Criteria of Market Economy

Updated: 2006-10-09 16:11

"Liberalization of economic entities" requires that in a market economy an enterprise (including entities from other economic sectors hereinafter) should be an independent economic entity de facto and de jure with a clear property right, independently making decisions on management, trading and operation etc. Moreover, in allocation of resources (capital, labor, land, and entrepreneur) and market transaction, where an enterprise considers prices, outputs, profits, and imports and exports etc. and makes relevant decisions in accordance with market rule and market supply and demand, its behavior also can be regarded as market--oriented. The "liberalization of an economic entities" is conducive to the promotion of enterprise's efficiency and the undertaking of risks by enterprises, and the realization of rational resources allocation within the whole society as well. For these reasons, an enterprise's independence and its market-oriented behavior are a criterion to decide if a country practicing market economy or not. In addition, due to these reasons, we make out and agree to various criteria for marketization of enterprises in the respect of European and American countries' market economy criteria.

Actually, it is a complicated and difficult task to measure "liberalization of economic entities". The market economy criteria on enterprises, we have discovered, varies with times, development phases and historical condition. In terms of property rights, management style and behavior of enterprises, there is no absolutely uniform criteria. Enterprises may differ from each other in pattern of organization and management as well. In particular, state-owned enterprises are quite different, so are the patterns of management of state-owned enterprises adopted by market economy countries. According to the World Bank's statistics, stated-owned enterprises averaged approximate 10 percent of the global GDP, accounting for 35 percent of the global total capital in early 1980s. Following certain criteria, we should make a judgment of the extent of marketization of various enterprises, especially state-owned enterprises, and on this basis measure the extent of the country's market economy. These criteria to be followed should be flexible, scalable, and not too rigid. For example, it may be improper to mention that the UK was a market economy country in the 1990s, but not in the 1970s, an era the Labor Party was in power and a peak-hour of nationalization. It is also improper to mention that the US practices market economy when leasing most government enterprises to private monopolies, while Italy is not a market economy country due to its government's multilevel participation and control over enterprises through national holding companies. As a matter of fact, after the World War II, the Western European countries like the UK, France and Italy etc. actively  pushed forward "nationalization" by establishing state-owned enterprises through direct investment, acquisition, confiscation and participation by holding shares etc, so their state-owned economic systems came into being with different sizes and control methods. In 1972, with respect to the percentage of state-owned enterprises to the gross domestic assets, the UK accounted for 29 percent, France 35 percent, Italy 30 percent, the Western Germany 30 percent, and Japan up to about 35 percent in the early 1980s.

IV. Absolutism and Relativity or Market Economy Criterion

Market economy criterion is, we believe, a dialectical unity of absolutism and relativity.

The five key factors, induced from European and American countries' market economy criteria against anti-dumping cases, indicate that we admit there is a market economy criterion, by which we can give our verdict on any country's status of market economy. On the other hand, however, the five-key-factor criterion on the whole is sketchy, scalable, flexible and varied, and in reality a 100 percent market economy country cannot be found.

Some scholars, who hold on absolute standard, argued that despite in reality a pure market economy couldn't be found, in theory only 100 percent could be taken as a criterion of full marketization and only 0 percent as a standard of full planned economy. Otherwise, there would be no uniform criterion to compare different countries, or there would be some trouble when making comparisons with different regions or periods within a single country. On the contrary, some academicians holding on relative standard believed tha t there had never been a 100 percent marketized country in the world, and it might be useless unless the extent of development of marketization was compared and arranged in order on a relative basis.


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