The Management Problem of Socialism: Cost at the Expense of Value
Matthew McCaffrey (2018). The Economic Theory of Costs: Foundations and New Directions. Routledge; ISBN: 9781138670938
28 Pages Posted: 28 Oct 2017
Date Written: October 24, 2017
This paper argues that what distinguishes entrepreneurship and management is their focus, where entrepreneurship focuses value creation and chooses costs that are sufficiently low to earn a profit. Management, in contrast, takes value creation as a given and focuses instead on tweaking production for the purpose of cost minimization. The argument is then applied on both business firms within the market economy and the classic debate on market vs. socialist organizing of production. The conclusion is that the problem with planned economies, whether socialist nations, public sector production in non-socialist countries, or within firms is their primary reliance on management (cost) rather than entrepreneurship (value creation).
Keywords: entrepreneurship, management, economic calculation, socialism, value creation
JEL Classification: L26, B25, L22, L23, L33
Suggested Citation: Suggested Citation