Socialism: -

Introduction,:-
Michael Newman seeks to place the idea of socialism in a modern context for today's readers.
He explains socialist ideas in the framework of its historical evolution, from the French
Revolution to the present day, and examines practical attempts to implement socialism.Not just
another history of socialist ideas, this book aims for a different approach that looks at practice as
well as theory--centering on the contrast between Communism and Social Democracy. The
relationship between socialism and notions of democracy, freedom, and equality is also
discussed. Newman brings the subject entirely up to date by tackling contemporary forms of
socialism. While the book's focus is on Europe and the Soviet Union, it is set in a broader
geographical context. Newman's fresh approach to the subject enables the reader to re-evaluate
socialism.Socialism is also known as the Communist Economic System or Centrally Planned
Economy. It is an alternative to capitalism.
Definition of Socialism:-
1.According to Hicks, socialism is“an economic system in which the means of production are
owned and operated by the state for the maximization of social welfare”.

2. Prof. Dickinson has defined socialism as such:

“Socialism is an economic organisation of society in which the material means of production are
owned by the whole community and operated by representatives of the people, who are
responsible to the community according to a general plan, all the members of community being
entitled to the benefits from results of such socialised, planned production, on the basis of equal
rights.”

Meaning of Socialism:
The word socialism has been defined as “such type of socialist economy under which economic
system is not only regulated by the government to ensure, welfare equity of opportunity and
social justice to the people.”

Here property and the means of production are owned, controlled and managed by the state. The
Government is authorized to control not only production and distribution, but also consumption.
All economic activities come under the state control in Socialism. Private property does not
exist. Every individual has to work to the best of his ability, and the Government takes the
responsibility for fulfilling his needs.

In a socialistic system, the resources (factors of production) are owned by the State. The
production and distribution of goods will be done for the welfare of the people arid not for the
profit of the individuals.

In a socialistic economy, private property will not be allowed and private enterprise will be very
little. All factories and firms will be nationalized and production will be done in the public
sector. This is just the opposite of capitalism.
This is only a socialism of the general type. There are different forms of socialism. The extreme
form of socialism is communism. Karl Mark is the father of this type of socialism.

Meaning of Socialism:

The word socialism has been defined as “such type of socialist economy under which economic
system is not only regulated by the government to ensure, welfare equity of opportunity and
social justice to the people.”
”.

Main Features of Socialism:

A socialist economy has the following features:
1. Socialism is Social or Collective Ownership of Resources:
In such an economy, all the means of production are owned and operated by the state in the
interest of society as a whole. This is to ensure equality of opportunity to all the citizens with
regard to earning of income. This is also aimed at full and efficient utilisation of the country’s
resources.

2. It is a Fully Planned Economy:

A socialist economy is necessarily a fully planned economy otherwise the economic system
cannot run. There is a choice between centralised and decentralised planning. All socialist
economics were fully planned economics.
3. It is the Responsibility of the Central Planning Authority:
Planning is the responsibility of an authority at the centre. It may be known as the Planning
Commission in India or the Gos plan in the U.S.S.R. The main task given to this body is to
formulate long-term and short-term plans for the economy.

4. It has Definite Aims and Objectives:

Socialist economy has specified aims or objectives. Generally, they are included in the
constitution itself but these are given specific shape by the planners. As far as possible the
objectives are clearly and quantitatively defined. The competitiveness on complementary among
these objectives is explicitly noted. This is meant to bring planning nearer to reality.

5. Specific Long-Term Plans:

The Central Planning authority is given the responsibility to chalk out specific long-term plans
for the country. These long-term plans are called “Perspective Plans”. These may range from
twenty to thirty years. These are in the nature of a blue-print of the path the economies have to
follow in the near future. These perspective plans may be modified with changes in basic
structure and objectives of the economy. This requires the use of input and output and activity
analysis.

6. Central Control and Ownership:

A fully planned economy is by implication a controlled economy. Government controls the main
aspects of all economic activity. There are controls on production through licensing.
Consumption is also controlled indirectly through controlled production. There are existing
controls generally operated through the Central Bank of the economy.

Then there are controls on distribution. Government may have a public distribution system. It
may have direct procurement and sale of essential commodities through fair price shops.
However, the nature of controls and their intensity shall depend upon the economic conditions in
the economy.

