socialsim

Foundation course in Humanities- Bachelor of
technology in computer science & Engineering.-3rd sem.
Unit -3
Socialism:
Definitions of Socialism:
According to Webbs, “A socialised industry is one in which the national

instruments of production are owned by public authority or voluntary
association and operated not with a view to profit by sale to other people,
but for the direct service of those whom the authority or association
represents.”
In the words of H.D. Dickinson, “Socialism is an economic organisation of

society, in which the material means of production are owned by the whole
community according to a general economic plan, all members being entitled
to benefit from the results of such socialist plant production on the basis of
equal rights.”
From the above definition it is clear that in a socialist economy, the society
has the ownership over the sources of production. The Planning
Commission or Authority formulates the national plan keeping in view the
social and economic development of the country.
Characteristics of Socialism:
The important characteristics of socialism are as follows:
1. Government Ownership:
In socialist economy the means of production are either owned by the

government or their use is controlled by the government. The state holds the
ownership on the means of production and they are utilised for the welfare
of the society. There is no private property in respect of the means of
production.
In communist countries like the USSR and China, the means of production
are mostly owned by the state. In some socialist economies, the private
sector also plays a very important role. In such cases, the government
directs and regulates investment allocation and production pattern in
accordance with national priorities.
In some countries, such as India, some of the basic sectors, including a
major part of institutional finance, are in the public sector so that the
resource allocation and investment pattern of the private sector may be
regulated by regulating the flow of the basic inputs to the private sector.
When the state owns almost the whole of the means of production, it is
much easier to achieve the desired pattern of resource allocation. State
capitalism, of course, has its own defects and limitations.
2. Central Planning:
Under socialism, the central planning authority or a Planning Commission

formulates an overall plan for the entire economy according to certain
objectives and priorities. The socialist economies generally have a central
authority like the central planning agency to formulate the national plan for
development and to direct resource mobilisation, allocation and investment
to achieve the plan targets.
In the word of Dickinson, “Economic planning is the making of measured

economic decisions, what and how much is to be produced, and to whom
this is to be allocated by the conscious decision of determinate authority, on
the basis of comprehensive survey of the economic systems as a whole.”
Socialist economies are sometimes called command economies because the

central planning authority commands the pattern of resource utilisation and
development. They are also called centrally planned economies. Centrally
planned economies include the USSR, China, the German Democratic
Republic (East Germany), Poland, Romania, etc.
3. Social Welfare:
Another feature of socialism is that the means of production are operated

with the object of promoting and serving the good of the community rather
than for the benefit of few persons. Under socialism, the productive
resources of the community are diverted to the production of goods and
services which maximise social welfare rather than earn the largest profits.
4. Lack of Competition:
Since there is governmental control over means of production, government

has a hand in the matter of the kind of product to be produced, the quantity
to be produced and determination of its price. There is no scope for
competition.
5. Restriction on Consumption:
In communist countries, there is no consumer sovereignty because the state
decides what may be made available to consumers, unlike in the market
economies where the consumers have the freedom to choose from a wide
variety. The consumers in a communist system, thus, have to content
themselves with what the state thinks is sufficient for them.
6. Restriction on Occupation:
The freedom of occupation is absent or restricted in socialist countries. An

individual may not have the freedom to choose any occupation he is
qualified for. Similarly, individual freedom of enterprise is absent or
restricted.
7. Fixation of Wages and Prices by the Government:
The wage rates and prices in a communist economy are fixed by the
government and not by market forces. Non-communist socialist countries
may also fix wages and prices or regulate them by certain means.
8. Equitable Distribution of Income:
An equitable distribution of income is an important feature of the socialist

system. This does not mean, however, that socialist systems aim at perfect
equality in income distribution. Wage differentials, depending on the nature
and requirements of the job, are recognised in socialist countries.
The objective of equitable income distribution maybe achieved by fixing the

wage rates and other economic rewards or by means of fiscal and other
appropriate measures.
The traditional socialism emphasised government ownership of factors of

