In a socialist economy, the government is the primary entity and it decides on the products and services manufactured to suit the needs of the society. They also have complete control over the means of production. In this article, we will know in detail what are the Advantages and Disadvantages of Socialist Economy and what are its consequences.
The main objective of production of goods and services in a socialist economy is not profit but social welfare. In this type of economy, the prices of goods are under the control of the government. Since the government controls every sector or industry, there is zero competition in this economic system.
Advantages / Benefits of Socialist Economy
The Advantages / Benefits of a socialist economy are as follows.
(1) Economic development through planning
In a socialist economy, economic planning is of paramount importance. Planning is an important tool for economic development. Therefore, in a socialist economy, rapid economic development can be achieved by adopting planning. Since 1927, Russia has made remarkable progress in economic planning by adopting economic planning.
(2) Increase in social welfare
In a socialist economy, the government itself assumes the responsibility of providing the necessary services and facilities to the citizens of the country. Some services are provided free of cost to the citizens. All activities in the economy are conducted for the purpose of social welfare. This leads to an increase in social welfare.
(3) Economic equality
Inheritance system has no place in socialist economy. Therefore, the question of ancestral wealth or income from it does not arise for the children. Thus, in a socialist economy, there is no place for unearned income, so there is a position to work and earn income. Therefore, rich and poor classes are not created in the society.
(4) End of class struggle
In a socialist economy, there is no such thing as poor-rich, owner-laborer, superior-inferior class, so there is no question of class struggle. In the absence of class struggle, peace prevails in the society and in the industrial sphere.
(5) End of exploitation
In order to make more profit in the capitalist economy, the capitalist exploits the workers by paying lower wages on the one hand and the consumers by charging higher prices on the other. In a socialist economy, the exploitation of workers and consumers ceases because there is no profit motive.
(6) Increase in employment
In a socialist economy, extensive planning is done for economic development. The purpose of planning is to provide employment to every able-bodied person according to his ability. Economic planning makes it possible to make full use of the country’s human resources.
(7) Restrictions on trade cycles
In a capitalist economy, the cycle of ups and downs continues. In a socialist economy, the production of goods is based on the demand for certain commodities. So there is no question of over-production or under-production. As a result, booms and busts do not appear.
(8) Price stability
In a socialist economy, cycles of ups and downs do not occur. As a result, commodity prices remain stable. The government also controls the distribution system. As a result, commodity prices do not fluctuate much.
(9) Increase in living standards of workers
In a socialist economy the exploitation of workers stops. They are paid a fair wage. Unemployment is addressed. Etc. increase the income of the workers and raise their standard of living.
(10) Establishment of welfare state
The welfare of the people of the country is the goal of the socialist economy and to achieve this goal the government provides education, health, water supply, unemployment benefits, old age assistance, pensions, sickness relief etc. to the people. Therefore, a welfare state is established in the country.
Disadvantages of the Socialist Economy
The disadvantages of a socialist economy are as follows.
(1) Lack of independence
In a socialist economy, since all means of production are owned by the government, individual freedom is limited. Individuals do not have the financial freedom to own, buy and sell personal property or to earn income from it. Citizens of the country are deprived of all economic, social and political rights. Citizens do not have the freedom to express their views on a burning issue.
(2) Government monopoly
In a socialist economy, all economic power is concentrated in the hands of the government. The government system is omnipotent. The government has a monopoly on production, distribution and pricing. Market competition ends and government monopolies are established. All decisions are made by the government. The whole economy has to bear the brunt of a decision-making error.
(3) Abolition of consumer sovereignty
In a socialist economy, consumer sovereignty ends. The government produces goods according to its policy and fixes their price. People have to buy goods at that price. The government does not pay attention to the preferences, fashion and expectations of the people.
(4) The rise of dictatorship
Since the socialist economy is not based on democratic principles, it does not matter to the individual. All the sources of economic affairs in the country are concentrated in the hands of the central government. Therefore, with the rise of government dictatorship in the country, there is a strong possibility of oppression on the people of the country.
(5) Inefficient management
In a capitalist economy the profits of the industry are owned by the capitalists. Therefore, they manage the business efficiently. In a socialist economy, all industries are state-owned and their management is entrusted to irresponsible government officials. Even if the industry is profitable, it does not serve the personal interests of the government officials and they do not carry out their responsibilities efficiently.
(6) Slow economic growth
The motivation for profit is one of the key drivers of economic growth. Socialism lacks this motivation everywhere. The bureaucrats who run the government industry do not run the industry intimately as they are not motivated by profit. Neglect the development of the industry. As a result, economic growth slows down.
(7) Bureaucracy and office delays
In a socialist economy, all decisions are made by government. As a result, the dominance of government officials increases and there is a fault of office delay. Every work is done by keeping a finger on the rules. Decision making is done at the senior level. Junior officers always have to wait for orders from senior officers. Therefore, decisions are delayed. Not making the right decision at the right time adversely affects the development of the industry.
(8) Improper use of productive tools
In a socialist economy, productive means are not used for profit but for social welfare. Therefore, rare tools are often misused. Production tools are also used in industries where productivity is low. It is a kind of misuse of the means of production.