Socialism as an economic system has certain advantages :
(1) Greater economic efficiency :
A great accomplishment of socialism is that it ensures higher economic efficiency. Under capitalism production is for profit. So resources are diverted for the production of luxuries in stead of necessaries. In a socialist economy production takes place in accordance with an exhaustive central planning. The objective of such socialist production is the promotion of social welfare. Consequently, there is a better allocation of resources. Production would be on the basis of human needs. So trivialities or such super luxuries will not be produced at the cost of common necessities and basic comforts of life. The planners would take into account the full social costs of producing different economic goods.
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Besides, a socialist economy can eliminate the various wastes associated with the capitalist mode of production. For instance, the competitive exploitation of natural resources would be absent. There would be no unnecessary wasteful expenditure on advertisement. Socialism would release powerful forces of socio-economic progress.
(2) Egalitarian society :
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Socialism aims at the establishment of an egalitarian society. It socialist society all members are supposed to be equal, none high none low. We have seen earlier that great inequalities of income and wealth is an inherent feature of capitalism. Within the institutional framework of capitalism, possibilities for greater equality are quite limited. The institutions of private property, inheritance, competition, etc., accentuate and aggravate such economic inequalities.
But under socialism, due to social ownership of the material means of production, a more equal distribution of income can be achieved. All income is earned income In addition to economic equality, socialism emphases on social equality as well. E.F.M. Durbin has remarked : “Economic equality will not only bring justice and social freedom, but it will also release immense resources of ability now – running into waste.”
(3) A planned economy :
A planned economy stands for a coordinated systematic economy, where the economic forces are in order. Central planning under socialism would eliminate massive waste of resources associated with recent depressions and business fluctuations. Economic fluctuations and imbalances under uncontrolled market economy are a product of “anarchy in production”. There is no unity of action. “The competitive system may be likened to the wild forest, in which useless weeds battle fiercely with desirable plants, and where a bitter struggle goes on leading to the entangled chaos of nature’s wilderness.”
Just as today man has replaced the primeval forest with cultivated gardens from which he can obtain fruits far superior than nature could produce. Similarly under socialism chaos and disorder of a capitalist productive system could be substituted by orderly and carefully planned productive activity. Pigou has rightly commented that there is little doubt that for tackling the problem of unemployment, a socialist system with central planning has definite advantages over a capitalist system.” A planned economy would “eliminate the cause of the cyclical ups and downs whereas in the capitalist order it is only possible to mitigate them.”
(4) Rapid economic growth :
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Socialism ensures rapid economic growth. A socialist economy is a planned one. A planned economy naturally ensures a more effective utilization of the available resources for an accelerated economic growth. An unplanned capitalist economy moves by fits and starts. It operates in an erratic and haphazard way. On the other hand, a socialist economy operates in a rational and systematic way to attain steady economic progress.
(5) Greater Freedom :
Some have argued that socialism ensures greater economic and political freedom for its citizens. In a capitalist economy, people are exposed to several insecurities like the risk of unemployment, illness, old age, etc. In the face of an uncertain tomorrow, genuine economic freedoms cannot be present. Emergence of true freedom is possible only in a socialist economy, where all these economic Insecurities would be eliminated. In the words of Fidel Castro socialism provides liberty with broad without terror”.
An equal distribution of income also would pave the way for the realization of economic freedom. There may be absence of freedom of enterprise. But this would be compensated by the absence of environmental barriers to movement between occupations, ensuring free choice of occupations. To put it finally : The individual would have no chance to start life as a poor boy and end it is as an extremely rich old man but many more individuals than under capitalism would have a real opportunity to rise from lowly to at least moderate circumstances.” So Lenin had said “Socialism implies a free equal society.
Shortcomings of Socialism :
There are certain shortcomings of socialism which are discussed below:
(1) Misallocation of resources :
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In any economy productive resources are limited. So these resources have to be rationally utilized. Some economists like Mises, etc., hold the view that under socialism rational and economical allocation of resources is impossible. In a socialist economy all the productive resources such as land, mines, factories, industries, etc., are owned and operated by the society. So there is no free and competitive market for such productive resources and capital goods.
As there are no independent owners to compete on the market for these means of production, their prices cannot be determined. In the absence of the prices for the productive resources, calculation of the costs of production would be impossible. Without a knowledge of the costs of production, prices would have to be fixed arbitrarily which would bear no relation to their costs. So a proper and economical allocation of resources would present serious difficulties under socialism.
Mises even held that a socialist economy would “flounder without compass in the ocean of possible and conceivable economic calculations”.
(2) Unreal nature :
According to Max Eastman, socialism has been more myth than science. Instead of facing the reality boldly it aims at escaping from it, through its emphasis on egalitarianism. The urge to compete is inherent in human nature. This element of competition can be fruitfully utilized in human society for development and progress. “Instead of trying to remove all causes for contest between individuals, we ought to recognize that contest forms a large part of what keeps mankind in health and interested.”
(3) Loss of efficiency :
According to the critics of socialism a socialist economy would suffer from inefficiency and lack of initiative and hard work. In such an economy competition and profit motive would be absent. The presence of these economic institutions under capitalism leads to an increase in production, reduction in cost and the most efficient use of the available resources. In a socialist economy all profits are appropriated by the state.
People would no more be guided by pecuniary motive. In the absence of pecuniary incentives the methods of production are likely to stagnate, affecting the total volume of aggregate national output. Public managers in charge of individual production units are likely to be less efficient than their counterparts under capitalism. A socialist economy is thus not conducive to the attainment of maximum economic efficiency.
As Pigou observes, “remuneration by profit is an essential instrument for ensuring technical efficiency and that any system which endeavored to dispense with it, whatever other advantages it might claim, would be enormously less productive.
(4) Against human nature :
The socialist philosophy runs counter to human nature. Socialism believes that all men are equal. But by nature men differ in their ability and productivity. By not recognizing this basic fact we are simply retarding the pace of economic development and social advancement under socialism. Sir Alec Douglas Home had rightly commented that under socialism “Man is thus deprived of the benefit of his character and personality and individual prowess. He is stunted and stultified and discontented and human progress is denied.”
(5] Loss of Incentive :
Any economy ultimately is operated by the human beings. In a socialist economy there is public ownership of all means of production, distribution and exchange. It is said that public ownership does not inspire. When profit motive is eliminated enthusiasm falters. Hope of gain and fear of loss play a vital role in a capitalist economy to check carelessness and promote discipline, drive and efficiency. It is apprehended that the absence of such incentives coupled with small income differentials would seriously undermine efficiency and productivity. Socialism would fail to bring forth the highest efforts and initiative on the part of the workers. Pigou has aptly commented : “A Government could print a good edition of Shakespear’s work but it could not get them written.
This problem has already arisen in socialist economies such as the Soviet Union and China etc. This has compelled these economies to introduce liberalization measures more and more to cater to profit and reward.
(6) Lass of freedom :
Graham Hutton has commented : “Private property, private enterprise and private enterprisers prove a democracy’s dynamic. Take them away and you take away both democracy and its dynamic.”