Social Benchmarks in a Social Market Economy

Since the economy must always be social, it cannot exist without a person and, in principle, is not needed, meaningless without him. This means, on the one hand, without people, the economy cannot function, the development of the economy depends on the quality of the person (people) himself. On the other hand, a person, the level and quality of his life depend on the level and stage of development of the economy. However, these connections and dependencies are not straightforward or unambiguous, they are mediated by a number of processes, phenomena and relations. As a result, entire centuries of human history have passed without a real sense of such a connection. This, in turn, has led to  the traditional claim that maximizing the mass of goods and profits produced is the leading goal of society and the highest achievement of human progress. Man, people in this approach are an impersonal and faceless “factor” of production.

The changed realities of life, the global aggravation of social and environmental problems in the XX century, the logic of the development of economic systems urgently require a revision of such ideas.

Thus, social sustainability should become a generalizing, dominant benchmark for socio-economic development. Without it, there can be no stability of the economic system and society as a whole.

Social stability is such a state of society and its citizens, which is characterized by the stability of their economic and social situation, as well as the ability to self-sufficiency in the reproduction of their vital activity.

Forms of manifestation of social stability are:

the absence of income polarization and the situation of different social groups of the population; the sufficiency of incomes of all segments of the population for self-sufficiency in the reproduction of their lives; availability of social guarantees; reliability of social protection; availability and accessibility of critical links in social infrastructure; absence of social conflicts and confrontations.

So, social stability is the main generalizing guideline and criterion of a socially-oriented market economy.

So how do you assess social sustainability? How to measure the deviation from it? A fairly extensive system of social indicators (Latin – pointers) comes to the rescue. The system of social indicators is a set of indicators used to record fluctuations and deviations in the social status of the population and its groups.

World theory and practice have developed to date 4 main groups of social indicators.

The 1st group is income indicators. Thus, to assess the standard of living of the population, data on monetary incomes, real incomes, consumption expenditures , income differentiation, etc. For example, according to the World Bank yearbook “Social Development Indicators” for 1995, Armenia, Georgia and Tajikistan were in the group of low-income countries ($ 695 or less), and in the middle-income group ($ 695-8625) – among 99 states were all other CIS countries.

The 2nd group of the system of social indicators consists of combined indicators. Here, in addition to income indicators, data on education, health are used; on the state of housing, water supply, etc.

Group 3 – indicators of social participation. These indicators, obtained on the basis of sociological surveys, indicate the degree of ability of the subject (family) to follow social norms and traditions (for example, in the structure  of nutrition, social behavior) and maintain his social status.

Group 4 consists of subjective indicators. The subject himself determines, say, whether he is poor or rich, etc.

Since 1990, the HDI, the Human Development Index, has stood out among the combined indicators. It is evaluated on the basis of:

life expectancy; level of education; real per capita GDP.

According to this index, in 1994, Canada took the 1st place, and the last – Niger. The Republic of Belarus was in 62nd place among 174  countries surveyed in 1996.

To ensure social sustainability, society needs a developed social sphere. The social sphere is understood as a set of material, legal and other conditions, as well as economic relations that reflect and realize the interests of social groups of a given society.

The main function of the social sphere should be considered  the function of ensuring a combination of socio-economic interests of different social groups of a given society.

The most important principles of the formation and functioning of the social sphere in a socially-oriented market economy can be called three:

1 – the principle of social equality of people (members of this society) before the law in national relations, religion, etc .;

2 – the principle of social solidarity, understood as general support, based on the commonality of the main goals of the inhabitants of a given country;

3 – the principle of social justice, understood as a whole as relations of symmetry (or equivalence) in the life of society and its social groups (for example, the correspondence of rights and duties, the position of a person, etc.).

To perform the functions and implement the principles of the social sphere, there is a need for a special, social policy that the state performs. The essence of social policy will be considered in the course “Macroeconomics”.

