The socialist economy involves the abandonment of free voice to the individual at any rate as fundamental liberty, consumption, and production must fit into the central planning. The demerits present in the capitalist economy lead to the growth of the socialist economy.
An essential feature of the law of socialism accumulations is that its operations are accompanied by the development and consolidation of social prosperity and a steady rise in the well-being of the people.
Advantages of a Socialist Economy
Deficiencies of the capitalist economy are overcome by the benefits of the socialist planned economy.
Thus, the upliftment of the socialist economy is done.
A Socialist economy has the following pros or advantages:
1. Optimum Utilisation of Economic Resources
Central planning is done for making the best utilization of natural and human resources for the betterment of the economy.
Global development can take place only by the best utilization of factors of production.
2. Economic Stability
Economic laws of socialism are present.
The balance between the demand and supply is maintained so that neither maximum production nor minimum production is done.
Socialism is the opposite of capitalism where means of production are either owned or managed by the state. The states control and manage the affairs of the socialist economy successfully. “Planned Economy” can be the new name of the socialist economy since all the activities are carried out in a pre-planned manner.
3. Elimination of Economic Inequality
Equitable distribution of income and government ownership helps in removing economic inequality.
Thus, the elimination of economic inequality is fruit for a socialist economy rather than a capitalist economy for a socialist economy.
4. Absence of Exploitation
Exploitation comes to an end when the private motive is sacrificed.
Ownership is taken up by the govt.
So economic exploitation of resources is limited.
5. Elimination of Unemployment
Central planning authority on behalf of the government gives a boost to employment.
It ensures that among all the factors of production, labour is the most important as it activates the other factors of production.
6. No Class Struggle
There is collective ownership of different factors of production which ensures the best utilization of available resources of an economy and equal distribution.
So there is no gap between having and have-nots.
Social parasitism comes to an end as the contribution of each individual is a must.
7. Maximum Social Prosperity
Unemployment and exploitation come to an end when the best possible utilization of resources is done.
Social security is available to every class-leading to social prosperity.
8. Economic Equality
The equitable distribution of income and wealth is done in the social economy whereas the unequal distribution of income and wealth is done in the capitalist economy.
9. Social Security
In socialism, social security is available to each individual against unemployment, hunger, accident, poverty, and Death.
Whereas in the capitalist economy, the social security structures are very weak.
Thus, Socialism is considered to be the best but many times people disclaim it by saying that it leads to bureaucracy, red tape, and concentration of economic power in the hands of the state.
10. Elimination of Unemployment
Human resource is an essential factor of production, Thus the best possible utilization may lead to an increase in national income whereas in the capitalist economy corruption and unemployment have become a chronic disease.
Disadvantages of a Socialist Economy
The followings are the disadvantages of a socialist economy:
1. Unequal Distribution of Factors of Production
In the socialism economic, the planning authorities decide the basket of commodities to be produced.
Thus, The market mechanism that operates in a free market economy is conspicuous by its absence in this economy.
In the socialist economy, the absence of a pricing policy leads to unequal distribution of factors of production.
The owners of private Enterprises take interest in their work in a capitalist economy.
But in socialism, the government gets the work done through their people who do not take so much interest and lack enthusiasm.
3. Absence of Individual Incentives and Initiatives
In the capitalist economy, private ownership and the profit motive are the two factors leading to the initiation of the work carried out by the individual whereas in the socialist economy incentives and initiation is lacking.
4. Efficiency Not Properly Rewarded
Profit maximization leads to the best utilization of resources in capitalism.
In socialism, neither the proper distribution of factors of production is done nor the absence of a profit motive gives a serious drawback to it.
5. Concentration of Economic Power in Hands of the State
The power gets concentrated in the hands of the government or the state and Thus government may not work according to the desires and preferences of the consumers.
Economic freedom and the democratic rights of people are endangered because of the danger of authorization.
Examples of Socialist Countries
- New Zealand
Many economists have given viewpoints in favor of capitalism and dislike socialism. When the comparison between socialism and capitalism is done there are serious drawbacks to it and Thus make life impossible.
The planners in socialism give importance to govt. Ownership of resources and making them available at the proper time and place.
Many socialist countries are making an effort these days to overcome this lacuna by giving the market mechanism its due place in their economies.
Under socialism, the system the workers of industry, agriculture, transport, and other sectors of the economy themselves become the joint owners of the means and result in production.
Lastly, decentralization, fixing ownership, and a feeling of development are the central points of socialism.