7. Much Less Importance of Price Mechanism:

A socialist economy gives much less importance to market forces and therefore, the price
mechanism is given a minor role in resource allocation. A specific plan based on social needs
guides the process of resource allocation. Private profit is not allowed. Public interest is given
more importance. The means of production are directed by the Government and are used in
promoting the general welfare of the people.
8. People’s Co-operation is Essential:
A socialist economy is run with the active co-operation of the people in the fulfillment of plan
targets. No plan can possibly succeed without people’s participation. The plan is prepared and
implemented by the Government but the main target’s of the different activities in the plan are
fixed by taking into account the resources which people will be able to mobilise. To encourage
the people to participate in plan implementation, the Government may provide special incentives.

In short, a socialist economy is not run by the impersonal forces of supply and demand. It is a
scientifically planned economy. As such its main features are quite different from those of
capitalistic economy.

9. State ownership

All the factors of production are owned by the State. The government or the community owns
the land and factories. There is no private sector.

10. Production and distribution by the State

State produces all goods and services in government factories and farms. It undertakes the
distribution of goods to the people by itself.

11. Controlled production and consumption

Production of essential commodities will be done first. Production is done not for profit, but for
social use. Even if there is any profit, it will go to the State. Mass consumption will not be
allowed. Each will be given according to his need.

12 Social Security
The State provides all social security measures such as unemployment benefit, health insurance.
etc.

13 Reduction of inequalities
Socialism attempts to reduce the difference between the rich and the peer. It aims at a classless
society and eliminates class struggle by giving equal opportunity to work.

Merits of Socialism:
A socialist economy has many alternative features. These have made socialism more and more
popular.

The main merits of the socialist economy are as under:

1. Social Justice is Assured:
The chief merit of socialism is that it assures of social justice. Under socialism the inequalities of
income are reduced to the minimum and the national income is more equitably and evenly
distributed. The socialist principle provides for a fair share for all. No one is permitted to have
unearned income. Exploitation of man by man to put an end to. Every individual is assured of
equal opportunities, irrespective of caste, creed and religion. Every child whether he is born in a
poor family or in a rich family is given an equal opportunity to develop his latent faculties
through proper education and training.

2. Rapid Economic Development:

A socialist economy is likely to grow much faster than a capitalist economy. The experience of
the U.S.S.R. and other socialist countries amply proved this. The main factors making for the fast
growth rate is the full use of resources, scientific planning and quick decisions.

3. Production According to Basic Needs:

In this economy the production is directed to satisfy the basic needs of the people first. As far as
possible, the production of food, clothing or building materials is guided by the basic needs of
the people and is not according to the purchasing power of the rich section of the society.
Therefore, the phenomenon of the poor going hungry while the rich feast cannot be seen in the
socialist economy.

4. Balanced Economic Development:

Economic planning is meant to carry out balanced development of the economy. All the regions
of the country are taken care of. Development of the backward areas is also given a priority.
Similarly, agriculture and industry, heavy and small industry develops side by side. As a result
there is no lop-sided development of the economy.

5. It has Economic Stability:

Another important merit is the economic stability which a socialist economy has. A capitalist
economy is often suffering from economic fluctuations resulting in lot of unemployment and
wastage of resources. There is a good deal of misery among the working classes in periods of
depression in a socialist economy.

A socialist economy is able to control economic instability due to the planned nature of the
economy. Pure changes are taken care of under a perspective plan. Private investment is given a
minor role. Therefore, there are no economic fluctuations.

6. It has More Flexibility:

A socialist economy is much more flexible than a capitalist economy because of the control on
market forces. The socialist economy can be geared to war times as early as it is operated during
peace-time. Rather the state having ownership of means of production can meet the needed
changes much better than the slow moving market mechanism of the capitalist economy.

7. Conservation of Natural Resources:

A socialist economy has a great advantage of planning for the future. Wasteful use of the
country’s natural resources is a common problem in all the capitalistic economies. Private
enterprise does not care for the future. A planning authority can take the interest of future
generations into account by preparing plans for conservation of the country’s non-renewable
resources like coal, petroleum, forests and soil.

8. Equitable Distribution of Wealth and Income:

A socialist economy is operated with the aim of providing equal opportunity for all citizens in
earning incomes. Generally, private property is restricted to some basic needs. There is no
amassing of wealth by a few. Wealth is also equitably distributed because private enterprise is
given a limited role.

9. No Exploitation and Class Struggle:

A socialist economy can also get rid of the basic maladies of the capitalist economy. There is no
question of exploitation in as much as the state determines the distribution pattern of country’s
income. Further the whole society is the common aim of all planning. No sections are
discriminated against. There is not special favour at any class. Therefore, there is no scope for
anything like the class struggle which is a characteristic of the capitalist economy.

