Socialism is a system that is based on public or collective ownership of means of production and distribution of goods. Ownership of such means might lie in the hands on a government, elected through democratic means or with a cooperative body. As a result, there is no private ownership.
Socialists believe that shared ownership is key as it leads to equal distribution of goods and services and results in an unbiased society. Under this system, each person contributes according to their ability, producing for use rather than for profit making. Allocations are made by the government/ cooperative based on needs, instead of buying in the market. Some amount of output is kept for communal development like provision of education, healthcare, transportation etc, while the rest is divided amongst the people.
Pros and Cons of Socialism
Pros of Socialism
- No exploitation: Each person contributes according to their ability and resources are allocated to them based on their need. Thus, everyone has access to basic goods, including those who are not able to contribute
- More Equality and less Poverty: No one person will have too much while another will have nothing. This is because Socialism is based on the principle that we all live in cooperation with each other and not in isolation.
- No extreme market structures like monopoly or oligopoly: since means of production are owned by the government or cooperative, monopolies or oligopolies, that are characterized with profit making will not exist and prices would be regulated, making goods more affordable to the public
Cons of Socialism
- Free Rider Problem: As with many public goods, there is a case of free rider problem, where in people do not contribute as they are aware that they would get free access to basic goods. On the flip side, contributing members might end up paying more tax or working harder to support the society at large
- Lack of Innovation: Since profit making is not an end, there would be little push for people to innovate
- Too Much Control with the government or cooperatives who will be able to decide on all aspects of your life like which healthcare system you can access, where to live, what education will be imparted, etc.
Socialism versus Capitalism
Socialism and Capitalism lie of two ends of a spectrum. Capitalism is based on private ownership of means of production and the owners have the right to make profits from these means of production. Capitalism includes a free market that allows people to choose what and how much would they like to buy.
Socialists believe that capitalism leads to an exploitative society as wealth and power are concentrated in the hands of few, who then tend to dominate the society.
Where does Socialism and Capitalism Meet?
While profit making is absent from socialism, there are different types of socialist economies based on ownership of property. While some socialist systems are based on complete ownership of goods by public, other systems allow for private ownership of shops, farms and other small businesses.
Further, though these two concepts, in theory are diametrically opposite, many countries today have elements of both socialism and capitalism, leading to a mixed economy. While a mixed economy allows free market to operate in most of the areas, there might be some aspects that would be under the control of government. A mixed economy allows private sector to operate but might regulate the sector or might even have complete ownership in some areas that provide a public good and helps achieve social aims.
Examples of countries that have a mixed economy include United States (US), India, United Kingdom, France, to name a few. USA for example, while allows for a free market, the government also provides welfare and unemployment benefits to its citizens in the form of housing aid, healthcare etc. Similarly, in case of India, the private and public sector co-exists in many areas like healthcare, education, transportation.