Socialist Economy: Features and Benefits

“Unemployment insurance, abolishing child labor, the 40-hour work week, collective bargaining, strong banking regulations, deposit insurance, and job programs that put millions of people to work were all described, in one way or another, as 'socialist.' Yet, these programs have become the fabric of our nation and the foundation of the middle class”  - Bernie Sanders

 

The system of a socialist economy means that the mechanism of production, allocation, distribution and even the exchange will be owned by the community as a whole. Here community means government. 

 

The Socialist economy is based on the principle of usage value. This principle lets production of only what is needed by society. It also means that there will be no underproduction or overproduction of resources.

 

This system is totally different from the capitalist and mixed approach. In the capitalist system, we do not produce by usage value. Rather capital accumulation and profit generation are the main objectives. In this blog, you will learn more about the socialist economic approach along with its merits.

 

(Recommended blog - Command Economy)

 

 

What is a Socialist Economy?

 

Karl Marx and Fredric Engles in their book called ‘The Communist Manifesto’ introduced the concept of socialism. A socialist economy means an economic system wherein the government controls and regulates the entire mechanism from production to distribution to ensure economic welfare and equal opportunity for all the people in the country. The word socialism means “all things to all men”.

 

According to Samuelson, “Socialism refers to the government ownership of the means of production, planning by the government and income distribution”.

 

China’s socialist economy

 

Let us read more about the Socialist economy of China to understand the concept better. China is a country where the majority of the services are government-controlled. Even though the stakes are diminishing but still many prominent services are still under government control. 

 

Healthcare expenses in China are covered by 3 major public insurance units for around 95% of people. In the truest sense, the major objective of China was to become a pro-socialist economy in the world but it has now turned into a mixed economic structure.

 

China realized that it would be difficult for them to seclude from the global market so they have established a balance between capitalist and socialist economies. 

 

China has successfully transformed itself into a socialist market economy. Surprisingly, the private owned firms have contributed more to the GDP and around 60% of the government owned have contributed only 40% to the GDP.

 

(You can also check out- Economic system of Switzerland)

 

Features of a Socialist Economy

 

We know the capitalist and socialist economies are the opposite of each other. In simple words- socialist economy does not let private companies manufacture goods. The production is done as per the command of the State. The market forces of demand and supply also don’t work here. Given below are the features of a socialist economy.

---

Features of a Socialist economy

---

• Collective Ownership
   

In a socialist economy all the major manufacturing units, factors of production and the resources are owned by the government or the state. Private ownership is only allowed to small firms and individuals. 

 

Equal distribution and welfare of the people is the main objective therefore, there is collective ownership of the command and the state.

 

• Central Economic Planning

 

In a socialist economy a central economic planning committee is formed. They have the authority to decide what will be produced with the resources. They will decide the method of production and the quantity of production as well.

 

• No choice for the consumers

 

In a socialist economy consumers are given the basic necessities like food, water, shelter, clothes. But consumers don’t have the freedom of choice. As market forces do not play here. 

 

People cannot demand goods of their choice. People will be given what is produced for them. Even the occupation is not allowed to be chosen freely.

 

• No market forces

 

In a socialist economy market forces of demand and supply do not interfere. Therefore, all the product decisions will be based on the welfare of people and not profit oriented. The central planning committee will decide based on socio-economic welfare.

 

• Equal Distribution of income

 

In a socialist economy no one is allowed to accumulate wealth. This reduced the gap between the poor and the rich. Every person is given equal opportunity to education, jobs, healthcare. There is no discrimination between people.

 

(Also check out- Factors affecting the supply of a product)

 

 

Benefits of a Socialist Economy

 

Given below are the merits of a socialist economy:

 

• No labor exploitation

 

In a socialist economy there is no discrimination among people. Equal opportunities are given to people in terms of occupation. Everyone works in a happy knit-way. There are no strikes, lockdowns or any kind of labor problems.

 

• Optimum utilization of resources

 

All the resources are used in a planned manner such that there is no wastage of resources. Optimum utilization of resources is done. Since the main objective is welfare, resources are also used in similar fashion.

 

• Social welfare

 

In a socialist economy there is no exploitation or misuse. Equal opportunities are given to people and there is no discrimination. Based on the abilities of people, opportunities are given to all.

 

• Proper planning

 

A central planning committee is formed in a socialist economy. This committee ensures that there is proper planning about the quantity, methods and needs. With all this planning there is no wastage or misuse. 

 

• Suitable for developing countries

 

Countries that are still developing can use this form of economic system. As everything is government controlled there will be no misuse or wastage and every person will have equal opportunities. China is a developed country which used socialist system but has now shifted to a mixed economic pattern.

 

(Suggested Read- Economic Development)

 

Socialist Economy is considered a better approach for developing countries. Countries where people struggle to get basic necessities fulfilled or face unemployment can resort to a socialist economic system.