10. Social Welfare Activities:

A Socialist Economy is oriented to the social needs. The government provides for full security.
There is automatic care for the children of those who meet accidents while performing their
duties. There is provision for old age pension for all. The slogan is “to each according to his
needs, from each according to his capacity.”
Therefore, the employees in state enterprises can work without much worry. Their productivity is
higher. There are no labour disputes and no wastage of resources resulting there from as is the
case in a capitalist economy.

11. There is no Wastage of Competitive Advertisement:

A capitalist economy is not always able to achieve productive efficiency through competition.
There is a good deal of wastage through competitive advertisement of different varieties. The
consumer has to pay the price of the useless advertising. Prof. Chamberlin has tried “to show that
capitalism leads to excess capacity when there is differentiation of the products.”

In a socialist economy, there is no such wastage. In the first place only those goods and services
are produced which are preferred by the consumers. Secondly, if at all there is any advertising, it
is only meant for information about different products to consumers.

12. Foresightedness:
A socialist economy can prepare for the future much better than a capitalist economy. Future is
always uncertain. The planners take full note of the uncertainties while formulating the plan.
Flexibility in planning is meant to provide for immediate changes in the plan as conditions
change. Planners can anticipate some of the future changes and prepare for them so that the
nation is not suddenly caught unawareness.

13. Optimum Utilization of Resources

In Socialism, the resources are owned and controlled by the state in a socialist economy. The
central planning authority allocates the resources in the best possible manner. There is no self-
interest of private individuals and so no profit motive.
What to produce and how much to produce are decided according to what are really useful to the
people. Hence no wastage and duplication take place is socialism.
14. Equal Opportunity to all
All people get income for the work done by them in the form of salary or wage. Wage structure
is so designed that there are no wide inequalities in it. There is equal opportunity for all under
this system.
15. Rapid Economic Development
Economic planning is closely associated with socialism. Planning ensures rapid economic
development along desired lines.
15. Absence of Trade Cycles
In socialist economy, central planning authority maintains the balance between the forces of
demand and supply. Thus, there is no threat of price fluctuations and trade cycles.
16. Absence of Exploitation
As already stated socialist economy does not have two classes of haves and have-nots. Hence,
there are no exploitation. Everybody gets his due share in the national product.
17. Full Employment
Central planning authority gives boost to employment on behalf of the state. So it eliminates
unemployment. As the government directs production and distribution, there is no possibility of
depression and unemployment as in capitalism.
18. Wastage avoided
The planning authority decides everything after careful calculations of the need of the society.
Production is done under the control of the State. So, there is no scope for wastage of resources
by advertisement, transport, competition, etc.

19. Economic equality

The greatest merit of socialism is its economic equality. It does not recognize private property. It
does not allow anyone to amass wealth. So, there is no scope for becoming rich. There will be
economic equality in society. The struggle of the poor against the exploitation of the rich will be
absent in socialism.

20. Maximum Welfare

By reducing inequalities in society by making just distribution of goods, by giving employment
for all and by protecting all socially, socialistic system can promote greater welfare to the people.

Demerits of Socialism:
The merits of socialism given above should not lead us to the conclusion that socialist economy
is all virtue.

There are certain demerits of this system which are as follows:

1. No Suitable Basis of Cost Calculation:
Von Hayek and Bobbins have pointed out that there is not proper basis of cost calculation in a
socialist economy. They say that the means of production being owned by the government, there
is no market price for the factors of production. In the absence of market mechanism there is no
standard way of calculating costs of production for different goods and services.

2. Choice of Working Incentives:

The most difficult problem in this system is the choice and working of incentives in the absence
of profit motive. The Russian Government has been using the policy of “Carrot and the Stick”.
Some national honours are given to those showing outstanding results. Those shirking work or
proving irresponsible are punished.
There is decentralisation of authority along-with responsibility. This ensures freedom at the
lower level and scope for initiatives. However, there is no comparable system of incentives and
dis-incentives to the profit motive in a capitalist economy.

3. It Becomes Lack of Incentives:

In this system, it has also been seen that incentive of hard work and inclination to self-
improvement will dis-appear together when personal gain or self-interest is eliminated. People
will not give their best. Incentive, ability, enterprising spirit and the go-ahead attitude will
languish and creative work will become impossible. It is said that “a Government could print a
good edition of Shakespeare’s work but it could not get them written.”

