill for bank credits to expand production, and found it necessary to bribe officials controlling the allocation of raw material and other inputs to obtain essential items. Above all, no decisions had been forthcoming about the eventual beneficiaries of the multi-million dollar new industry given birth by Mr. Wan. Would Stone ultimately belong to him, the Stone workforce, or the State? Economics is, or purports to be, a non-ideological social science whose raison d'etre is to assist rational decision making, maximizing the cost-benefit equation. Any such analysis must be based upon long-term efficiency in resource allocation, which in turn depends upon a correct correlation between factor costs and a meaningful hierarchy of output utilities as determined by individual buyers in a free market system, or by government planners in a command economy. The basic problem of Marxist socialism as it has evolved in both the Soviet Union (and pre-Gorbachev Eastern Europe), as well as China, is the artificiality of both factor and product prices. Because a Marxist economy does not generate such prices, it has been found necessary in order to operate at all in the world market, to borrow prices arbitrarily from abroad. Consequently, such prices have no relationship to costs of production in the Marxist world, and command allocation of resources must take place without regard to the true relative cost of inputs nor the relative utilities of the outputs produced. As even communists appear belatedly to have discovered, this is a formula for waste and inefficiency. Indeed, until recently, Marxist economists have had little to contribute beyond decrying the "appropriation of surplus value" by wicked capitalists, with little or no attention being given to the established wisdom of Western economic theory that both "profit" and "loss", apart from how they are distributed (which is always affected by socially determined fiscal policy) are vital barometers which measure the relative efficiency with which production, distribution, and sales are being carried out. Soviet economists have for the past several years recognized this deficiency in their system and have returned to or reinvented most of traditional Western economic analysis. To be sure, they have, to date, not succeeded in integrating these new concepts into the Soviet economy (this is the obtective of perestroika ) and have, moreover, had to develop new terms of art to decribe the function of "profits", "losses", and "ownership/management" in order to preserve the facade of socialism since the simple, customarily used words have been tarnished in Soviet minds by their association with nasty Capitalism. Similar concerns were behind Mr. Deng Xiaoping's reformist announcement that there was little difference between black cats and white cats as long as they catch mice, at the time he introduced his own economic reform program. Pre-Tiananmin visitors to China confirm that Chinese economists in both universities and research institutions were actively involved in reexamining traditional approaches to economic analysis and were being actively listened to by senior officials.. Oscar Lange & Market Socialism During his years of teaching at the University of Chicago, the noted economist Oscar Lange devoted much effort to developing the theory of Market Socialism, in which market signals would be used by planners to determine how much and of what design and quality of product was to be produced. The competetive price structure would, of course, continue to determine which firms were operating efficiently and which, because of poor design, uncompetetive price, or bad management should be closed in order that their factor inputs might be reallocated to more efficient producers who could put them to more effective use. Regrettably, when Dr. Lange returned to his native Poland following WW-II to accept the position of Economics Minister, he found the system so tightly controlled upon Stalinist norms that he was unable to give his system trial and soon resigned in despair. The Lange theory of Market Socialism was never universally accepted, many if not most Western economists considering that the hundreds of thousands, if not millions, of fluctuating prices in national and world markets could never be collected and processed in a sufficiently timely fashion to permit the planning decisions envisioned by Lange. Oscar Lange & Point-of-Sale Technology: Market Socialism Revisited Only in recent years has computer processed pricing and sales progressed to a point where a realistic trial of the Langeian system appears possible. Goods on Supermarket shelves are today seldom, if ever, individually priced. Instead, a machine readable bar code is printed on each product at the factory and electronic scanners at the check-out counter prints out a list identifying each item purchased together with its price. Indeed, in a growing number of locations, point-of-sale cash registers are programmed automatically to transmit end-of-day or end-of-week summaries of sales to suppliers so that the separate operations of inventory control, re-order, and production planning have been combined. The manager of a subsidiary of a major oil company recently informed the author that he not only has weekly readouts of national sales and profit margins for his own firm, but for most of his competitors as a result of such point-of-sale reports -- much easing his planning requirements. Capitalist point-of-sale technology is ideally designed and positioned to solve the problem of Langeian economics: if universally connected with the Planning Ministry and individual factories and plants, there can be known, as noted, with at most a few day's delay the exact quantities, colors, and peculiarities of any given product required for the next planning/sales period. Problem for anyone wishing to try Langeian style planning will be, however, that it is highly doubtful whether any Marxist economy can get ahead of the curve by introducing such sophisticated point-of-sale technology in time to resolve their current economic problems. We may yet experience the irony of seeing the Free Market World adopting, in effect, the type of advanced production planning envisioned by Lange -- with, of