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Term Paper on Socialism

Term Paper # 1. Meaning of Socialism:

Socialism is an economic system where the means of production are either owned or managed by the state and where the investment structure, consumption, allocation of resources, distribution of income etc. are regulated and directed by the state.

These state regulations, control etc. may relate to total aggregate of demand, allocation of factors of production, full employment and distribution of national income etc. In fact, in socialism, there is public ownership and democratic management of the basic industries and public control of the distribution of income. In socialism, there is in fact a variety of systems. On one hand there are the communist countries characterised by state capitalism and on the other hand, there are the democratic socialist nations with a dominant private sector.


“The political economy of socialism is a living, rapidly developing science. Its foundations were laid by Karl Marx and Federic Engels, who revealed the tendencies in the development of capitalism that were leading inevitably to its downfall and triumph of the communist mode of production.”

In a socialised economy, labour becomes directly social and the ownership of the means of production becomes the equality of every persons of society in relation to the means of production and everyone gets their share of common wealth in proportion to their labour input.

“An essential feature of the law of socialist accumulation is that its operation is accompanied by the development and consolidation of social property and a steady rise in the well-being of the people.”

Under socialism system the workers of industry, agriculture, transport and other sectors of the economy themselves become the joint owners of the means and results of production. Under socialism, the labour of both the individual workers and the working collective is integrated in the process of production itself into the aggregate social labour as an indispensable component.


The difference between socialism and capitalism lies in the ownership of property; the former is a system where non-human production resources are mainly socially or state owned, while in the latter they are primarily owned by private individuals.

Term Paper # 2. Features of Socialism:

Socialism in underdeveloped countries increases the rate of capital development which further accelerates the rate of economic development. That is the reason U.S.S.R and other socialist countries lag behind some of the developed capitalist countries as far as per capita income is concerned. However their development process is faster than that of capitalist economies because of increase in the rate of accumulation.

The main features of a socialist system are as under:

i. Equitable Distribution of Income:


Socialism is better for peace and happiness. In socialist countries, an equitable distribution of income is an important feature. Equitable distribution of income does not mean that there is a perfect equality in income distribution. There may be wage differentials, depending on the nature and requirements of the nature of the job. By fixing the appropriate wage rates and other economic benefits, the objective of equitable income distribution may be achieved.

ii. Government Ownership:

Another feature of socialist system is government ownership. Here, the main means of production are either owned by the Government or its use is governed by the government. It becomes easy to achieve the desired pattern of resource allocation if the state owns almost the whole of the means of production. Socialists believe in working a political party, by educating public opinion, to win enough votes to put their programme peacefully into effect.

iii. Economic Laws:

In socialist system, all working people have an interest in the fullest understanding and application of the economic, laws of socialism. The main change in economic conditions in a country that has taken the road of building socialism leads to the economic laws of socialism coming into being and beginning to operate. These laws have some special features/conditions by the specific socio-economic structure of society. The freedom of occupation is absent or restricted in socialist countries. An individual may not have the freedom to select any occupation he is qualified for.

iv. Plan of Action or Central Authority:

The liberal socialist economy preserves to a considerable extent free choice of consumption. The socialist economies generally have a uniform plan of action or central authority like the central planning agency to formulate the national plan for development. Socialism stipulates an authority which can set and accomplish socio­economic goods of authority, which must have power to direct the means of production according to some plan of action. In socialist system, the central planning authority commands the pattern of resource utilisation and development.

Both the systems i.e. socialism and capitalism have certain advantages and disadvantages. Capitalism may secure better production but socialism secures better distribution. The difference between socialism and capitalism also lies in the ownership of property; the former is a system where non-human production resources are mainly socially or state owned, while in the latter they are primarily owned by private individuals.

Term Paper # 3. Merits of Socialism:

i. Better Allocation and Utilisation 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.

ii. 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.

iii. No Cyclic Fluctuations:


As socialist economy is a planned economy, there is no surplus and deficiency which results in smooth working of the economy. There are no business fluctuations.

iv. No Class Struggle:

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

v. Reduction in Inequality of Income:


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

Term Paper # 4. Demerits of Socialism:

The following are shortcomings of socialism:

i. Bureaucratization:

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

ii. Lack of Incentives:

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


iii. Red Tapism:

In socialist system the decisions are delayed as files go on moving from one place to another which results in wastage of time and money also.

iv. 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 authorities.

v. Promotes Corruption:

The government being ultimate authority the govt. servants often becomes dishonest and corrupt while doing work of people.


vi. Misallocation of Resources:

Allocation of resources is not made according to the desires and demands of the consumers since there is no place for price mechanism.

vii. 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.