• The concept of socialist economy was propounded by Karl Marx and Frederic Engles in their work “ The communist manifesto” published in 1848.
• Under socialist economy, the material means of production such as factories, capital, mines, etc. are owned by the whole community represented by the state.
• All members are entitled to benefit from the fruits of such socialized planned production on the basis of equal rights.
• Resources are allocated according to the commands of the central planning authority.
• Market forces have no role to play in the allocation of resources.
• Under socialist economy,  production and distribution of goods are aimed at maximizing the welfare of the community as a whole.
• The Erstwhile U.S.S.R was an example of socialist economy from 1917 to 1990.
• North Korea, Vietnam , China and Cuba are a few other examples.
• In today’s world there is no country which is purely socialist.
• Socialist economy is also known as “ command economy” or a “ centrally planned “ economy.

Characteristics of Socialist Economy:

Each one of these points explained in detail: 

• Collective Ownership: there is collective ownership of all means of production except small farms, workshops, and trading firms, which may remain in private hands. As social ownership is there, the resources to be used to achieve certain  socio-economic objectives. 
• Economic Planning: there is a central planning authority to set and accomplish socio-economic goals . Hence, it is called a centrally planned economy. The major decisions such as what, when and how much to be produced are taken by the central planned authority.
• Absence of Consumer Choice: though freedom from hunger will be  guaranteed, but consumer’s sovereignty gets restricted by selective production of goods. Since there is planned production, the range of choice is limited. However, within a range, an individual is free to choose what he likes most. Similarly, right to work to be guaranteed but since the central planning authority decides on the basis of socio-economic goals the choice of occupation gets restricted.
• Relatively Equal Income Distribution: is an important feature of socialism.  Differences between income and wealth would be narrowed down by lack of opportunities to accumulate private capital. Educational and other facilities are to be enjoyed more or less equally thus, the basic causes of inequalities needed to be removed.
• Minimum Role of Price Mechanism or Market Forces: price mechanism exists in a socialist economy that has only a secondary role. Allocation of productive resources to be done according to predetermined plan, the price mechanism as such does not influence these decisions. Moreover, because of  lack of profit motive, the price mechanism loses its predominant role in economic decisions. The prices prevailing under socialism are ‘ administered prices’ which are set by the central planning authority on the basis of socio-economic objectives.
• Absence of Competition: since the state is the sole entrepreneur under socialism, there is absence of competition under socialism.

Merits of Socialist Economy:

• Equitable distribution of wealth and income and provision of equal opportunities for all to help to maintain economic and social justice.
• Rapid and balanced economic development is possible in a socialist economy, as the Central Planning Authority coordinates all resources to be in efficient manner and ensures maximum production.
• Because of strict economic planning, wastage of all kinds to be avoided.
• There is no wastage of resources on advertisement and sales promotion as competition is absent.
• In a planned economy, unemployment to be minimized, generally business fluctuations eliminated and stability to be brought about and maintained.
• The absence of profit motive helps the community to develop co-operative mentality and avoids class war. This, along with equality, ensures better welfare of the society.
• Socialism ensures the right to work and minimum standard of living to all people.
• Under Socialism, the laborers are to be protected from exploitation by the employers  and consumers to be protected from monopolies.
• There is a provision of comprehensive social security under Socialism, and it makes citizens feel secure.

Demerits of Socialist Economy:

• Socialism involves the predominance of bureaucracy and the resulting inefficiency and delays.
• There may also be corruption, red-tapism,  favoritism, etc.
• It restricts the freedom of individuals, as there is state ownership of the material means of production and state direction and control of nearly all economic activity.
• Socialism takes away the basic right of private property.
• It will not provide necessary incentives to hard work  in the form of profit.
• Administered prices will  not be determined by the forces of the market on the basis of negotiations between buyers and sellers. There is no proper basis for cost calculation. In the absence of such practice, the most economic and scientific allocation of resources and the efficient functioning of the economic system are impossible.
• State monopolies created by Socialism are very difficult to regulate as compared to private monopolies under capitalism.
• Under Socialism, whatever the state produces has to be accepted by the consumer. Thus, consumers have limited freedom of choice.
• No importance to be given to personal efficiency and productivity.
• Laborers are to be rewarded as per their efficiency, resulting in disincentive to work.
• The extreme form of Socialism is not practical.

CONCLUSIVE STATEMENT:

Socialism is a system in which every person in the community has an equal share of the various elements of production, distribution, and exchange of resources. Such a form of ownership will be granted through a democratic system of governance. Having understood the characteristics, merits, and demerits of socialist economy, we can conclude that socialist economy would be an ideal form of economic system as state welfare is the objective. But, consumers are given limited freedom of choice and hence, it can be concluded that an extreme form of Socialism is not practical.

Thanks for reading this blog, hope you found this  informative. Please feel free to comment below.

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