Socialism is a political as well as economic system in which the distribution and production are owned by society. This is in opposition to capitalism, which promotes private ownership of the means of production.
In the definition, the term means of production include land, factories, raw materials, machinery, and all other things that are required to produce a finished product. This social ownership can be a collective public or even cooperative. There are multiple definitions of socialism and not a single definition that captures all of the features of socialism. Primarily the socialist systems are categorized into two different forms, which are market and nonmarket.
In the case of non-market socialism, it involves the replacement of factor markets and money with technical criteria and engineering, which is based on a calculation that results in producing an economic mechanism that is very different from the economic laws of capitalism. The problems and disadvantages associated with capital accumulation are avoided by non-market socialism.
On the other hand, market socialism uses monetary prices in factor markets. In some cases, market socialism also uses profit motive for Socialist enterprises, and also for capital goods allocation. There have been both internationalist and nationalists and socialist politics.
Socialism had signified a strong opposition to capitalism by the end of the 19th century, which was after the work of Karl Marx and Friedrich Engels, who was a collaborator of Marx. It was aimed at a system that will be a post-capitalist, and there would be some social ownership for the means of production. It was during this time that the Soviet Union emerged as words first socialist state.
Today socialism has also adopted different causes other than just social causes such as feminism, environmentalism, and progressivism.
1. Public ownership
One of the primary components of a socialist economy is that it has public property entirely on the production facilities. Along with production, public ownership also extends to distribution as well. It is agreed that in a socialist economy, all the forms factories, mines distributing agencies, and financial agencies, along with transportation and communication, are controlled and owned by the state and government departments as the case may be.
It is a common misconception that in the socialist economy there is no private sector, but there is always exist a minor private sector which may be present in the form of business units that are carried out in small sections of the society like villages and are owned and run by daily wage earners like local artisans. The earnings from their private businesses are aimed at domestic consumption only.
Usually, the means of production are owned by the owners of the said production, but it may be via worker cooperative or owned entirety by the society with management and control of people who utilize the said means of production. The public may also own it. In this case, public ownership refers to the enterprises which are owned by the state or autonomous institutions nationalization or municipalization. Many of the activities of different companies are controlled and managed with the help of self-governance and self-management.
An organization that follows socialism works in a way that eliminates the hierarchies based on control and propagates authorities, which are based purely on the technical knowledge of the workplace. Socialist form of organization would ensure that the decision making power in the company and would be with every member and that member would be able to participate and contribute in establishing the companies policies.
2. Self-managed economy
Decision making, decentralized mechanism of allocation of resources, and autonomous self-regulating economic units are the three factors on which a decentralized or a self-managed economy is based. Many economists, including Alfred Marshall and John Stuart Mill, have supported this model. The self-managed economy has multiple variations, which includes but is not limited to labor managed companies and worker-managed factories.
The primary goal of self-management is to reduce or eliminate worker exploitation and alienation that happens in the office and at workplaces. Guild socialism originated in the United Kingdom and is a movement that propagates the controls of workers on the industry by way of trade-related guilds.
The cooperative economy is the one in which workers manage the companies and deter mind the salary levels and the division of the person the companies. Cooperative will be the one who owns the productive resources legally, and they will be rented to the laborers or workers. The use of computers or cybernetics is another form of decentralized planning which helps to manage the allocation of economic inputs.
The socialism also states that the workers and the laborers working in an organization should be compensated purely based on their sacrifice and the effort so that the laborers who are engaged in uncomfortable and dangerous or hard work are eligible to receive the highest incomes. A new alternative mode of production for the capitalist economy is a new open software movement, which is based on collaborative common ownership and self-management by way of free cooperation of producers.
These producers are the ones who have complete access to distributed capital. Another theory is that of Anarcho communism, which believes that private and state property should be abolished. It was a common practice during the Spanish civil war.
3. Centralized Planning
The central planning authority is the one that undertakes takes the planning and functioning of the socialist economy. These economies, which are planned centrally, have advantages to market economies in which Central authorities make traditional decisions of business and consumers. More often than not, the state-owned enterprises, are the ones that make decisions regarding the production of goods and services along with their supplies.
