Janos Kornai's book The Socialist System: The Political Economy of Communism (1992) is a useful point of departure for defining a market economy. Five distinctive features of a socialist economy versus a market economy follow naturally from his classification.
First, the foremost criterion of the communist economy was the supremacy of the Communist Party, with its ideology and politics, over the economy. This is so evident that it is often neglected. Now it has ceased. The economy has become depoliticized. Second, centralized state allocation, with centralized commands to enterprises on physical output targets and deliveries, has ended. State orders lingered on for some time in 1992 and 1993, but now they have been whittled down to nothing. Vertical, administrative allocation has been replaced by free, horizontal bargaining between independent enterprises. The economy has been liberalized both internally and externally. For imports, all quotas are gone, and the protectionism we discuss amounts to the level of the customs tariffs. For exports, some quotas, licenses, and taxes remain, but export deregulation is proceeding and an important additional step was taken in a presidential edict of May 23, 1994. In spite of periodic setbacks in the internal liberalization, market saturation is increasing steadily. Allocation has become depoliticized (Noren pp. 13-37).
Third, as mentioned above, state ownership has been reduced to ...