The Management Problem of Socialism: Cost at the Expense of Value

Abstract

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