Final Paper

ECONOMIC SYSTEMS OF BUSINESS
TERM PAPER
ON
SUBMITTED TO
DR. SABNAM JAHAN
ASSOCIATE PROFESSOR
DEPARTMENT OF MANAGEMENT
UNIVERSITY OF DHAKA
SUBMITTED BY
SALMAN KABIR ABID #3-17-36-049
TASNEEF AHMED #3-17-36-50
SAZZADUR SIRAJ NIBIR #3-17-36-053
ROBIUL ISLAM RUBEL #3-17-36-068
SUBMISSION DATE: JULY 15, 2017

Table of Contents
Economic Systems of Business................................................................................................................... 01
Ecomics .......................................................................................................................................... 01
CHARACTERISTICS OF ECONOMIC SYSTEM: .................................................................................. 01
FUNCTIONS OF ECONOMIC SYSTEM: ............................................................................................. 01
BARRIERS OF AN ECONOMY .......................................................................................................... 02
TYPES OF ECONOMIC SYSTEM ....................................................................................................... 02
FOUR FUNDAMENTAL PROBLEMS OF ECONOMY: ........................................................................ 02
CAPITALISM ................................................................................................................................................ 03
THE ORIGINS OF CAPITALISM ........................................................................................................ 03
PILLARS OF CAPITALISM ............................................................................................................ 03-04
HOW DOES CAPITALISTIC SYSTEM SOLVE THE FOUR FUNDAMENTAL PROBLEMS OF THE
ECONOMY? ............................................................................................................................... 04-05
MAIN FEATURES OF CAPITALISM: ............................................................................................. 06-08
BENEFITS OF CAPITALISM: ........................................................................................................ 08-09
DISADVANTAGES OF CAPITALISM: ............................................................................................ 09-11
CRITICISM OF CAPITALISM: ....................................................................................................... 11-14
SOCIALISM ................................................................................................................................................. 15
FEATURES OF SOCIALISM: ......................................................................................................... 15-16
HOW DOES SOCIALISM SYSTEM SOLVE THE FOUR FUNDAMENTAL PROBLEMS OF THE
ECONOMY?: ................................................................................................................................... 17
ADVANTAGES OF SOCIALISM .................................................................................................... 17-20
DISADVANTAGES OF SOCIALISM............................................................................................... 20-23
MIXED ECONOMIC SYSTEM....................................................................................................................... 24
MAIN FEATURES OF MIXED ECONOMY .................................................................................... 24-26
TYPES OF MIXED ECONOMY .......................................................................................................... 26
ADVANTAGES OF MIXED ECONOMY.............................................................................................. 27
DISADVANTAGES OF MIXED ECONOMY ................................................................................... 27-28
ANSWERS TO THE BASIC ECONOMIC QUESTIONS FOR MIXED ECONOMY ................................... 28
EXAMPLES OF MIXED ECONOMIES ........................................................................................... 28-29
MIXED ECONOMY AND BANGLADESH ...................................................................................... 30-31
COMMUNISM ............................................................................................................................................. 32
HISTORY OF COMMUNISM ....................................................................................................... 32-33
MAIN PURPOSE OF COMMUNISM: ................................................................................................ 33
SOCIAL STRUCTURE OF COMMUNISM: ......................................................................................... 33
IMPLEMENTATION ......................................................................................................................... 33
KEY FEATURES OF COMMUNISM: ............................................................................................. 33-34
HISTORY OF COMMUNISM ....................................................................................................... 32-33
BENEFITS OF COMMUNISM: ..................................................................................................... 35-36
DISADVANTAGES OF COMMUNISM .............................................................................................. 36
ECONOMY? .................................................................................................................................... 37
REFERENCES ................................................................................................................................................ 38
ECONOMIC SYSTEMS OF BUSINESS:
ECONOMICS:
Economics is the social science that analyzes the production, distribution and consumption
of goods & services.
ECONOMIC SYSTEM:
Economic systems are the means by which countries and governments distribute resources and
trade goods and services. They are used to control the four factors of production, including: land,
labor, capital, entrepreneurs. In everyday terms, these production factors involve the employees
and money a company has at its disposal, as well as access to entrepreneurs, the people who want
to run companies or start their own businesses. The physical materials and resources needed to run
a business, along with the data and knowledge companies use to be successful, are also factors in
production. Different economic systems view the use of these factors in different ways.
CHARACTERISTICS OF ECONOMIC SYSTEM:
Characteristics of economic system are
Role of government
Freedom of choice
Ownership of resources
Price determination
Profit motive
FUNCTIONS OF ECONOMIC SYSTEM:
Every economic system has some major function to accomplish. Followings are the functions,
Allocation of resources
Organization of production
Distribution of finished goods & services
Promotion of economic progress
Maintenance of economic stability
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BARRIERS OF AN ECONOMY
Economic system also faces some problems or barriers. Following are the problems that an
economic system faces,
Problem of allocation of resources