course, the critical difference that most economies will skip the intermediation of a National Planning Commission (though those wishing to impose some command authority on final consumption decisions may still choose -- at their peril -- to resort to some massaging of final production orders by a Planning Commission). Alternatives to Private Ownership Which Should be Considered by Reforming Marxists in China -- Some from Russia Long-term Leasing of Land It has long been recognized that the two per cent of land devoted to permitted home gardens in the Soviet Union produces upwards of 70 per cent of the fruits and vegetables available to Soviet consumers. Indeed, for some years it has paid farmers from Armenia and Georgia to fly to Moscow each weekend with a few suitcases full of melons or peaches which they are able to sell on street corners for enough to cover time, airfare, and related costs, plus a handsome profit. Faced with the necessity to offer incentives to agriculture to reduce costly dependency on imported meat and grains and to satisfy demand for more variety in the diet of the Soviet consumer, the Gorbachev government has recently announced the offer of 100 year leases to farmers as an alternative to idealogically unacceptable fee simple ownership. While Mr. Gorbachev apparently feels this preserves a sufficient facade of social ownership, a cornerstone of Marxism, to protect his flank from counter-reformists in the Central Committee, longterm leasing, like shadow prices and most other aspects of reform Marxism, is clearly a borrowing from Capitalism. Most land in central London is held on 100 year leases, as is the entire Colony of Hong Kong whose lease will be up in 1997. Many private homes in Scandinavian countries are on titular state properties allocated to potential builders on an "indefinte use" basis. Since the lease-hold system has operated successfully in highly successful market economies for hundreds of years, the Gorbachev decision appears to be an adequate, if not complete, substitute for fee simple ownership. Through affording holders long-term control, it will make it attractive to adopt rational cultivation practices, especially because costly improvements can now be passed on to one's heirs -- or enable the lease to be re-sold at its true economic value. Long-term Management Contracts A not dissimilar borrowing from Capitalism which would also provide a decent fig leaf to socialism might present a workable solution for Wan Runnen and his budding capitalist peers in the new China. Economists by and large agree that no factor of production is scarcer than entrepreneurial skill; and no nation, especially a Newly Industrializing Country such as China, can afford to deter or waste such a scarce resource as Wan Rennan or the thousands of Chinese students studying abroad who are currently evaluating whether they can successfully pursue their careers should they choose to return to their homeland. Many if not most units of some of the most successful hotel chains in the United States were built by individual investors, or groups of investors, being then leased on long-term management contract to such successful operators as Hilton, Holiday Inn, or Marriott. Similarly, in Mexico, because of its unfortunate historical experience with Clericalism, all church properties of whatever kind and of whatever denomination, are technically held as properties of the state, though in practice left completely in the hands of church officials for management and use. Could the PRC not assume technical title to all businesses with turnover, or profits, or employees in excess of a determined amount (in effect assuming the role of the capitalist investor in our hotel example), granting long-term management contracts (including attractive bonus incentives scaled to managerial success in lieu of profits) to those demonstrating entrepreneurial skill and showing a willingness to assume some risk? As with long-term leasing of land, this would appear a reasonably acceptable alternative to ownership through corporate stock certificates, affording all the benefits of private control, while preserving the politically sensitive facade of public ownership. Other Forms of Limited Ownership Rights Even fee simple rights in the modern world are always subject to exceptions and limitations. Another possibility might thus be to offer restricted ownership by means of time, size, or market share limited licenses or franchises for specific activities, much as many parcels of real estate in the United States are subject to sub-soil mineral rights, access rights, air rights or other easements. A Consideration Which Could Inhibit Success of Neo-Marxist Alternatives The principal barrier to the success of thus finessing Marxist doctrine in the interest of economic efficiency would appear to be distrust by potential entrepreneurs of the sanctity of contract under socialist law. This could inhibit willingness on the part of able potential entrepreneurs to participate for fear of being dispossessed after devoting years of time and effort to build up a going business. Regrettably, forty years of experience under on-again, off-again Communist leadership in China, beginning with the Thousand Blooming Flowers, succeeded by a disasterous Cultural Revolution and ending with the devastating extremes of the Gang of Four; followed by the brief Black Cat/White Cat liberalization, recently terminating in the Tiananmin massacre, does not provide much basis for confidence in this regard. Nor does this take into account the effects of the more recent dismissal of the Head of the Beijing Law University for his measured advice to the Government to let the student uprising run its natural course: which lends considerable further weight to the argument that a good deal of time is sure to be lost before the healthy momentum which had been building up in the Chinese economy prior to June 4 is restored, even if long-term management contracts and land leases are adopted as substitutes for private investment and private ownership as suggested above; and even if the advice of enlightened economics professors is eventually once more listened to as it was seriously beginning to be prior to the June student uprising.