Market economy

Soviet poster created by the Latvian-born artist Gustav Klutsis. "From NEP Russia, Socialist Russia Will Emerge".

A market economy is, in essence, an economic organization that primarily allocates resources through market mechanisms, specifically the allocation of labor and resources being coordinated by the exchange of commodities. Market economies are not inherently linked to capitalist private ownership; it can be built on either capitalist private ownership or socialist public ownership. Markets and commodity exchanges long predate capitalism, existing at the fringes of slave and feudal societies.

Market economies under capitalism lead to widening income inequality and intensify class divisions. The capitalist market economy sees the few becoming wealthy and wealthier and the many becoming poor and poorer. It is because no capitalist government can control the market, because the market is the expression of the private ownership of the means of production, which every capitalist party is committed to defending.

But the market economy under socialism functions more so as the primary stage of developing socialism. Deng Xiaoping and Vladimir Lenin both implemented market mechanisms within a socialist framework to address economic underdevelopment and stimulate growth, as the countries were underdeveloped and lacked the productive forces to establish socialism. Deng and Lenin realized that socialism could incorporate elements of capitalism pragmatically during its developmental phase as long as the commanding heights (banking, energy, telecommunications, heavy industry, military and transportation) are controlled by the state, as evident through both the New Economic Policy in Soviet Russia and the Reform and Opening Up in China.

The state capitalism, which is one of the principal aspects of the New Economic Policy, is, under Soviet power, a form of capitalism that is deliberately permitted and restricted by the working class. Our state capitalism differs essentially from the state capitalism in countries that have bourgeois governments in that the state with us is represented not by the bourgeoisie, but by the proletariat, who has succeeded in winning the full confidence of the peasantry. Unfortunately, the introduction of state capitalism with us is not proceeding as quickly as we would like it.

— Vladimir Lenin, To the Russian Colony in North America