Problem of utilization of resources
Problem of growth of resources
TYPES OF ECONOMIC SYSTEM:
There are different economic system that are being followed by different countries. We can
categorize the world economic system into the following four
1. Capitalism
2. Socialism
3. Mixed Economy
4. Communism
FOUR FUNDAMENTAL PROBLEMS OF ECONOMY:
Every economy must consider the following questions
What to produce?
How to produce?
For whom to produce?
How much to produce?
Each of the economic system solve this problems in different ways
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CAPITALISM:
Capitalism is defined as an economic system characterized by private or corporate ownership of

capital goods; by investments that are determined by private decision; and by prices, production,
and the distribution of goods that are determined mainly by competition in a free market. There
will be complete free trade and competition. There will be no restriction or interference by the
government. Everything is left to private enterprise.
THE ORIGINS OF CAPITALISM
Early capitalism can be traced to medieval Islamism civilizations of the ninth century. Stable
currency, trading companies, contracts and concepts of credit contributed to the formation of a
trader class that in general sold products a price higher than their purchase price. Between 1600
and 1800, Europe went through an economic transformation that led to changes in agriculture, a
mass movement to cities, the development of industry, commercial proliferation and monetary
sophistication. Capitalist practices, known as mercantilism, began to emerge as wealth became
concentrated. This shift represented a fundamental change from the feudal system then in place.
PILLARS OF CAPITALISM
Capitalism is founded on the following pillars:
Private property, which allows people to own tangible assets such as land and houses and
intangible assets such as stocks and bonds;
Self-interest, through which people act in pursuit of their own good, without regard for
sociopolitical pressure. Nonetheless, these uncoordinated individuals end up benefiting society as
if, in the words of Smiths 1776 Wealth of Nations, they were guided by an invisible hand;
Competition, through firms freedom to enter and exit markets, maximizes social welfare, that is,
the joint welfare of both producers and consumers;
A market mechanism that determines prices in a decentralized manner through interactions

between buyers and sellersprices, in return, allocate resources, which naturally seek the highest
reward, not only for goods and services but for wages as well;
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Freedom to choose with respect to consumption, production, and investmentdissatisfied

customers can buy different products, investors can pursue more lucrative ventures, workers can
leave their jobs for better pay; and
Limited role of government, to protect the rights of private citizens and maintain an orderly
environment that facilitates proper functioning of markets.
The extent to which these pillars operate distinguishes various forms of capitalism. In free markets,
also called laissez-faire economies, markets operate with little or no regulation. In mixed
economies, so called because of the blend of markets and government, markets play a dominant
role, but are regulated to a greater extent by government to correct market failures, such as
pollution and traffic congestion; promote social welfare; and for other reasons, such as defense
and public safety. Mixed capitalist economies predominate today.
ECONOMY?
The four basic problems of an economy are.
What to produce?
How to produce?
In Capitalism, nobody decides these three problems and these questions are solved automatically
by means of competition and price system. There is no authority to coordinate the activities of the
producers and yet there will be constant flow of goods and services and the consumers are satisfied.
We shall see how the price system or the price mechanism solves the three basic problems of the
economy.
1. WHAT TO PRODUCE?
Producers do not produce goods and services as they like. They produce for profit. To make profit
they have to produce those goods which are in demand. Producers study the market conditions and
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produce those goods which are demanded by consumers. The prices of goods serve as guide for
the producer and consumer.
Whenever the price of the commodity exceeds its cost, the producer can make profit by increasing
production. When more of a particular commodity is demanded, new orders will be received by
producers. This will make the price to rise. More is therefore produced for profit.
If more of a commodity is available than demanded by the people, the price will come down. At
lower prices, the producers will not produce that much. Thus, the price mechanism equates the
demand and supply of goods automatically.
2. HOW TO PRODUCE?
This is determined by competition of different producers. They will try to produce at the cheapest
possible rate with the available technology. By reducing the cost of production, they can maximize
profit.
3. FOR WHOM TO PRODUCE?
In Capitalism, goods will be produced for those who pay the market price. This is determined by
supply and demand factors. In order to pay the market price, the consumers should have enough
income. Consumers income is determined by rents, wages and salaries, interest and profit.
Those who cannot pay the market price cannot have the commodity. Thus, the price mechanism
will decide everything in a capitalistic economy and the object of the system is to satisfy peoples
wants.
4. HOW MUCH TO PRODUCE?
In Capitalism, determination of how much to produce totally depend upon the price determined by
the market demand
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MAIN FEATURES OF CAPITALISM:
1. PRIVATE PROPERTY:
Under capitalist economy, the factors of production like labor, land, capital and organization
are privately owned. Private property is protected, controlled and enforced by law. Government
protects the right to property. After the death of every person his property goes to his
successors.
2. PROFIT MOTIVE:
In this economy the desire to earn profit is the most important inducement for economic
activity. All entrepreneurs try to start those industries or occupations in which they hope to
earn the highest profit. Such industries as are expected to go under a loss are abandoned. Profit
is such an inducement that the entrepreneur is prepared to undertake high risk. Therefore, it
can be said that Profit Motive is the SOUL of capitalist economy.
3. PRICE MECHANISM:
This type of economy has a freely working price mechanism to guide consumers. Price
mechanism means the free working of the supply and demand forces without any intervention.
Producers are also helped by the price mechanism in-deciding what to produce, how much to
produce, when to produce and where to produce.
This mechanism brings about the adjustment of supply to demand. All economic processes of
consumption, production, exchange, distribution, saving and investment work according to its
directions. Therefore, Adam Smith has called price mechanism as the Invisible Hand which
operates the capitalist.
4. INHERITANCE:
The most important feature of capitalism is the existence of private property and the system of
inheritance. Everybody has a right to acquire private property to keep it and after his death, to
pass it on to his heirs.
5. PERSONAL FREEDOM
People enjoy personal freedom in economic activities. This implies:
Freedom of enterprise;
Freedom of contract;
Freedom in production and
Freedom in consumption.
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6. ECONOMIC FREEDOM
The capitalistic system is based on the structure of free enterprise giving economic freedom in
all economic activities. Consumers are free to buy what they like and producers are free to
produce to get maximum profit; workers are free to take employment wherever they get higher
wages and investors are free to invest wherever they get higher money returns. The state is not
expected to interfere and curtail the economic freedom of the interacting units in the economy.
Of course profit motive and private property can have full meaning only if everyone has the
freedom to make use of his property and to take such economic activities that bring him
maximum return or profit. But in practice, however, even in the so called free economies,
there is interference by the State reducing the freedom of the individual. This is done in the
interest of public health, public morality and social justice.
7. PERFECT COMPETITION:
Since everyone is free in economic field, many people would compete in production and
distribution. Sellers and producers freely compete among themselves. Buyers will compete to
buy their goods. Workers will compete for getting employment. Due to competition, the fittest
will survive.
8. FREE ENTERPRISE ECONOMY:
Capitalism is also called as free enterprise economy. This is because under capitalist system,
individuals and private firms have the right to own and use property. They have the right to
earn, save and spend incomes also. They are allowed to obtain resources, to organize
production and to sell the products in any manner they like and to anyone. Here, there will not
be Government or any other restrictions on the freedom and ability of the private individuals
to carry out any business. Hence there is full freedom of enterprise regarding choice of work,
occupation and enterprise.
9. LARGE SCALE PRODUCTION:
It is another important feature of capitalism. Capitalism arose as a result of industrial revolution
which made large scale production possible. The installation of gigantic plants and division of
labor increased production. More production means wider use of capital and led to more
profits.
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10. CONSUMERS SOVEREIGNTY:

Under capitalist economy. Consumers have complete freedom to choose what to purchase.
Consumer is the king of the market under capitalism. Manufacturers consider consumers
demand, taste, preference etc. while producing goods.
11. MINIMAL GOVERNMENT INTERVENTION:
In the capitalism of the pure or classical type, the role of the government is not only minimum,
but also neutral. The Government is not expected to interfere with the market mechanism nor
take any steps to curb the economic freedom.
The Government is expected to confine to its minimum legislative, executive and judicial
functions, maintaining law and order in the country and protecting it from internal rebellion
and external aggression. The Government will have to protect the interest of the individual and
create a framework in which the individual could function efficiently with the system of
uniform coinage, currency, weights and measures.
The State operates only in the field where private enterprise will not be forthcoming or
inadequate as in the case of educational facilities, medical facilities and public health. The state
should resolve conflicts by protecting the weak from the strong.
BENEFITS OF CAPITALISM:
1. PRODUCTION ACCORDING TO THE NEEDS AND WISHES OF CONSUMERS

In a free market economy consumer needs and wishes are the upper most in the minds of the
producers. They try to produce goods according to the tastes and liking of the consumers. This
leads to maximum satisfaction of the consumers as obtained from his expenditure on the
needed goods.
2. BEST RESOURCE UTILIZATION
Best utilization of resources is possible only in capitalism. There will be no wastage of scarce
resources. This is because of the working of the system on profit and loss basis. Due to self-
interest, the producers will use minimum resource for producing maximum goods in order to
get good profit.
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3. AVAILABILITY OF GOODS AT CHEAPER PRICE

Due to free competition, the consumers will get the goods at the cheapest price. They also get
the goods they want. Goods will be produced according to the wishes of the consumer. The
consumer will be a king in capitalism.
4. VARIETIES OF CONSUMER GOODS:
Competition is not only in price but also in the shape design, colors and packing of products.
Consumers therefore get a good deal of variety of the same product. They need not be given
limited choice. It is said that variety is the spice of life. Free market economy offers variety of
consumer goods.
5. IT ENCOURAGES THE ENTREPRENEURS TO TAKE RISKS AND ADOPT BOLD POLICIES:
Because by taking risk they can make higher profits. Higher the risk, greater the profit. They
also make innovations in order to cut their costs and maximize their profits. Hence capitalism
brings about great technological progress in the country.
6. IT PROVIDES THE BEST ATMOSPHERE FOR INVENTIONS:
Entrepreneurs are always on the look-out for new ideas to be applied to production. They try
to beat each other in innovations. This leads to rapid expansion, greater employment and
income. The investors are suitably rewarded with their royalties, through the copy right.
Similarly, innovators enjoy the benefits of their research, through the system of patents and
trade-marks.
7. THERE IS COMPLETE FREEDOM OF CHOICE IN A CAPITALIST ECONOMY
Economic freedom means the right to earn and retain property. It also means the freedom of
enterprise and choice of occupation. This leads to the automatic channelization of the countrys
man power resources in different vocations. There is no need to direct people or force them.
Further, there is the freedom of contract which ensures smooth and flexible functioning of
different production units.
DISADVANTAGES OF CAPITALISM:
1. INEQUALITY IN THE SOCIETY

