Socialism is an economic system which is owned and regulated by the government. All the production and other activities such as investment pattern, income distribution, consumption, resource allocation, etc., are controlled and directed by the government. It is also known as the socialist or command economy. Unlike capitalism, socialism guarantees public welfare and equality among the members of the society.
The socialist economies have emerged from the communist countries. In these countries, common interests of the whole community was given preference over individual benefits. Post 1980s, number of communist countries stared decreasing.
Meaning and Definition of Socialism
According to Leftwitch___” In socialism the role of the state is central. It owns the means of production and directs economic activity”.
According to H.D. Dickinson___” Socialism is an economic organisation of society in which the material means of production are owned by the whole community and operated by organs representative of and responsible to the community according to a general economic plan, all members of community being entitled to benefit from the results of such socialized production on the basis of equal right”.
Features of Socialism
- Social Ownership: In a socialist economy, there is no private ownership as all means of production like farms, factories, mines, railways, banks, etc. belong to the society. An individual can only have private property in the form of residence, furniture and other consumer goods.
- Social Welfare: One of the important objective of the socialism is social welfare. This is attained by proper utilization of resources and satisfying the needs and wants of the society. It looks after the benefits of the economy as a whole rather wants of few entities. Unlike capitalism, where means of production in carried out to earn only profits, in socialism, productive resources are used to develop goods and services so as to achieve social welfare. Here, production of necessity goods is given more emphasis rather than luxury goods.
- Central Planning: Under socialist economy, all productive activities and its related objectives and plans are formulated by the Central Planning Authority or Planning Commission. Based on these plans, various targets and programmes are executed by the government.
- Classless Society: Socialism is a classless society in contract to capitalism, where society is not divided into classes like elite, class and labour class. Here, all the production activities are undertaken by the community as a whole and, hence conflict between the classes is less likely to occur.
- Equality of Income and Opportunity: Socialism aims at removing of reducing inequalities of income and wealth and provides equal opportunity to every individual. Social ownership and production for social welfare of the community eliminates unequal distribution of income and wealth.
Merits of Socialism
- Greater Economic Efficiency: Through proper management of research and production activities, the economy can achieve high rate of productivity. This can also be stimulated by producing necessity goods like food, cloth and housing which satisfy the needs and wants of the consumers.
- Greater Welfare due to less Inequality of Income: Under socialism, inequality of income does not exist. The citizens of the country work for the economic welfare and are paid according to their skills and capabilities. There is no private ownership and the economy regulates under the guidelines of the government. This is done by facilitating free primary education, social security and cheap housing and health facilities to the public.
- Absence of Business Fluctuations: A socialist economy experience economic stability. The production and consumption of goods and services in controlled by the planning authority with respect to the goals and priorities of the economic plan. As a result, business fluctuations do not occur and the situations of overproduction and supply unemployment are eliminated.
Demerits of Socialism
- Loss of Consumers’ Sovereignty: One of the major demerits of socialism is the loss of consumer’s sovereignty. Consumers have no freedom of choice because they have to buy those commodities only which are available in the market. Sometimes, the quantity of purchasing a product is also fixed by the government.
- Fixed Occupation: In a socialist economy, the occupation of an individual is also fixed by the government. The government not only selects the occupation but also allots the place of work and its related activities.
- Misallocation of Resource: In socialism, the allocation of resources is done by the central planning authority. Generally, trial and error method is used to allocate productive resources for the means of production. Consequently, the resources are allocated randomly due to which mistakes occur.
- Bureaucratic: In socialism, people work under bureaucratic control. Here, people work due to the pressure and fear of the higher officials. Therefore, people do not take any initiative and find their work boring less interest in their work.