The government creates these enterprises and engage in commercial activities on behalf of the government. These are also sometimes called command economies since bureaucrats sometimes control all of the prices. Many objectives and targets are let down by the central planning authority which is to be achieved during the said period.
Many major economic decisions about how much and what is to be produced when and where it is to be produced and who should produce and how is to be allocated are taken by Central economic Planning. This decision is a conscious decision of authority and is based on a detailed survey of the economic community.
The available economic resources are utilized judiciously by the central planning authority, and achievement of objectives of the economy are laid down during the planning period. Since important decisions are taken by administrative departments of the central planning authority, the peoples are left to focus on their strengths and to work in the organizations that run the economy.
Even though a lot of power is vested in economic planning, they are answerable to the questions of people in case of any error. The central financial planning authority is a single entity that is responsible for economic turnover in the country.
4. Political Socialism
Socialist is a collective term that is used by few politicians as political the right against people who do not categorize themselves as socialist and also against policies that are not under socialism. Since there is a wide variety of definitions surrounding the term socialism, there are, however, few common elements. These elements are low salaries, poverty, and its causes, unemployment along with social and economic inequality.
A standard solution to these problems is a universal control over an exchange, means of production and distribution. A theory of Anarchism states that societies should be self-governed. The principles of anarchism state that the state is an unnecessary and undesirable entity.
Market socialism advocates mutual assistance as well as collective anarchists. A new broad political movement called modern democratic socialism is taking place, which helps to promote the ideas of socialism and tries to fit into the principles of democracy. Social democracy is regarded as a temporary measure and a temporary solution to the current system.
What is the gradual modification of legislative capitalism emphasized by modern social democracy? On the other hand, a theoretical end goal And of having a completely socialist society has been completely forgotten or modified so that it suits the capital list way.
These two movements are considered to be very similar both in case of principles as the weather is the terminology. The primary difference between social democracy and democratic socialism is that the contemporary social Democrats support the idea of having a welfare state. The Democrats also support the unemployment insurance, which can humanise capitalism. On the other hand, the democratic socialist try to replace capitalism with a complete socialist economy.
They argue that the humanisation of capitalism is not beneficial and would create long-term economic distractions and distortions, which would affect the welfare policies and the economy as a whole. Democratic socialism also strives to establish an economy based on and for the working class. There are very drastic different definitions of democratic socialism.
5. Definite objectivism
The socialist economy usually operates within pre-defined objectives. These objectives are generally socio-economic. These objectives may have aggregate demand or satisfaction of a public need or also have full employment or a location of factors of production.
Targets are prioritised and fixed to achieve these objectives which cover all the aspects of the economy. Since the socialist economy aims at a stable economy, it has to have proper goals defined so that it works in harmony with society.
6. Freedom of consumption
The preference of customers is valued and socialist economy along with customers’ sovereignty. This implies that the production in the state-owned and run industries Is based entirely on the taste of the customers.
The available commodities are to be given to customers at predetermined and fixed prices. These commodities are to be given out only via state-run stores. The customers’ choice of useful commodities is the only sovereignty allocated to customers.
7. Equal Income distribution
Income distribution should be same is one of the primary characteristics of a social economy as compared to the free market economy. There should be no private ownership in the production and distribution, which will prevent the private capital accumulation and distribute the profits equally with the people.
This will also help to distribute the benefits evenly amongst the people and avoid capitalization and accumulation of immense wealth in the hands of a few people. The income in the form of interest rent or profit will go to the state, and it is believed that in socialism, the state utilises this money to provide free health facilities and public education along with social security to the people.
As far as the income of the people this concerned or salaries are concerned, many modern socialists do not aim towards rigid and complete equality.
8. Pricing and the Planning Process
The central planning authority is involved in regulation and control of the pricing process in a typical socialist economy. Central planning authority fixes the prices of many commodities and regulates the market.