production. But a number of today’s socialist systems are based on
government control of the means of production rather than pure state
capitalism. Even the Euro-communism shows a more liberal view than the
Russian and Chinese systems. The recent changes in USSR and India are its
best example.
Merits of Socialism:
The merits of socialism are as follows:
1. Economic Equality- Under socialism, there is control of government over

production, there is no scope for centralisation of wealth. Wealth is
distributed among all the people. This avoids economic inequalities.
2. Production Planning- Under the socialist economy, the object is to serve
the real demands and to fulfill the real needs of the people. For this purpose
it arranges plant productions.
3. Economic Stability- Under socialism the government establishes

coordination between the demand for production and supply of various
goods. Thus there is a little likelihood of over-production and under-
production. As a result, there is economic stability in a socialist economy.
4. Proper use of National Resources- Under capitalism, the central

planning authority is better equipped than a capitalist market in locating
price output fluctuations. The state uses the means of production for
optimum welfare of the society.
Demerits of Socialism:
The demerits of socialism are as below:
1. Difficulties of Management- In a socialist system all production setup is

based on government planning, wherein the government officials have to
shoulder all responsibilities. As a result, the government officials are heavily
burdened with the work and it makes proper management difficult.
2. Lack of Freedom- In a socialist economy, it is a government which

controls the economy. The workers are not free to choose occupation
according to their choice. The government controls on all the activities of
human life hinder developments.
3. Lack of Consumer’s Sovereignty- In a socialist setup proper attention is

not paid towards the likes and dislikes of the consumer. The government
machinery determines the nature and quantity of production. Thus, the
consumer is not a king in a socialist economy.
4. Lack of Rational Calculation of Cost- The economists are of the view

that in socialist system, there is lack of rational calculation of cost in
production process. Efficient production becomes impossible in the absence
of rational calculation of cost. The reason is the state ownership of the
sources of production.
Evaluation of Socialism:
Socialism has become a very appealing and flexible concept. It has been
aptly remarked that socialism is a cap that has lost its shape because so
many different people have worn it. Indeed, there is a large variety of
socialism today.
Democratic socialism strives to achieve a trade-off between the free
enterprise system and state capitalism. Communism and state capitalism,
however, suffer from a number of drawbacks.
Some of the important among these are the following:
1. Civil liberties are suppressed under communism- Under communism;

man is a mere cog in the machine. If a free and fair election is conducted in
the totalitarian countries, it is doubtful if people will vote for the status quo.
2. There is no consumer sovereignty in totalitarian systems. The state

decides what and how much the people shall consume.
3. The central planning authority commands the resource allocation,

investment and development pattern. But the views of the authority need
not always be the right ones. As criticism is hardly tolerated, there is a
limited scope for accommodating different views and making critical
evaluations.

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Foundation course in Humanities- Bachelor of

technology in computer science & Engineering.-3rd sem.

According to Webbs, “A socialised industry is one in which the national

In the words of H.D. Dickinson, “Socialism is an economic organisation of

The important characteristics of socialism are as follows:

In socialist economy the means of production are either owned by the

Under socialism, the central planning authority or a Planning Commission

In the word of Dickinson, “Economic planning is the making of measured

Socialist economies are sometimes called command economies because the

Another feature of socialism is that the means of production are operated

Since there is governmental control over means of production, government

The freedom of occupation is absent or restricted in socialist countries. An

7. Fixation of Wages and Prices by the Government:

8. Equitable Distribution of Income:

An equitable distribution of income is an important feature of the socialist

The objective of equitable income distribution maybe achieved by fixing the

The traditional socialism emphasised government ownership of factors of

The merits of socialism are as follows:

1. Economic Equality- Under socialism, there is control of government over

3. Economic Stability- Under socialism the government establishes

4. Proper use of National Resources- Under capitalism, the central

The demerits of socialism are as below:

1. Difficulties of Management- In a socialist system all production setup is

2. Lack of Freedom- In a socialist economy, it is a government which

3. Lack of Consumer’s Sovereignty- In a socialist setup proper attention is

4. Lack of Rational Calculation of Cost- The economists are of the view

Some of the important among these are the following:

1. Civil liberties are suppressed under communism- Under communism;

2. There is no consumer sovereignty in totalitarian systems. The state

3. The central planning authority commands the resource allocation,

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