Question

1- Participatory economy: What were Vanek’s five principles for a participatory economy? How did these principles address deficiencies of either the market (capitalist) or the centrally planned (socialist) system?

2- Income Maximization: Describe how firms in a labor-managed economy choose the level of production. Draw a graph and explain in words.

3- Township Village Enterprises: Explain TVEs in China. Why were TVEs important in China’s transition?

Answer 1

Answer 3 - The origins of the TVEs can be found from the agricultural collectives, or communes, established at the time of the Great Leap Forward in 1958, and which were held responsible for establishing and promoting rural industry. So called 'commune and brigade run enterprises' were the outcome from this process. These remained in place until the end of the 1970s when the household contract responsibility system gradually replaced the people's commune system, and commune and brigade run enterprises began to enjoy greater autonomy. In this new environment they had an incentive to increase production, improve productivity, and develop new businesses. In addition, the government implemented various policies encouraging their development such as loans on favourable terms, tax reduction or exemption, and technical assistance. All these measures laid the foundations for the further development of rural industries.

The impetus for the initial growth of the TVEs arose from the success of China’s agricultural reforms of the late 1970s and early 1980s, which greatly expanded rural savings, freed millions of workers to seek non farm employment and increased rural demand for consumer goods, as well as the decentralisation of fiscal revenue raising in the mid 1980s. The importance of the TVE form of industrial enterprise in the context of promoting rural industrial development in China has been due to the following features.  Firstly, the TVEs allowed rural communities to translate control over assets and resources into income, despite the absence of asset markets. The growth of product markets provided rural communities with the opportunity to realise value from locally controlled resources. Secondly, TVEs provided a way to convert assets into income without solving the difficult problem of privatisation.

Greater autonomy, financial support, freedom from bureaucracy and entrepreneurial drive resulted in a stunning rate of growth for the TVEs during the period of economic reform, contributing significantly to the rapid growth of the Chinese economy during this period. Major progress was made by the TVEs on a number of fronts including that of output, employment, export growth, as 6 well as improvements in efficiency as measured by both labour productivity and total factor productivity, an upgrading of technology, and sustained profitability