Unsolved problems of the theory and practice of a socially-oriented market economy (instead of an afterword)

Having considered the main features of the model of economic development adopted in the course of economic reforms in Belarus – a socially-oriented market economy – we will pay attention to some problems of its theory.

The first of the problems that arises when comprehending the new model and which needs to be solved by choosing the path of forming a socially oriented market economy is to determine what is meant by social justice as an internal component of the new model? After all, in this system it is not just a dream, an ideal, but a built-in component, an organic link.

The fact is that another component is the market economy, its essence and features have already been sufficiently studied, widely covered and understood now in approximately the same way. But about social justice, many more questions immediately arise. What’s it? How do we understand it, given our characteristics? What are the criteria for social justice? What are  its indicators and tools?

Admittedly, there is a wide range of opinions: from market justice, carried out on the basis of competition and profit, to communist justice without exploiting classes. The problem of social justice is ancient and complex. There is a philosophical aspect to it, and social, and psychological-ethnic and, of course, economic. The study and judgment should therefore be systematic, comprehensive, taking into account the specific historical and socio-cultural factors of a given country. Otherwise, the most important principle of social justice will not work, it will remain only on paper.

Social justice, despite its still unovercompassed ambiguity, in the public consciousness of the majority is connected primarily with its economic meaning. And it consists not in egalitarianism (“all sisters – on earrings”), but in the fact that everyone is rewarded according to his merits and everyone is responsible for the losses he has caused. The positive, creative potential of this approach has been proven many times over. It seems that this approach can become the basis of the criterion of social justice in the socially-oriented model of the economy.

In general, social justice is much broader and includes all (or almost all) aspects of human existence: this is the equality of all (regardless of wealth and positions) before the law, and the equality of nations, and equal access to education, cultural goods, and care for the elderly, etc. The higher the level of society has reached, the wider the range of its social justice.

The second problem is to find the conditions for coexistence, moreover, “cooperation” of two, largely opposite principles: the economic efficiency of the market mechanism and the creative potential of the social justice mechanism.

After all, many (in the same Germany) still consider it impossible. To a large extent, they are right, but only when economic efficiency is considered in a narrow sense as the ratio of the economic result obtained with the costs incurred. Such efficiency is undoubtedly important at the micro level, at the enterprise level. And then with some reservations. As for society, the country as a whole, here we can only talk about aggregate, economic and social, i.e. socio-economic efficiency.

Why? Because social processes participate in economic processes: these are primarily the main subjects of the economy – people, workers. And because the economy itself “works” for the needs of society. And by not satisfying these needs, it will not make its profit. And because spending on the social sphere, on a person (and in market terminology – on human capital) – brings an increasingly obvious and very significant economic effect, as it has been proven by practice. Finally, because when a person’s interest falls, the results of the economy fall. Moreover, the person himself degrades, the degradation of his professional qualities and abilities is inevitable, and this means a new decline in the economy.

Thus, the problem is not to separate, to tear apart economic efficiency and the social sphere, but to find methods to achieve it, having reached the principle of integrated socio-economic efficiency.

The third problem is the formation of an effective pricing policy. According to experts in the field of the market, the most important thing in it is the price, i.e. a price signal that informs and directs many actors to actions that achieve certain results in the mutual satisfaction of needs. But so in theory, ideally or in a perfect, pure market. The real imperfect market economy, and even more so with its social orientation, inevitably distorts prices as information signals. Hence the various distorted economic reactions to these signals in the context of the current stage of the economy.

It should be added that for a real market economy with its modern form (imperfect or mixed), such a phenomenon as asymmetry of market information is also characteristic. Such asymmetry is manifested in the fact that with market pricing, information is distributed unevenly among market entities. This can be expressed, for example, in the fact that the seller’s awareness of the product will be complete, and the buyer, even knowing the prices and their dynamics, will not know everything about the product.

From this follows the problem: how, based on the advantages of the signal system of the market, to build a wise, effective pricing policy – one of the most complex components of economic and social policy.