4. There is Loss of Economic Freedom:

A very important charge against socialism is that, when freedom to enterprise dis-appears, even
the free choice of occupation will go. Workers will be assigned certain jobs and they cannot
change them without the consent of the planning authority. Every workers will have to do work
what he will be asked to do.

5. Lack of Data, Experts and Administrators for Planning:

Operating a socialist economy as a planned economy requires huge data, a good number of
experts and an equal number of administrators at different levels for administering the plan. No
doubt machine can help to process the data and experts can advise but there has to be decision-
making at different levels of government. It is difficult to find out enough data with the result
that decisions are delayed, mis-carried or wrongly implemented. Ultimately, the common people
have to pay the price for these mistakes.

6. Loss of Economic Freedom and Consumer Sovereignty:

Under socialism all economic activity is directed by the central planning authority. There is no
significant role given to private investment and initiative. Consumers are compelled to accept
whatever public enterprises produce for them. Generally, there is limited variety of goods and
restricted available choice. Prices are fixed by the government and consumers just cannot do
anything about them. Consumer’s preferences are just guessed by the planners who have no
compulsion to study the people’s preferences deeper.
7. Imperfections in Planning Lead to Dis-satisfaction on a Big Scale:
Imperfection may creep in the formulations of the plan, its assumptions, statistics or analysis.
Further, imperfection may enter at the stage of implementation of the plan. Further, there may be
lack of adjustment between prices and wages. As a result of these imperfections there is lot of
wastages of resources, slowing down of work, shortfalls in targets and the dis-satisfaction
resulting there-from.

Mistakes made by individuals harm them only. National mistakes are costly for the common
man. In fact, this has been the cause of dis-integration of the U.S.S.R., when the other economics
of Europe were booming the U.S.S.R. could not provide the minimum comforts of life.

8. Too Much Power is Concentrated in the State:

Under socialism the state is not merely a political authority but it also exercises unlimited
authority in the economic sphere. In this, all power is concentrated in the state. It means the state
is everything and individual nothing. He is reduced to a cypher. After all the human institutions
are for man and not man for these institutions.

9. There is Loss of Personal Liberty:

In socialism there is no unemployment. But the critics retort by saying that there is also no
unemployment in a jail. They regard a socialist state as one big prison-house and they do not
think that employment is any compensation for the loss of liberty.

10. Bureaucracy and Red-Tapism:

A socialist economy is a state enterprise economy. Every bit of the plan is to be cleared by
bureaucrats. This often leads to red-tapism. Even simple state forward jobs may take unduly
long-time to be done. The work of Government departments or even autonomous bodies is slow
moving. As a result inefficiency creeps in through bureaucracy. In many countries where
socialism had been brought about hastily, work came to a stand-still leaders had to revert to
liberal policies containing elements of the capitalist economy.

11. Concentration of Economic and Political Powers in the State

In socialistic economy, all economic and political power gets concentrated in the state. This
makes the state autocratic and it starts to make undue interference in the daily life of the people.
This creates dissatisfaction among the people of the country.
12. Lack of initiative on the Part of People
Under socialism, people are not offered incentive for greater work, efficiency and enterprise.
They always receive the wage and salaries fixed by the Government. So they lack initiative.
13. Reduction of overall Productivity
In socialism, Government servants and bureaucrats manage the economic affairs. People are
more interested in their salaries rather than the productivity. It reduces the overall productivity in
the economy.
14. Absence of Consumer Sovereignty
Under socialism, wants of consumers are not generally considered while producing goods. They
have to consume only those goods decided by the planning authorities. Goods are distributed to
people through Rationing system which is against the consumers freedom.
15. No Occupational Freedom
Under socialist economy, people do not have occupational freedom. They have to take up the
employment decided by the Government. There is no freedom for workers to choose their
occupation. Human labour will be considered just as any other resource. Those who do not work
shall not eat. Those who do not obey, shall not eat.
16. Bureaucracy and Red-tapism
Under socialism, bureaucracy and red-tapism are present in full swing. It deters quick and timely
decision.
17. Reduction in efficiency of State enterprise
Everything is done by government officials in socialism. They may be dull and slow moving
with little efficiency. Their salaries do not, depend on the income of the enterprise. So, the State
enterprise will not be efficient. There will be shortage in production, due to red-tape and lethargy
of officials.

18. Wastage of resource

Wastage of resources is possible as the factors are owned by the State itself. As there is no price
for resources, there may be wrong allocations and wastage of resources.

19. Administrative burden

The burden of administration will be very heavy in socialistic economy because the government
interferes in every activity of the people.