The main defect of capitalism is its gross inequality in the society. Private property, profit
motive and inheritance of property have created a separate class of people called capitalists
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who are wealthy and rich. As they own the factors of production, they become richer and richer
and they exploit the poorer classes.
Though the capitalistic system affords equal opportunity for all, this will be only in theory. In
practice, only the richer class will have more opportunities. Further, to become rich only by
means of hard work is very rare.
Capitalistic system will make a big gap between the rich and the poor. The inequalities of
income and wealth is the worst feature of capitalism.
2. WASTE OF RESOURCES
The competition in the economy will lead to wastage of resources. Advertisement by
competing firms will be a wastage of resource. Different firms will be producing the same
basic commodity with product differentiation. This will result in unnecessary transport of
goods from one place to another (Example: Toilet soaps, Toothpastes, Silk sarees, etc.).
3. MONOPOLY IN COMPETITION
Competition in the long run will eliminate inefficient producers and finally only a few
producers will be producing. These producers (firms) will combine and production will be
done as monopoly. In capitalism, there will be many monopolistic firms exploiting the
consumers and making huge profit. The benefits of competition will be lost. When there is
monopoly, there is no freedom of choice.
4. ECONOMIC INSTABILITY
Another bad feature of capitalism is its economic instability. The competitive system will result
in periodic cycles of depression and prosperity called Trade Cycles. During the period of
depression, there will be mass unemployment and the poorer classes and the working classes
will be suffering.
The root-cause for this trade cycle is the unplanned nature of the system and the failure of price
mechanism. In the period of depression, the governments have to come to the rescue of the
economy.
5. FREQUENT LABOR UNREST
In a capitalist economy, workers are often paid a wage rate below their productivity. This is
because; they do not have the bargaining power to get their due from the rich capitalist. Women
and children are often paid a very low wage rate. There is no equal pay for equal work. There
will be frequent labor unrest. In this economy, only the fittest will survive.
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6. WORKING CLASS DOES NOT HAVE ADEQUATE SOCIAL SECURITY:

In a capitalist economy, the working class does not have adequate social security, commodity,
the factory owners do not provide for any pension, accident benefits or relief to the families of
those who die in employment. As a result, widows and children have to undergo a good deal
of suffering. Governments are not in a position to provide for adequate social security in over
populated less developed countries.
7. EROSION OF HUMAN VALUES
In a capitalist economy, wealthly enjoys the prestige in the society, which results in erosion of
human values.
CRITICISM OF CAPITALISM
1. The Free Market and Property Rights:
The Anarchist Pierre-Joseph Proudhon (1809-1865) and the Marxist Friedrich Engels (1820-1895)
have argued that the free market is not necessarily free, but weighted towards those who already
own property, forcing those without property to sell their labor to capitalists and landlords in a
market favorable to the latter, and to accept low wages in order to survive.
2. Profit and Exploitation:
Critics of Capitalism view the system as inherently exploitative because the owners of capital only
pay labor for the cost of survival (food, shelter, clothing, etc.), while taking the excess (i.e. surplus
value) since capitalists control the means of production (e.g. factories, businesses, machinery) and
workers control only their labor, the worker is naturally forced into allowing their labor to be
exploited, and is not paid according to the true worth of his labor but arbitrarily according to what
the employer is willing to pay.
Market Failures:
The allocation of goods and services by a free market is not as efficient as it might be (due to the
lack of perfect information and perfect competition), and individuals pursuit of self-interest can
lead to bad results for society as a whole. It is argued that this and certain other unique problems
with a free market (including monopolies, monopsony, insider trading and price gouging) are
grounds for government intervention.
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Market Instability:
Marxists claim that market instability is a permanent feature of capitalist economy, and that the
unplanned and explosive growth of capitalism does not occur in a smooth manner, but is
interrupted by periods of overproduction in which stagnation or decline occur (i.e. recessions and
depressions).
3. Inefficiency and Waste:
Some opponents criticize the shift from pre-industrial reuse and thriftiness before capitalism to a
consumer- based economy that pushes ready-made materials and planned obsolescence, thus
creating a potentially insoluble ecological problems. Advertising and marketing are also seen as a
wasteful use of resources, and brand-based marketing puts more emphasis on a companys name-
brand than on the quality of its products.
4. Unequal Distribution of Wealth and Income:
Some view a significant disparity and concentration of wealth to be a problem endemic to

capitalism, and argue that this inequality is excessive, unfair, dysfunctional or even immoral, and
may lead to social problems (such as higher crime rates) that affect both poor and rich.
It is further argued that the capitalist system may also have inherent biases favoring those
who already possess greater resources. The wealthy may not put their wealth to productive use,
while at the same time the system undermines an economys mass buying power by denying
resources to poorer people, who have a tendency to spend rather than save.
5. Employment and Unemployment:
Some economists consider that a certain level of unemployment is necessary for the proper
functioning of capitalist economies, and that this natural rate of unemployment highlights the
inefficiency of a capitalist economy, since not all its resources (e.g. human labor) are being
allocated efficiently.
6. Imperialism and Human Rights Violations:
Some argue that capitalism thrives on an uneven and exploitative relationship between wealthy
nations who force regime or system changes in poor countries which are only beneficial to them,
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often through exploitative wars. Dependency theory holds that resources flow from a periphery
of poor and underdeveloped states to a core of wealthy states, enriching the latter at the expense
of the former.
Marxists, particularly Vladimir Ilyich Lenin (1870-1924), argue that Capitalism needs imperialism
in order to survive, as it expands its over-saturated local markets into (and drains the resources out
of) other less-developed nations.
7. Economic Freedom:
There has been criticism of the usual measures of economic freedom which are often used to justify
capitalism. If economic freedom is to include the freedom to have meaningful decision-making
control over productive resources, then it is argued that the various points mentioned above
actually result in reduced, not increased, economic freedom.
8. Religious Criticism:
Some religions criticize or outright reject capitalism (e.g. Islam strongly forbids usury, the lending
of money at an interest) some Christians have also strongly criticized capitalism, particularly its
materialistic aspects. Some see unfettered capitalism as a threat to cultural and religious traditions.
Economists now agree that there are certain imperfections in a free enterprise economy which must
be corrected. In modern days, particularly after the Second World War, no country has adopted
the free capitalism. Considering some of the defects of capitalism, the governments of modern
days have controlled to some extent the working of the capitalistic system.
In order to reduce the inequalities of income, unemployment, monopolistic tendencies and labor
unrest, the governments of modern capitalism have introduced many measures and laws to work
the system smoothly.
These measures are:
Anti-monopoly legislation;
Ceiling on private property;
Regulation of production of essential commodities;
Minimum Wages Act;
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Social security Acts to protect the interest of labor;