The fourth problem is the distribution and redistribution of income. The fact is that social orientation is inevitably associated with redistributive processes. They expand and multiply. But at the same time, the danger of serious violations of a number of necessary equilibrium economic states increases. And this is fraught with greater or lesser crisis situations. How to get away from such contradictions? What should be the criteria? Methods? Where are the boundaries here? – These are complex problems.

The fifth problem is the problem of state regulation. Only the state can create a socially oriented market. But it can also discredit it or even destroy it.

The transition from one economic system to another always dramatically complicates the role of the state. And in the transformation of the system, which is now being carried out from the so-called planned command-administrative to the market, with the unknown nature of this path, the role of the state increases immeasurably. After all, the mechanism of central planning has already been destroyed and is not working, and the mechanism of the market, its self-regulation does not yet work. In such conditions, a huge burden of problems and tasks falls on the shoulders of the state.

Suffice it to note that only the main functions of the state in the transition economy are three major blocks. First, it is a block of administrative and organizational functions. It includes functions such as:

goal-setting, setting target priorities and forming a “tree of goals”, establishing the “rules of the game” on the basis of creating a package of laws that streamline economic and other relations.

Secondly, the block of transformational functions:

reforming property relations on the basis of denationalization and privatization; on reforming the banking and the entire financial system; on the reform of labor relations and the formation of the labor market; to create market infrastructure; on reforming the structure of production.

Thirdly, a block of functions to regulate the market. These include:

creation and maintenance of a competitive environment; stabilization of non-equilibrium economic conditions; anti-crisis measures; anti-inflationary policy; implementation of measures of social guarantees and social protection.

But the burden of the state’s responsibility to tens or even hundreds of millions of people, to its people, to society is especially great. Therefore, the problem of features, transformation of state regulation in the transition period can and should be worked out comprehensively, in all its aspects and taking into account the specifics of this country. And only entire institutions can do this.

The sixth problem – one of the most important – is the problem of motivation. Can the motivation of activity (labor, entrepreneurial) be the same in different economic systems? Will and can profit (the main and in fact the only motive of the market economy) and its maximization be the same attractive and decisive goal in the system of a socially-oriented market economy? Those are the problems of this group.

Moreover, their sharpness is not mitigated (at least in theory) by the fact that, adapting to the conditions, market entrepreneurs modify their goal into a number of other benchmarks: sales growth, achieving leadership in the industry, etc. These sub-goals are considered to be achieved under one main condition – they must maximize profits. Hence, profit in these cases remains the main deep goal of market management. Is this motivation of people’s energy compatible with the new model, with the social orientation of the economy?

Another problem of motivation concerns work. Living labor, as you know, was and is the main factor of production. Without it, any capital, any technology is dead. And most importantly, without it, there is no engineering, technology, science and production at all.

The transition to a new, scientific and information type of production (and this is another transition, without which we cannot do without) puts a person with his innovative abilities at the forefront of the economy. And not only as an actor of the subject of the new economy, but above all as its creator, creator. The experience of other countries confirms that the breakthrough in the modern economy is carried out primarily due to modern qualifications and innovative activity of workers. And since the high quality of labor – competence, innovation, responsibility – become the most necessary and priority manifestations of labor activity, the problem of skillful motivation of high-quality work should become the most important. Wages such as social benefits do not stimulate the labor, and even more so the creative impulse. And without this, there can be no breakthrough from the multi-layered ring of the crisis and entry into the orbit of the economy of the modern level.

The practically unspeakable motivational impact of wages of the bulk of workers and the well-known winding up of some incomes in the wake of inflationary processes have already led to the deregulation of the dependence of wages on real labor efficiency, to the loss of labor and moral motivations. And these are dangerous losses.