20. Loss of liberty

In socialism, there is loss of liberty. It takes away the freedom of the people. There is no freedom
for consumers to choose the commodities.

Due to the inherent defects the socialism gradually resulted in the downfall. Socialist countries
like Russia and China also diluted it considerably and started giving greater scope to private
enterprise and incorporated some of the good features of capitalism. It can be said that scientific
socialism does not exist anywhere in the world now.

Conclusion:
Whatever the difficulties of running a socialist economy, the appeal for socialism was great
especially, in less developed countries. For over populated countries having national problems,
socialism seemed to be the only hope of the masses. Free market economy in its pure form is a
thing of the past.Mixed Capitalist Economy is already the order in all the western countries. In
the Less Developed Asian Countries Government has not only to regulate economic activity but
positively direct it by active participation for the fast development of the country. As for the
difficulties, they exist and can be eliminated through co-operation between the administration
and the people. As the country develops economic planning gets a stronghold and difficulties
wear away.
The following are the major differences between capitalism and socialism - ( Not Important -for
information)

1.The economic system, in which the trade and industry are owned and controlled by private individuals
is known as Capitalism. Socialism, on the other hand, is also an economic system, where the economic
activities are owned and regulated by the state itself.

2.The basis of capitalism is the principal of individual rights, whereas socialism is based on the principle
of equality.

3.Capitalism encourages innovation and individual goals while Socialism promotes equality and fairness
among society.

4.In the socialist economy, the resources are state-owned but in the case of the capitalist economy, the
means of production are privately owned.

5.In capitalism the prices are determined by the market forces and therefore, the firms can exercise
monopoly power, by charging higher prices. Conversely, in Socialism government decides the rates of
any article which leads to shortages or surfeit.

6.In Capitalism the competition between firms is very close whereas in Socialism there is no or marginal
competition because the government controls the market.

7.In Capitalism, there is a large gap between rich class and poor class because of unequal distribution of
wealth as opposed to socialism where there is no such gap because of equal distribution of income.

8.In Capitalism, every individual works for his own capital accumulation, but in Socialism, the wealth is
shared by all the people equally.

9.In Capitalism every person has the right to freedom of religion which also exists in Socialism, but
Socialism gives more emphasis on secularism.

10.In Capitalism, the efficiency is higher as compared to Socialism because of the profit incentive that
encourages the firm to produce such products that are highly demanded by the customers while in a
socialist economy there is a lack of motivation to earn money, which leads to inefficiency.

11.In Capitalism, there is no or marginal government interference which is just opposite in the case of
Socialism.
What is capitalism? ( Not Important -For information)

Capitalism is an economical - political system whereby the means of production, distribution and
exchange of good and services in a state is totally controlled by private individuals, this private
individuals sees to the process of buying and selling commodities while the government have
little or no say in the economy.

Features or characteristics of capitalism

1.Private ownership of the total means of production- government intervention is very low and
its power is to no avail I.e the government are powerless in this kind of system.

2.It has an aristocratic formula whereby the best/wealthy citizens controls the means of
production, and it is a system of few compare to this large number of person participating in
economy life of a country.

3.In capitalism, there is always freedom of choice by the producers, he may not in one way
contact the government or the people in the society about the goods they have but rather choses
product from is own mind thinking of what is do is the actual.

4.It aids competition that makes one firm put more toes just in the name of sending another out
of the market, the private individual system make efficiency and effectiveness system of the
economical administration.

5.Profit aim is the guilding principle, profit is seen as the main core things a capitalist cherishes
or fall for
Advantages or merit of capitalism

1.Capitalism tends to be a system whereby self controls the means of productions, and for this
the government intervention is very low
2.It ensures most enterprises their freedom
3.Capitalism leads to specialization in production with its many advantages like increase in
production skill, quality of goods, economizing tools.
4.Capitalism builds a platform whereby one knows how to applies its initiative in the name of
effective use of talent.
5.A capitalist economy is a system that provides the people with alternatives system.
Disadvantages or demerit of capitalism
1.The system is a system of the make-rich-fast syndrome which leads to a lot of economical
crime in a society.
2.It is a self rulling system whereby each private individual regulate and measures its own price
by itself.
3.Capitalism is a system of exploitation of many people and citizens by private individuals in the
country.
4.Inequitable distribution of income is another disadvantage of the private economy owned
system.
5.The generalization define by schoolars about capitalism is that it is a system that lead to "man's
inhumanity to man"