Payment of compulsory bonus;
Laws relating to trade and commerce and
Credit control operations, etc.
Modern capitalism may be called controlled capitalism.
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SOCIALISM:
According to Hicks, socialism is
an economic system in which the means of production are owned and operated by the state for
the maximization of social welfare.
Here property and the means of production are owned, controlled and managed by the state. The
Government is authorized to control not only production and distribution, but also consumption.
All economic activities come under the state control in Socialism. Private property does not exist.
Every individual has to work to the best of his ability, and the Government takes the responsibility
for fulfilling his needs.
In a socialistic system, the resources (factors of production) are owned by the State. The production
and distribution of goods will be done for the welfare of the people and not for the profit of the
individuals.
In a socialistic economy, private property will not be allowed and private enterprise will be very
little. All factories and firms will be nationalized and production will be done in the public sector.
This is just the opposite of capitalism.
FEATURES OF SOCIALISM:
1. STATE OWNERSHIP
In such an economy, all the means of production are owned and operated by the state in the
interest of society as a whole. The government or the community owns the land and factories.
There is no private sector. This is to ensure equality of opportunity to all the citizens with
regard to earning of income. This is also aimed at full and efficient utilization of the countrys
resources.
2. PRODUCTION AND DISTRIBUTION BY THE STATE
State produces all goods and services in government factories and farms. It undertakes the
distribution of goods to the people by itself.
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3. CENTRAL PLANNING AND CONTROL

There will be a planning authority in Socialism. This authority will decide what to produce,
how to produce and for whom to produce. The planning Authority prepares the national plan
for utilizing the resources of the economy. Production and distribution will be done
accordingly. The price mechanism will be suppressed.
4. CONTROLLED PRODUCTION AND CONSUMPTION
Production of essential commodities will be done first. Production is done not for profit, but
for social use. Even if there is any profit, it will go to the State. Mass consumption will not be
allowed. Each will be given according to his need.
5. MUCH LESS IMPORTANCE OF PRICE MECHANISM:
A socialist economy gives much less importance to market forces and therefore, the price
mechanism is given a minor role in resource allocation. A specific plan based on social needs
guides the process of resource allocation. Private profit is not allowed. Public interest is given
more importance. The means of production are directed by the Government and are used in
promoting the general welfare of the people.
6. SOCIAL SECURITY
The State provides all social security measures such as unemployment benefit, health
insurance. etc.
7. REDUCTION OF INEQUALITIES
Socialism attempts to reduce the difference between the rich and the peer. It aims at a classless
society and eliminates class struggle by giving equal opportunity to work.
In a nutshell, the features of socialism can be listed as below
No private property.
Property and means of production are owned and controlled by the State i.e. State
ownership.
Classless society.
Laborers are supreme and individuals receive no surplus value.
Each individual has to work to the best of his ability.
Assurance by the state that it would fulfill the needs of individuals.
Full employment.
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Equality of opportunity to rise in life.

