Economic Incentive

a system of measures that uses material means to motivate participants in production to work for the creation of the social product. The nature, form, and methods of economic incentive depend on the dominant production relations of a society.

Under capitalism, economic incentive is contradictory in nature. The actions of owners of the means of production—capitalists—are inspired by the possibility of appropriating surplus value through the exploitation of hired labor. Economic necessity is the labor motivation of industrial workers and all the toiling masses who are deprived of the means of production (seeCAPITALISM).

Under socialism, economic incentive is based on the law of distribution according to labor. It is determined by the dominance of socialist production relations, which exclude the exploitation of one person by another, since all participants in production are simultaneously the owners of the means of production and of their own labor power. Under such conditions, the unity of three types of interests is achieved—societal, collective, and personal. The most important principle of economic incentive states that “what is good for society must be good for each production collective and each worker.”

Economic incentive in socialist production is ensured by the existing system of management (seePLANNING, NATIONAL ECONOMIC). Profit-and–loss accounting (economic accountability) and the use of such key economic levers as profit, price, and credit play a major role in economic incentive in socialist enterprises.

Incentive funds (including the fund for the expansion of production, the material incentive fund, and the social-cultural and housing fund) are created at enterprises according to the overall quantitative and qualitative results of the economic activity of a given enterprise collective (such as the growth of labor productivity, reduction of the prime cost of production, increased profitability, and improvement of product quality).

Economic incentive for workers in both state enterprises and kolkhoz and cooperative enterprises depends in large measure on the organization of the wages of industrial and nonindustrial workers and on the remuneration of the labor of kolkhoz workers—the basic form of distribution of the necessary product and the most important means of offering personal material incentive under socialism (seeWAGES).

One of the most important trends affecting economic incentive is the improvement of the economic mechanism and of economic incentive itself. Such improvement is realized in the stage of developed socialism, given the concurrent strengthening of democratic centralism in economic management.

In addition to material incentive and responsibility under socialism, moral incentive also plays an increasingly important part in economic incentive (seeMATERIAL AND MORAL STIMULATION).