The seventh problem is related to the solution of global problems of our time. The quintessence of the modern world is that humanity in its large-scale, stimulated by huge profits of economic activity has already crossed the threshold of the possibility of the Earth and its biosphere. The world has entered a new era – the era of anthropogenic overload of our planet. The question is very acute – about the survival of mankind.

By destroying nature, humanity is indeed destroying itself. Therefore, the salvation of nature is the salvation of mankind, and it no longer has a more important overall task. In principle, an idea has already been formed, and the development of a new strategy for the development of mankind in the conditions of the environmental crisis has begun. This is the so-called noospheric model of sustainable development.

The choice of socio-economic system is now dictated solely by its ability to withstand a global environmental catastrophe. Therefore, having chosen the path of a socially-oriented market economy, we must take into account the following. The market, or rather the actually established market-consumer type of economy, is becoming more and more environmentally hazardous. The priority of material enrichment without natural shock absorbers of a moral, reasonable and ecological plan further becomes impossible in view of the impending global catastrophe of mankind. Finding the necessary line of economic growth and at the same time preserving the biosphere (and therefore saving ourselves) is the most difficult and most important problem of our new socio-economic model.

For the well-known reasons of the Chernobyl disaster, this is especially true for our Republic of Belarus. To highlight, emphasize this feature and direction, another component should be introduced into the formula of our model: environmental responsibility. In this case, it will be a socially oriented and environmentally responsible model. Such an approach will require a more balanced scientific interdisciplinary development of a set of guidelines for a new economic system, not limited to the creation of a market and an increase in real incomes of the population to the European level.

The eighth problem. In the now three-membered formula of our model (socially oriented, environmentally responsible, market-oriented), we will pay attention to its last component. The problem here is that the market economy as such, as a certain type of economy, is hardly adequate to the modern development of the economy and humanity.

The point is that the ideas of a mixed market economy, voiced at the beginning of the twentieth century, have now received a stable practical implementation. And there’s a reason for that. First, it is the mixed market economy that corresponds to the current level and type of productive forces with their transition to a post-industrial one. Second, a mixed economy objectively needs to complement market coordination with government regulation. To such characteristics of the modern mixed type of economy and its conditionality, it is necessary to add the circumstance that was discussed above – the need to combine economic and non-economic (environmental protection, etc.) principles and tasks in the modern economy. As a result, the formula of the development model of Belarus should be clarified. In our view, it will represent the following: a socially oriented and environmentally responsible mixed market economy.

Clarification of the basic formula is important not only for the theory, because the priorities and tasks of practice depend on it. It determines the peculiarities of our transition period.

The ninth problem is the dynamism of development models. The new century, having just been born, has already received several names: it is post-industrial, and noospheric, and virtual, etc.

However, as in all centuries, a new name and a new life in the new century will be determined primarily by the economy, its features. Therefore, to lift the veil of time over the economy of the future, to see its promising planetary trends – this means to anticipate many future changes in other spheres of human life, including management.

What are the main of these trends?

First, the already begun change in the technical and technological method of production of goods, as a result of which machine-industrial production will be replaced by flexible scientific and information production.

Secondly, this new mode of production and goods will entail the inevitable predominance of the information and intellectual sphere in the economy, in contrast to the XX century with a clear predominance of industry and factory pipes.

Thirdly, in the new century, humanity will meet with deindustrialization, which means a sharp decline in the role and share of industry, especially the production of means of production – the so-called I division.

Fourth, a new technical and technological way of creating a product will radically change the place of a person in the economy. Man will be removed from the direct process of production, and then his main functions will be control over production, regulation and innovation. A new worker type appears.

Fifth, the primary link of the economy, the enterprise, will also change, because information and computer production will make it possible to use both work at home and on-call work, and other exotic forms.

Sixth, it is impossible not to see a very significant trend of associativity and integrativity in the economy. It is no secret that by the end of the twentieth century, joint-stock, corporate, mixed forms of ownership and industrial relations became very common.