Social welfare motive.
Economic planning.
HOW DOES SOCIALISM SYSTEM SOLVE THE FOUR FUNDAMENTAL PROBLEMS OF THE ECONOMY?
The four basic problems of an economy are.
What to produce?
How to produce?
1. WHAT TO PRODUCE?
In this economic system there will be a planning authority. This authority will decide what to
produce. The state or government controls the direction of goods and services.
2. HOW TO PRODUCE?
In this economic system state determines how they will produce the demanded products. It
produces all goods and services in government factories and farms.
3. FOR WHOM TO PRODUCE?
In socialistic economic system government or the state undertakes the distribution of goods to
the people by itself. All goods are distributed equally and fairly.
4. HOW MUCH TO PRODUCE?
As the government gives all the necessary direction & operational indication to industry, so
government is responsible to determine the demand and produce accordingly.
ADVANTAGES OF SOCIALISM:
A socialist economy has many alternative features. These have made socialism more and more
popular.
The main advantages of the socialist economy are as under:
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1. Social Justice is assured:
The chief merit of socialism is that it assures of social justice. Under socialism the inequalities of
income are reduced to the minimum and the national income is more equitably and evenly
distributed. The socialist principle provides for a fair share for all. No one is permitted to have
unearned income. Exploitation of man by man to put an end to. Every individual is assured of
equal opportunities, irrespective of caste, creed and religion. Every child whether he is born in a
poor family or in a rich family is given an equal opportunity to develop his latent faculties through
proper education and training.
2. Rapid Economic Development:
A socialist economy is likely to grow much faster than a capitalist economy. The experience of
the U.S.S.R. and other socialist countries amply proved this. The main factors making for the fast
growth rate is the full use of resources, scientific planning and quick decisions.
3. PRODUCTION ACCORDING TO BASIC NEEDS:
In this economy the production is directed to satisfy the basic needs of the people first. As far as
possible, the production of food, clothing or building materials is guided by the basic needs of the
people and is not according to the purchasing power of the rich section of the society. Therefore,
the phenomenon of the poor going hungry while the rich feast cannot be seen in the socialist
economy.
4. BALANCED ECONOMIC DEVELOPMENT:
Economic planning is meant to carry out balanced development of the economy. All the regions
of the country are taken care of. Development of the backward areas is also given a priority.
Similarly, agriculture and industry, heavy and small industry develops side by side. As a result
there is no lop-sided development of the economy.
5. IT HAS ECONOMIC STABILITY:
Another important merit is the economic stability which a socialist economy has. A capitalist
economy is often suffering from economic fluctuations resulting in lot of unemployment and
wastage of resources. There is a good deal of misery among the working classes in periods of
depression in a socialist economy.
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A socialist economy is able to control economic instability due to the planned nature of the
economy. Pure changes are taken care of under a perspective plan. Private investment is given a
minor role. Therefore, there are no economic fluctuations.
6. IT HAS MORE FLEXIBILITY:
A socialist economy is much more flexible than a capitalist economy because of the control on
market forces. The socialist economy can be geared to war times as early as it is operated during
peace-time. Rather the state having ownership of means of production can meet the needed
changes much better than the slow moving market mechanism of the capitalist economy.
7. CONSERVATION OF NATURAL RESOURCES:
A socialist economy has a great advantage of planning for the future. Wasteful use of the countrys
natural resources is a common problem in all the capitalistic economies. Private enterprise does
not care for the future. A planning authority can take the interest of future generations into account
by preparing plans for conservation of the countrys non-renewable resources like coal, petroleum,
forests and soil.
8. EQUITABLE DISTRIBUTION OF WEALTH AND INCOME:
A socialist economy is operated with the aim of providing equal opportunity for all citizens in
earning incomes. Generally, private property is restricted to some basic needs. There is no
amassing of wealth by a few. Wealth is also equitably distributed because private enterprise is
given a limited role.
9. NO EXPLOITATION AND CLASS STRUGGLE:
A socialist economy can also get rid of the basic maladies of the capitalist economy. There is no
question of exploitation in as much as the state determines the distribution pattern of countrys
income. Further the whole society is the common aim of all planning. No sections are
discriminated against. There is not special favor at any class. Therefore, there is no scope for
anything like the class struggle which is a characteristic of the capitalist economy.
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10. SOCIAL WELFARE ACTIVITIES:
A Socialist Economy is oriented to the social needs. The government provides for full security.
There is automatic care for the children of those who meet accidents while performing their duties.
There is provision for old age pension for all. The slogan is to each according to his needs, from
each according to his capacity.
Therefore, the employees in state enterprises can work without much worry. Their productivity is
higher. There are no labor disputes and no wastage of resources resulting there from as is the case
in a capitalist economy.
11. THERE IS NO WASTAGE OF COMPETITIVE ADVERTISEMENT:
A capitalist economy is not always able to achieve productive efficiency through competition.
There is a good deal of wastage through competitive advertisement of different varieties. The
consumer has to pay the price of the useless advertising. Prof. Chamberlin has tried to show that
capitalism leads to excess capacity when there is differentiation of the products.
In a socialist economy, there is no such wastage. In the first place only those goods and services
are produced which are preferred by the consumers. Secondly, if at all there is any advertising, it
is only meant for information about different products to consumers.
12. FORESIGHTEDNESS:
A socialist economy can prepare for the future much better than a capitalist economy. Future is
always uncertain. The planners take full note of the uncertainties while formulating the plan.
Flexibility in planning is meant to provide for immediate changes in the plan as conditions change.
Planners can anticipate some of the future changes and prepare for them so that the nation is not
suddenly caught unawareness.
DISADVANTAGES OF SOCIALISM:
The merits of socialism given above should not lead us to the conclusion that socialist economy is
all virtue.
There are certain disadvantages of this system which are as follows:
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1. NO SUITABLE BASIS OF COST CALCULATION:
Von Hayek and Bobbins have pointed out that there is not proper basis of cost calculation in a
socialist economy. They say that the means of production being owned by the government, there
