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.


Terms

  • 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. In socialism, planning refers to production of use-value directly (planning of production), while in capitalist mixed economies,planning refers to the design of capital accumulation in order to stabilize or increase the efficiency of its process. While many socialists advocate for economic planning as an eventual substitute for the market for factors of production, others define economic planning as being based on worker-self management, with production being carried out to directly satisfy human needs. Enrico Barone provided a comprehensive theoretical framework for a planned socialist economy. In his model, assuming perfect computation techniques, simultaneous equations relating inputs and outputs to ratios of equivalence would provide appropriate valuations in order to balance supply and demand.

Hierarchy of Needs
Worker self-management and production to satisfy human needs are key.
 

The command economy is distinguished from economic planning. Most notably, a command economy is associated with bureaucratic collectivism, state capitalism, or state socialism.

Socialism

Socialism is an economic system characterized by social ownership, control of the means of production, and cooperative management of the economy. A socialist economic system would consist of an organization of production to directly satisfy economic demands and human needs, so that goods and services would be produced directly for use instead of for private profit driven by the accumulation of capital. Accounting would be based on physical quantities, a common physical magnitude, or a direct measure of labor-time. Distribution of output would be based on the principle of individual contribution.

There are many variations of socialism and as such there is no single definition encapsulating all of socialism. They differ in:

  • The type of social ownership they advocate;
  • The degree to which they rely on markets versus planning;
  • How management is to be organised within economic enterprises; and
  • The role of the state in constructing socialism.


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. The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information. (definition by the American Accounting Association)

Capital

Money and wealth. The means to acquire goods and services, especially in a non-barter system. Already-produced durable goods available for use as a factor of production, such as steam shovels (equipment) and office buildings (structures).

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. A socio-economic system based on private property rights, including the private ownership of resources or capital, 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. Abbreviation: co-op.

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. the set of relative likelihoods that a variable will have a value in a given interval. A probability distribution; the set of relative likelihoods that a variable will have a value in a given interval.

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. The system of production and distribution and consumption. The overall measure of a currency system; as the national economy.

Efficiency

The extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended. The extent to which time is well used for the intended task. Improved efficiency was a principle goal of progressives, one they thought attainable by the application of scientific and rational thought to social problems.

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. A basic conceptual structure.

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. A measure of the economic production of a particular territory in financial capital terms over a specific time period.

Good

An object produced for market.

Input

Something fed into a process with the intention of it shaping or affecting the outputs of that process. Each participant's contributions that are viewed as entitling him/her to rewards or costs. Examples include time, effort, and loyalty.

Management

The act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively. Administration; the process or practice of managing.

Market

A group of potential customers for one's product. One of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange.

Mixed Economies

A system in which both the state and private sector direct the way goods and services are bought and sold.

Mixed Economy

An economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety of government-sponsored aspects.

Output

Production; quantity produced, created, or completed. data sent out of the computer, as to output device such as a monitor or printer.

Planning

The act of formulating a course of action, or of drawing up plans.

Process

A series of events to produce a result, especially as contrasted to product. in reference to capabilities, a process is how the capability is executed.

Profits
Collective form of profit.
Ratio

A number representing a comparison between two things. The relative magnitudes of two quantities (usually expressed as a quotient).

Services

That which is produced, then traded, bought or sold, then finally consumed and consists of an action or work.

Supply Provisions
The amount of some product that producers are willing and able to sell at a given price, all other factors being held constant.
State Capitalism

The term state capitalism has various meanings, but is usually described as commercial (profit-seeking) economic activity undertaken by the state with management of the productive forces in a capitalist manner, even if the state is nominally socialist. State capitalism is usually characterized by the dominance or existence of a significant number of state-owned business enterprises.

System

The part of the universe being studied, arbitrarily defined to any size desired A whole composed of relationships among the members.

Welfare State

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.

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