Merits of Socialist Economy:

(i) No Labour Exploitation:

There is only one class in a socialistic economy hence there is no question of exploitation.

There are no concept of strikes and lock-outs. Everybody works in a well-knit family way.

(ii) Proper Utilisation of Resources:

Under this economy, all types of natural resources are utilized in a most organized manner. Its main objective is to exploit these resources for the welfare of society.

(iii) No Wasteful Advertisement:

The government is virtually the owner of almost every sector. Hence, all the individual producers are also more according to the plan targets. Therefore, the competition among the producers is almost nil. Hence, very less money is spent on wasteful advertisement.

(iv) Proper Planning:


In order to solve various problems, which arise from time to time, there is proper economic plan in this type of economy. Thus, with the help of economic plans socialist economy will adopt the balanced development strategy.

(v) No Cyclical Fluctuations:

Under socialist economy, no cyclical fluctuations are found. It means economy faces no boom, depression, unemployment or over production etc. Economic stability is maintained by the government on the basis of economic planning.

(vi) Social Welfare:

The aim of socialist economy is to maximize social welfare of the society. It provides equal opportunities of employment to all individual according to their abilities.

(vii) Rapid Economic Development:

The Central Planning Authority is the main figure in a socialist economy. It coordinate the natural, human and physical resources to attain economic progress of the country. In turn it accelerates the path of tremendous progress and people enjoy higher standard of living.

(viii) Most Suitable to Developing Countries:


This type of economic system is most suitable to the needs of developing countries as all means of production are controlled by the government.

Demerits of Socialist Economy:

Economists like Robbins, Maurice Dobb, Georg Halm etc. have criticised the socialist economy on the following grounds:

(i) Loss of Consumer Sovereignty:

A consumer has no choice of his own, he acts as a mere slave under this system. Government produces goods and services keeping in view the needs of the people.

(ii) Less Democratic:

Socialist economy is always less democratic as it possesses no element of freedom. It is also like government dictatorship.

(iii) No Automatic Functioning:


Under this system, no automatic function in system exists at all. It is the Central Authority, i.e., government, that governs the country according to its own interest.

(iv) Evils of Bureaucracy

In socialist economy, all economic activities are controlled by the government. Thus, they develop all evils of bureaucracy like favouritism, delay, corruption and other sue evils,

(v) Rigid Economy:

Socialist economy is very rigid and not susceptible to change according to requirements. Hence people work like a machine and never get any incentive to work.

(vi) Burden on Government:

All the economic activities are performed by the Central Authority on behalf of the government. Hence, it is overburdened with daily activities and, therefore, it gets very less time to think and plan for the economic prosperity of the economy.

(vii) Expenditure on Planning:

In fact, planning is a long process in a socialist economy. This expenditure is unnecessarily wasteful and a burden on the national economy.