is no market price for the factors of production. In the absence of market mechanism there is no
standard way of calculating costs of production for different goods and services.
2. CHOICE OF WORKING INCENTIVES:
The most difficult problem in this system is the choice and working of incentives in the absence
of profit motive. The Russian Government has been using the policy of Carrot and the Stick.
Some national honors are given to those showing outstanding results. Those shirking work or
proving irresponsible are punished.
There is decentralization of authority along-with responsibility. This ensures freedom at the lower
level and scope for initiatives. However, there is no comparable system of incentives and dis-
incentives to the profit motive in a capitalist economy.
3. IT BECOMES LACK OF INCENTIVES:
In this system, it has also been seen that incentive of hard work and inclination to self-improvement
will dis-appear together when personal gain or self-interest is eliminated. People will not give their
best. Incentive, ability, enterprising spirit and the go-ahead attitude will languish and creative work
will become impossible. It is said that a Government could print a good edition of Shakespeares
work but it could not get them written.
4. THERE IS LOSS OF ECONOMIC FREEDOM:
A very important charge against socialism is that, when freedom to enterprise dis-appears, even
the free choice of occupation will go. Workers will be assigned certain jobs and they cannot change
them without the consent of the planning authority. Every workers will have to do work what he
will be asked to do.
5. LACK OF DATA, EXPERTS AND ADMINISTRATORS FOR PLANNING:
Operating a socialist economy as a planned economy requires huge data, a good number of experts
and an equal number of administrators at different levels for administering the plan. No doubt
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machine can help to process the data and experts can advise but there has to be decision-making
at different levels of government. It is difficult to find out enough data with the result that decisions
are delayed, mis-carried or wrongly implemented. Ultimately, the common people have to pay the
price for these mistakes.
6. LOSS OF ECONOMIC FREEDOM AND CONSUMER SOVEREIGNTY:
Under socialism all economic activity is directed by the central planning authority. There is no
significant role given to private investment and initiative. Consumers are compelled to accept
whatever public enterprises produce for them. Generally, there is limited variety of goods and
restricted available choice. Prices are fixed by the government and consumers just cannot do
anything about them. Consumers preferences are just guessed by the planners who have no
compulsion to study the peoples preferences deeper.
7. IMPERFECTIONS IN PLANNING LEAD TO DIS-SATISFACTION ON A BIG SCALE:
Imperfection may creep in the formulations of the plan, its assumptions, statistics or analysis.
Further, imperfection may enter at the stage of implementation of the plan. Further, there may be
lack of adjustment between prices and wages. As a result of these imperfections there is lot of
wastages of resources, slowing down of work, shortfalls in targets and the dis-satisfaction resulting
there-from.
Mistakes made by individuals harm them only. National mistakes are costly for the common man.
In fact, this has been the cause of dis-integration of the U.S.S.R., when the other economics of
Europe were booming the U.S.S.R. could not provide the minimum comforts of life.
8. TOO MUCH POWER IS CONCENTRATED IN THE STATE:
Under socialism the state is not merely a political authority but it also exercises unlimited authority
in the economic sphere. In this, all power is concentrated in the state. It means the state is
everything and individual nothing. He is reduced to a cypher. After all the human institutions are
for man and not man for these institutions.
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9. THERE IS LOSS OF PERSONAL LIBERTY:
In socialism there is no unemployment. But the critics retort by saying that there is also no
unemployment in a jail. They regard a socialist state as one big prison-house and they do not think
that employment is any compensation for the loss of liberty.
10. BUREAUCRACY AND RED-TAPISM:
A socialist economy is a state enterprise economy. Every bit of the plan is to be cleared by
bureaucrats. This often leads to red-tapism. Even simple state forward jobs may take unduly long-
time to be done. The work of Government departments or even autonomous bodies is slow moving.
As a result inefficiency creeps in through bureaucracy. In many countries where socialism had
been brought about hastily, work came to a stand-still leaders had to revert to liberal policies
containing elements of the capitalist economy.
Whatever the difficulties of running a socialist economy, the appeal for socialism was great
especially, in less developed countries. For over populated countries having national problems,
socialism seemed to be the only hope of the masses. Free market economy in its pure form is a
thing of the past.
Mixed Capitalist Economy is already the order in all the western countries. In the Less Developed
Asian Countries Government has not only to regulate economic activity but positively direct it by
active participation for the fast development of the country. As for the difficulties, they exist and
can be eliminated through co-operation between the administration and the people. As the country
develops economic planning gets a stronghold and difficulties wear away.
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MIXED ECONOMIC SYSTEM
A mixed economic system is an economic system that features characteristics of both capitalism
and socialism. A mixed economic system protects private property and allows a level of economic
freedom in the use of capital, but also allows for governments to interfere in economic activities
in order to achieve social aims. In other words, it can be define as the co-existence of a public and
private sector. According to neoclassical theory, mixed economies are less efficient than pure free
markets, but proponents of government interventions argue that the base conditions such as equal
information and rational market participants cannot be achieved in practical application.
Most modern economies feature a synthesis of two or more economic systems, with economies
falling at some point along a continuum. The public sector works alongside the private sector, but
may compete for the same limited resources. Mixed economic systems do not block the private
sector from profit-seeking, but do monitor profit levels and may nationalize companies that are
deemed impediments to the public good. The United States is mostly a free market economy, but
it incorporates elements such as protection for agriculture and manufacturing by through trade
restrictions and subsidies. This makes the United States a mixed economy by definition.
The concept of mixed economy is of recent origin. The developing countries like India have
adopted mixed economy to accelerate the pace of economic development. Even the developed
countries like UK, USA, etc. have also adopted Mixed Capitalist System.
According to Prof. Samuelson, Mixed economy is that economy in which both public and private
sectors cooperate.
MAIN FEATURES OF MIXED ECONOMY
Mixed economy has following main features:
(I) CO-EXISTENCE OF PRIVATE AND PUBLIC SECTOR:
Under this system there is co-existence of public and private sectors. In public sector, industries