However, there are always market prices at which consumer goods are sold in the market. The other part of pricing is accounting pricing, which forms the basis for the production of investment and consumer goods.
Advantages of Socialism
Following are found to be agreed advantages of socialism
1. Improved Economic Efficiency
It is found that the economic efficiency in capitalism is less than that of socialism. Because central planning authority regulates the production and planning, the efficiency is improved to a much greater extent. The central planning authority conducts multiple surveys and then estimates the final requirement of production.
This estimated and careful planning ensures there is no wastage of production facility, and it is utilised to the full extent. The production process depends entirely on the survey results obtained so that there is coordination between the production facility and research. This coordination also ensures that the basic wants of people are adequately satisfied and on priority.
This also results in an increase in productivity and socially useful goods, and products like food, clothing, and shelter are satisfied. Efficient production translates into better profits for the socialist economy, which will help to grow and progress the society together.
2. Greater welfare
As seen above, there is a provision for equal distribution of income in a socialist economy. This is possible as private ownership is absent in socialism, unlike capitalism. The private owners do not control the means of production, and accumulation of wealth by specific individuals is discouraged.
The welfare of the state is the prime importance of every citizen, and every person is paid according to his or her capacity, education, and training. All the profits and interests that are earned usually go to the state.
After collecting these profits and rents, the state spends them on public welfare in the form of free education or necessary healthcare facilities for its citizens. Other types of welfare include social security, providing essential facilities for its citizens like better transportation, public parks, and such things, which will help to develop the standard of living as well as the happiness index of people. The socialist economy aims to please its citizens.
3. Absence of Monopoly
One of the significant disadvantages of a capitalist economy is that it develops a monopoly. A monopoly is a situation in which there is only one seller of a particular product. The one seller decides everything about that specific product or service. The price may be unreasonably high, or there may be the selective provision of the product to people.
This exploitation of monopolistic companies and their principles are absent in the Socialist economy. The state is solely in charge of the production, which is why the state provides rights to the individuals of the society or the state-controlled subsidiaries. They ensure that the daily required and essential commodities are produced in state or country controlled production facilities, and are provided at reasonable prices to the public.
One could argue that this is a different form of monopoly or a state-controlled monopoly, but the fact remains that people under a socialist economy tend to agree with this form rather than monopoly.
4. Business stability
It is a common scenario in a capitalist economy to have business fluctuations. This is because many private individuals own the production rights and facilities. The prices are changed on their whims, which affects the customers negatively. The costs fluctuate immensely, which is not only inconvenient for people but also for the economy. This is not the case in a socialist country.
The production rights are owned and controlled by the state, and central planning authority looks into the demand and supply and works to keep the ratio balanced. A strict lookout on demand is maintained, and the supply is synced accordingly.
This leads to the absence of fluctuations in the business and small, medium as well as large businesses find stability for their operations. Over or underproduction is avoided owing to the interference from the central planning authority, and a conducive atmosphere for business is provided.
Disadvantages of Socialism
1. Customer’s sovereignty is lost
This is a primary disadvantage of a socialist economy. The freedom to buy whatever they want is absent from customers because they have to select from whatever is available. The government and central planning authority decide the availability.
Although it is based on the demands of customers and necessities are fulfilled, the luxury goods are not given to customers. Almost everything that is provided, including the quantity and price, is decided by the state.
2. No Occupational freedom
In a socialist society, people are not given a choice to have an occupation. The jobs are provided and controlled by the state, and the person cannot change it or leave it. Not only the job but also the place for employment are provided by the country, including all occupational movements if any.
3. Allocation of resources
The allocation of resources is not done correctly under a socialist economy. There are often mistakes seen in allocating resources by the central planning authority. The allocation and related work is performed on a trial and error basis, which will not work while running a state.
It is said that as compared to capitalism, a socialist economy is bureaucratic. The operation of a socialist economy is just like a machine, which is why it does not motivate people to work hard enough. People work only for fear of loss of their jobs or because of higher authorities.