In this article we will discuss about the merits and demerits of socialism.

Socialism is a social and economic system in which the means of production are collectively owned and equality is given a high priority. There are various forms of socialism, but all share a belief in the necessity for collective intervention in economic affairs. Socialism as an economic system has been interpreted in different ways by the different writers.

Broadly speaking, socialism is a pattern of economic system and organisa­tion in which some important characteristics are found:

(a) State ownership of means of production such as land, mineral resources, capital, etc. and consequent cessation of property as a source of individual income,


(b) Socialisation of the different sectors of the economy such as agriculture, industry, trade, commerce, banking, insurance, etc.,

(c) Determination of production by the central planning authority (e.g., the Planning Commis­sion of India) and distribution of goods and services by the society, i.e., by the government or by its agencies,

(d) Equalisation of opportunities for all and of living conditions,

(e) Extinction of private enterprise,


(f) Elimination of capitalists,

(g) Elimination of the price system and free competition, and

(h) Social gain, not private profit, as the basis of production.

There are different forms of socialism such as Marxian socialism, fabian socialism, collectivism, guild socialism, syndicalism and democratic social­ism. There has occurred breakdown of socialism in 1992. Today, China is perhaps the only example of pure socialism.

Merits of Socialism:


Socialism, whatever its form may be, is advocated on various grounds:

(a) It can avoid the wastes of the capitalistic economic system,

(b) There is an end of private property and the establishment of equal opportunities for all,

(c) It provides the maximum benefit for all as produc­tion is directed towards social gain,

(d) Social ownership of the means of production eliminates economic crises and mass unemployment,

(e) Socia­lism realises the ideal of equality and develops social unity,

(f) There is also better and planned utilisation of the country’s natural resources through the successive development plans,

(g) There is expansion of the production in such enterprises.

Demerits of Socialism:

But socialism as an economic system is criticised on the fol­lowing grounds:


(a) Firstly, there is a loss of efficiency due to abolition of private competition,

(b) There is also a loss of personal liberty as the consumers cannot enjoy complete freedom in consumption,

(c) It is also wrong to remove profit motive and freedom of enterprise,

(d) In the absence of normal operation of demand and supply difficulties arise in determin­ing the prices of goods and productive services,


(e) The abolition of private property causes the loss of incentives of producers and workers.


Most of the defects of socialism can, however, be removed by suitable means. In almost every country at present there has been some bias towards socialism. In the opinion of Milton Friedman, there are only two ways of coordinating the economic activities of millions of people.

One is central direction involving the use of coercion—the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals — the technique of the market place. Exchange can bring about coordination without coercion.


In truth, the inherent danger of socialism is that in establishing a social machinery for economic direction it creates a concentration of power — the coercive power of the state and the power of a command economy — far beyond anything capitalism dreamed of and makes men even more depend­ent than free.