Seventh, the dominance of ownership of the means of production, known to us from the classics and from real reality, will be replaced in the scientific and information economy by the dominance of ownership of the main resource – the intellectual and innovative abilities of man.

Eighth, the trend of globalization of the economy, which is especially noticeable now in the field of finance, which easily crossed the national borders of states, will clearly manifest itself in the new century.

Ninth, the global trend of socialization of the economy is quite clearly visible, which arose on the basis of one of the most profound fiascos of the market – its inability to eliminate the division of the world into rich and poor, causing conflicts and wars.

Creating a model of the socio-economic system and taking into account the natural, social and psychological characteristics of one’s country and its people, it is impossible not to see global development trends. On the contrary, it is necessary to study more deeply, know and adjust the development model of the Republic of Belarus taking them into account. After all, the socio-economic model is not an independent, special economic system, but a set of specific features within a certain general system. This, too, should be considered in the new twenty-first century.

And another, tenth problem of the theory involves certain illusions. It is known that the socially oriented market economy as the future of our country causes ambiguous perceptions. On the one hand, there are illusions associated, apparently, with the absolutization of its social component. On the other hand, a certain social phobia appears, due, obviously, to the identification of this type of system with state-owned socialism. These questions are very difficult and in fact special, requiring at least special research. But, having begun to talk about the problems of the theory, it is impossible to bypass them.

First of all, one should not have any illusions. A socially oriented market economy basically has a market. This means that all the main reproductive processes here are carried out in market relations and according to market laws. Including – the reproduction and use of labor power, which becomes a commodity.

The social trend was a natural reaction to the main fiascos of the market (unemployment, poverty, etc.). At the same time, it grew out of the natural logic of the development of modern factors of economic growth, when a developed labor force and social stability are increasingly becoming an internal need of the market economy itself, an important condition for profitability and development. That’s the first thing. And secondly, it is impossible not to see significant differences between a socially-oriented market economy and another system – planned, socialism.

Yes, they have some common features, for example, a focus on the growth of general welfare, on social protection of the vulnerable, social guarantees. But at the same time, these different systems have different economic foundations: one has a market basis with its private property and the division of society into owners and non-owners (employees and the unemployed), and the other is based on common (public) property. This is not the place to talk about deviations.

In addition, the social orientation in the model under consideration is much narrower than in the socialist system. In a socially oriented form, it involves a mandatory combination of social support with economic (property) self-responsibility of citizens for their well-being. Moreover, self-responsibility is the main one. And one more thing. Socialism presupposes budgetary sources for the social sector, and the modern model largely uses paid forms of goods and services for social orientation.

Finally, socialism means the universality of personal labor and the distribution of labor based on it. With such a distribution, the same measure should be applied to all workers – labor, its effectiveness. This distribution is “equal inequality”, i.e. an equal measure in relation to different people with their different actual labor. Such a distribution does not imply a socially oriented market economy. Here, the distribution is market-oriented, but as it were, softened, adjusted by social policy.

Summing up, instead of a conclusion, it should be noted that the main characteristics of a socially-oriented market economy are the following:

1 is an economy – a special type of market type of economic system, formed historically and logically under the influence of certain market fiascos, such a type of system that in the era of ntR turns a developed labor force into the most important factor of economic growth;

2 is an economy focused on business activity and self-responsibility of subjects in the context of the formation of a new, post-industrial way of creating goods;

3 is a mixed economy, which combines different forms of ownership with a tendency towards associativity;

4 is an economy with an expressive social orientation, the main goal and criterion of which is social sustainability;

5 is an economy regulated by both market mechanisms and the state, moreover, the greater the measure of social orientation, the higher the role of state regulation;

6 is an economy that is formed and functions with the indispensable consideration of the principle of social partnership;

7 – the formula “social market economy” in modern conditions, aggravated by an acute environmental crisis, must necessarily include another component – environmental responsibility – and appear in the following form: a socially oriented and environmentally responsible mixed market economy.