Merits and demerits of socialist economy?

Answer 1

Merits of Socialist Economy

1. Efficient use of resources: The resources are utilized efficiently to

produce socially useful goods without taking the profit margin into

account. Production is increased by avoiding wastes of

competition.

2. Economic Stability: Economy is free from business fluctuations.

Government plans well and everything is well coordinated to avoid

over-production or unemployment. There is stability because the

production and consumption of goods and services are well

regulated.

3. Maximisation of Social Welfare: All citizens work for the welfare

of the State. Everybody receives his or her remuneration. The

State concentrates on the production of basic necessaries instead

of luxury goods. The State provides free education, cheap and

congenial housing, public health amenities and social security for

the people.

4. Absence of Monopoly: The elements of corporation and monopoly

are eliminated since there is absence of private ownership. The

state is a monopoly but produces quality goods at reasonable price.

5. Basic needs are met: In socialist economies, basic human needs

like water, education, health, social security, etc, are provided.

Human development is more in socialist countries.

6. No extreme inequality: As social welfare is the ultimate goal, there

is no concentration of wealth. Extreme inequality is prevented in

socialist system.

Demerits of Socialism

1. Bureaucratic Expansion: A socialist economy is operated under a

centralized command and control system. People here work out

of fear of higher authorities. It does not give any initiative for the

people to work hard.

2. No Freedom: There is no freedom of occupation. Allocation of

factors of production is not done rationally. Jobs are provided by

the State. Place of work is also provided by the State. The

consumer's choice is very limited.

3. Absence of Technology: Work is monotonous and no freedom is

given. Any change in the production process will alter the entire

plan. Hence any innovation cannot be easily enforced. Everything

is rigid and technological changes are limited.

4. Absence of competition makes the system inefficient.

Merits and Demerits of Socialism?

1. Better allocation and Utilization of Resources: - In socialist economy resources are owned and controlled by the state, so no wastage and duplication takes place. There is no self interest of private individuals and so no profit motive. What to produce and how much to produce is done according to what is really useful to the people.

2. Elimination of Unemployment: - Central planning authority on behalf of state gives boost to employment. It also ensures that all resources are put to their best use.

3. No cyclic Fluctuations: - As socialist economy is planned economy, there is no surplus and deficiency which result in smooth working of the economy. There are no business fluctuations.

4. No Class struggle: - There is collective ownership of different factors of production which ensures the best utilization of available resources of economy and equal distribution. So there is no gap between haves and have-nots.

5. Education in Inequality of income: - Since there is no gap between haves and have-notes there is equality of incomes. Equal chances are given to all in all the fields like occupation, education etc.

Demerits of Socialism

The following are shortcomings of socialism;

1. Bureaucratization: - The owners in private enterprises take interest in their work in capitalism. But in socialism government gets all the work done though their people who do not take so much interest and lack enthusiasm as people of private enterprises.

2. Lack of Incentives: - Major disadvantage of socialism is that people do not have incentive for greater work, efficiency and enterprise. People get fixed wages and salaries from government so they lack initiative and incentive.

3. Red Tapism: - In socialist system the decisions are delayed as files go on moving from one placed to another which results in wastage of time and money also.

4. Concentration of Economic Power in the hands of State: - The power gets concentrated in the hands of government or state, and thus government may not do work according to desires and preferences of the consumers. Economic freedom and Democratic rights of people are endangered because of danger of authoritarism.

5. Promote Corruption: - The government being ultimate authority the government servants often become dishonest and corrupt while doing work of people.

6. Misallocation of Resources: - Allocation of resources is not made according to the desire and demands of the consumers since there is no place for price mechanism.

7. No Consumer Sovereignty: - Wants of consumer are generally not taken into consideration for production of various goods. There is rationing system in distribution of goods as well which is against consumer freedom.

pradeepkalari (pradeepsp)