A social system in which the state takes overall responsibility for the welfare of its citizens, providing health care, education, unemployment compensation and social security. Skip to main content. Module 3: Different Strokes …. Political and Economic Systems Around the Globe.
Search for:. Reading: Socialism and Planned Economies Socialism is characterized by social ownership of the means of production. KEY Points A planned economy is a type of economy consisting of a mixture of public ownership of the means of production and the coordination of production anddistribution through state planning.
Socialism has many variations, depending on the level of planning versus market power, the organization of management, and the role of the state.
In a socialist system, production is geared towards satisfying economicdemands and human needs. Distribution of this output is based on individual contribution. Socialists distinguish between a planned economy, such as that of the fomer Soviet Union, and socialist economies. They often compare the former to a top-down bureaucratic capitalist firm. Socialism : Any of various economic and political philosophies that support social equality, collective decision-making, distribution of income based on contribution and public ownership of productive capital and natural resources, as advocated by socialists.
Planned economy: An economic system in which government directly manages supply and demand for goods and services by controlling production, prices, and distribution in accordance with a long-term design and schedule of objectives. Examples There are few clear examples of purely socialist economies; nonetheless, many of the industrialized countries of Western Europe experimented with one form of social democratic mixed economies or another during the twentieth century, including Britain, France, Sweden, and Norway.
They can be regarded as social democratic experiments, because they universally retained a wage-based economy and private ownership and control of the decisive means of production.
Variations range from social democratic welfare states, such as in Sweden, to mixed economies where a major percentage of GDP comes from the state sector, such as in Norway, which ranks among the highest countries in quality of life and equality of opportunity for its citizens.
Planned Economy A planned economy is a type of economy consisting of a mixture of public ownership of the means of production and the coordination of production and distribution through state planning.
Planned Socialist Economy Economic planning in socialism takes a different form than economic planning in capitalist mixed economies. Hierarchy of Needs. GLOSSARY Accounting The development and use of a system for recording and analyzing the financial transactions and financial status of a business or other organization.
Capital Money and wealth. Capitalism A socio-economic system based on the abstraction of resources into the form of privately-owned money, wealth, and goods, with economic decisions made largely through the operation of a market unregulated by the state. Command Economy Most of the economy is planned by a central government authority and organized along a top-down administration where decisions regarding production output requirements and investments are decided by planners from the top, or near the top, of the chain of command.
Cooperative A type of company that is owned partially or wholly by its employees, customers, or tenants. Coordination The resulting state of working together; cooperation; synchronization.
Demand The desire to purchase goods or services, coupled with the power to do so, at a particular price. Design To plan and carry out a picture, work of art, construction etc. Distribution The process by which goods get to final consumers over a geographical market, including storing, selling, shipping, and advertising. Economic System An economic system is the combination of the various agencies, entities or even sectors as described by some authors that provide the economic structure that defines the social community.
Economy Collective focus of the study of money, currency and trade, and the efficient use of resources. Efficiency The extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended.
Framework The identification and categorization of processes or steps that constitute a complex task or mindset in order to render explicit the tacit and implicit. GDP Gross domestic product GDP is the market value of all officially recognized final goods and services produced within a country in a given period of time.
In this case, the government will produce more military items and allocate much of its resources to do this. It will decrease the production and supply of goods and services that it feels the general public does not need. However, the population will continue to have access to basic necessities.
In this country, the government feels military goods and services are socially efficient. Historically, command economies don't have the luxury of surplus production; chronic shortages are the norm. Since the days of Adam Smith, economists and public figures have debated the problem of overproduction and underconsumption, its corollary. These issues were largely resolved by 19th-century economist Jean-Baptiste Say , who demonstrated that general overproduction is impossible when a price mechanism exists.
To see the principle of Say's law clearly, imagine an economy with the following goods: coconuts, jumpsuits, and fish. Suddenly, the supply of fish triples. This does not mean that the economy will be overwhelmed with goods, workers will become desperately poor, or that production will cease to be profitable.
Instead, the purchasing power of fish relative to jumpsuits and coconuts will drop. The price of fish falls; some labor resources may be freed up and shift to jumpsuit and coconut production. The overall standard of living will rise, even if the allocation of labor resources looks different. Command economies also have not had to deal with unemployment , because labor participation is compelled by the state; workers do not have the option of not working.
It's possible to eradicate unemployment by handing everyone a shovel and instructing them under threat of imprisonment to dig holes.
It's clear that unemployment per se is not the problem; labor needs to be productive, which necessitates that it can freely move to where it is most useful. Command economies took most of the blame for the economic collapse of the Soviet Union and current conditions in North Korea.
The lesson taken from the second half of the 20th century was that capitalism and free markets were indisputably more productive than socialism and command economies. Three broad explanations for such failure were given: socialism failed to transform the nature of human incentives and competition; political government processes corrupted and ruined command decisions; and economic calculation was proven to be impossible in a socialist state.
Soviet revolutionary thinker Vladimir Lenin first tried to implement an economic structure that lacked competition and profits in By , Lenin was forced to adopt the New Economic Plan to incorporate some form of motivation for positive production. Political economists in the Western economies often argued that such motivations were still directed incorrectly. Rather than satisfying customers, the concern of the socialist producer was to satisfy his higher-ranking political officer.
This discouraged risk and innovation. In response to concerns about high executive salaries and profits, economist Milton Friedman countered regulatory thinking by inquiring, "Is it really true that political self-interest is nobler somehow than economic self-interest? Leninists and Trotskyites complain that Stalinist command economies fail based on political corruption, not inherent flaws in the economic system. In , Austrian economist Ludwig von Mises, in an article entitled "Economic Calculation in the Socialist Commonwealth," argued that without free markets, no correct price mechanism could form; without a price mechanism, accurate economic calculations were impossible.
In market economies, the local knowledge problem is much less of a problem because the production is autonomous and decentralized. Firms make an effort to understand consumer preferences in the markets they operate in. Due to the rigid control of a planned economy and the slow flow of information the market is not allowed to change output levels according to consumption and as a result changes in output are usually too large or too small leading to unsteady output levels over time.
Planned economies suppress the incentive for people and firms to maximize their benefit from the economy and thus suppresses innovation as firms do not need to compete for market share.
In a free market, firms seek to compete as much as possible to capture as much of the market as they can. Because they can earn more money by competing, firms in a free market have the incentive to innovate to make a better product for consumers. Central planning is not synonymous with communism or socialism because central planning is specifically an economic model.
Both socialism and communism use central planning as a way of achieving other social and political goals, but usually operate as part of a mixed economy. Lyndon G. Fossil Fuels. Nuclear Fuels. Acid Rain. Climate Change. Climate Feedback. Ocean Acidification. Rising Sea Level.
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