Economic Systems

There are many different ideas or systems of how an

economy should be run. The two most common are capitalism and socialism. They are very different in how they view who runs the economy. Most economies have ideas from both systems, but tend to be more of one than the other.

Capitalism
Capitalism is an economic system where the means of

production are owned by private individuals. Means of production refers to resources including money and other forms of capital. Under a capitalist economy, the economy runs through individuals who own and operate private companies. Decisions over the use of resources are made by the individual or individuals who own the company.

 Under capitalism, companies live by the profit motive.

They exist to make money. All companies have owners and managers. Sometimes, especially in small businesses, the owners and managers are the same people. As the business gets larger, the owners may hire managers who may or may not have any ownership stake in the firm. In this case, the managers are called the owner's agents.

 Under capitalism, it is the government's job to make

sure there is a level playing field for privately-run companies by enforcing laws and regulations. The amount of governing laws and regulations in a particular industry generally depends on the potential for abuse in that industry.

Socialism
Socialism is an economic system where the means of production, such as money and other forms of capital, are owned by the state or public. Under a socialist system, everyone works for wealth that is, in turn, distributed to everyone. Under capitalism, you work for your own wealth. A socialist economic system operates on the premise that what is good for one is good for all. Everyone works for their own good and the good of everyone else. The government decides how wealth is distributed among the people.

 In a socialist economy, there is no market as such. The government provides for the people. The taxes

are usually higher than in a capitalist system. There may be government-run health care and a complete system of government-operated education. It is a misconception that people do not pay for these services. They do pay for them through higher taxes. Socialist systems emphasize equal distribution of wealth among the people.

Capitalism

Socialism

Market:

Aims to produce the the best products and the lowest prices.

The labor of workers should create profit for the workers themselves.

Philosophy:

Capital (or the "means of From each according to production") is owned, his ability, to each operated, and traded for according to his deeds. the purpose of generating profits for private owners or shareholders.

Ideas:

Laissez-faire means to "let do" opposed government efforts to help poor workers.

All people should be given an equal beginning and the workers should have the most say in their factory's management.

Pros of Capitalism
In a capitalist economy, consumers can work toward

riches and financial freedom. A competitive market results from capitalism and consumers are presented with a wide array of products and services to choose from. Consumers and companies regulate the free market. This is often seen as one of the strengths of a capitalist society.

Prons of Socialism
Socialism seeks to promote equality among people by providing them with many of the same social benefits. Examples of benefits that individuals in a socialist society are provided are educational, health care, and care for the elderly and the vulnerable. Socialism means paying for things without necessarily expecting a financial return, just for the greater good. One of the pros of socialism is that it seems to be a way of achieving slow, but peaceful, progress. That is, at least, a goal of socialism.

Cons of Capitalism
Capitalist economies are money-driven without much

regard for people unless they are owners or shareholders of business firms. In a capitalist economy, there is fierce competition and, perhaps, unfair competition. There is a tendency, in capitalist economies, for big companies to get bigger and for monopolistic behavior to occur. Unfair labor practices may occur since companies are driven by the profit motive. Since capitalism requires continual growth, environmental damage may occur as the resources of the earth are depleted. Some say capitalism makes the rich richer.

Cons of Socialism
Socialism is economically inefficient as it does not

reward entrepreneurs. Instead of rewarding entrepreneurs for creating wealth, it punishes them by making them pay higher taxes. Socialism can actually lower the living standards of all by not rewarding work and by making public assistance available to more than the neediest.

Communist Economy

Communism is defined as a social structure which is

typically characterized by the abolition of classes and a common control over the property. The founder of modern communism - Karl Marx, coined the term 'communism' for a classless, stateless, oppression free society, wherein the decisions about the political as well as economic policies pertaining to the state, were supposed to taken by all the members of the society in a democratic manner. Marx put forth this social structure as a replacement to the prevailing capitalist system, wherein the working class was always subjected to exploitation from the capitalist class. He also advocated the dictatorship of the working class was the need of the hour, and the apt solution for capitalism which was alleged to be a barrier to development.

 The belief that the society is more important than an

individual in a communist economy, means that each individual is supposed to work as per his or her capacity, and gets paid as per his or her needs. In this type of economic system only those goods and services are provided which the individuals need, instead of those which they want. In a pure communist economic system, all the resources are publicly owned. This is done with the belief that the public ownership of resources minimizes the inequalities in wealth distribution, and helps in realizing the desired social objectives.

The Mixed Economy

 Mixed economy implies demarcation and

harmonisation of the public and private sectors. In it, free functioning of the market mechanism is not permitted and the government intervenes or regulates the private sector in such a way that the two sectors become mutually re-inforcing. A mixed economy represents an achievable balance between individual initiative and social goals. Planning and market mechanisms are so adjusted that each is used for realising the objectives of the 'economy to which it is most suited. There is a commitment on the part of both the sectors to national objectives and priorities.

Salient Features of Mixed Economy

A balance between the market economy and the

planning mechanism; A clear demarcation of the boundaries of public sector.and private sector so that ' t h e core sector and strategic sectors are invariably in the public sector There is occupational freedom and freedom of consumers' choice

 While profit motive influences decision-making in the

private sector, the economic viability criteria for investment decisions in the public sector is based on social cost-benefit analysis The ownership of means of production as between public sector, private sector, joint sector and cooperative sector is so decided that there is a balance between personal and social incentives and sectional and general interests

 The government intervenes to prevent

undueconcentration of economic power, and monopolistic and restrictive trade practice The government endeavours to take care of the consumption levels and objectives of the weaker sections of the society through public distribution system, poverty alleviation programmes etc Social objectives of equity, employment, balanced regional development, family welfare are emphasised

 Mixed economy is not merely an economic concept

and the rights of the individual are respected and protected subject only t o the requirements of public law and order and morality.