like defense, power, energy, basic industries etc., are set up. On the other hand, in private sector
all the consumer goods industries, agriculture, small-scale industries are developed. The
government encourages both the sectors to develop simultaneously.
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(II) PERSONAL FREEDOM:
Under mixed economy, there is full freedom of choice of occupation, although consumer does not
get complete liberty but at the same time government can regulate prices in public interest through
public distribution system.
(III) PRIVATE PROPERTY IS ALLOWED:
In mixed economy, private property is allowed. However, here it must be remembered that there
must be equal distribution of wealth and income. It must be ensured that the profit and property
may not concentrate in a few pockets.
(IV) ECONOMIC PLANNING:
In a mixed economy, government always tries to promote economic development of the country.
For this purpose, economic planning is adopted. Thus, economic planning is very essential under
this system.
(V) PRICE MECHANISM AND CONTROLLED PRICE:
Under this system, price mechanism and regulated price operate simultaneously. In consumer
goods industries price mechanism is generally followed. However, at the time of big shortages or
during national emergencies prices are controlled and public distribution system has to be made
effective.
(VI) PROFIT MOTIVE AND SOCIAL WELFARE:
In mixed economy system, there are both profit motive like capitalism and social welfare as in
socialist economy.
(VII) CHECK ON ECONOMIC INEQUALITIES:
In this system, government takes several measures to reduce the gap between rich and poor through
progressive taxation on income and wealth. The subsidies are given to the poor people and also
job opportunities are provided to them. Other steps like concessions, old age pension, free medical
facilities and free education are also taken to improve the standard of poor people. Hence, all these
help to reduce economic inequalities.
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(VIII) CONTROL OF MONOPOLY POWER:
Under this system, government takes huge initiatives to control monopoly practices among the
private entrepreneurs through effective legislative measures. Besides, government can also fake
over these services in the public interest.
TYPES OF MIXED ECONOMY
The mixed economy may be classified in two categories:
CAPITALISTIC MIXED ECONOMY:
In this type of economy, ownership of various factors of production remains under private control.
Government does not interfere in any manner. The main responsibility of the government in this
system is to ensure rapid economic growth without allowing concentration of economic power in
the few hands.
SOCIALISTIC MIXED ECONOMY:
Under this system, means of production are in the hands of state. The forces of demand and supply
are used for basic economic decisions. However, whenever and wherever demand is necessary,
government takes actions so that basic idea of economic growth is not hampered.
However, this system is again sub-divided into two parts:
(I) LIBERAL SOCIALISTIC MIXED ECONOMY:
Under this system, the government interferes to bring about timely changes in market forces so
that the pace of rapid economic growth remains uninterrupted.
(II) CENTRALIZED SOCIALISTIC MIXED ECONOMY:
In this economy, major decisions are taken by central agency according to the needs of the
economy.
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ADVANTAGES OF MIXED ECONOMY
It promotes a quick economic development. In this type of economic system, both the public
and private sectors can operate equally, which means that economic development will be
quicker. This is especially true considering that economic resources will be utilized efficiently.
Also, depletion of resources will be slowed down.
It creates a balance in regional developments. The planning commission of a country will be
able to create policies for the improvement of every region. In addition, the government would
also try to develop each sector of the population.
It encourages lesser income inequality. With a mixed economy, there will be lesser inequality
when it comes to income, where the inheritance law is applied to enable members of society
to become richer. As for the public sector, it would try to provide economic utility to the
general public, leading to further reduction of inequality in income.
It provides the freedom to own a private property. People are free to obtain property in a mixed
economy, which means that the idea to work even more will be encouraged. Again, this will
help in the fast economic development, especially in the areas of industries and agriculture.
DISADVANTAGES OF MIXED ECONOMY
It brings about the fear of nationalization. As the private and public sectors coexists, the
government would have the ability to own and nationalize any industry. This means that private
entities will have to stay on the psychological apprehension that their business would be
nationalized or taken over by the government.
It could risk the government to go too far. In a mixed economy, determining the exact role of
the government in the private sector would sometimes become a guessing game that would
result to unfair practices in both sides. It is believed that the government would manage the
economy poorly, so its involvement is usually regarded as inappropriate.
It observes lesser use of resources. While the interest of the society is important in this system,
it also hinders maximum use of available resources. This is primarily because of the
government trying to mobilize resources to produce products and services that are generally
beneficial for society, rather than doing it for the betterment of the economy.
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It can lead to higher taxes. With more state intervention in the economy, it would mean that the
government would invest more and would get their funds largely from tax revenues. More taxes
would be required from the people, which can lead to negative consequences.
Basically, the success or failure of a mixed economy would still depend on how it is managed.
However, based on the advantages and disadvantages listed above, we will be able to know
whether it will do our country any good or just make situations even worse.
ANSWERS TO THE BASIC ECONOMIC QUESTIONS FOR MIXED ECONOMY
1. What to produce?
It is determined by price mechanism. The government produces goods that are not produced
by the private sector.
2. How much to produced?
The private sector produces goods based on price mechanism. The government will supply
public goods for the use of all members of the society.
3. How to produce it?
Firms will choose the production method that will maximize profits and minimize costs. The
government will determine production methods based on current social benefits and social
costs.
4. For whom to produce?
It is determined by price mechanism. The income gap can be resolved through taxation and
subsidy policies.
EXAMPLES OF MIXED ECONOMIES
Countries with a mixed economy include Iceland, Sweden, France, the United Kingdom, the
United States, Russia and China. These countries have a mix of government spending and free-
market systems based on the share of government spending as a percentage of gross domestic
product. Some governments spend much more money in proportion to GDP, while others spend
much less.
Share of government spending as a % of GDP -
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Iceland (57%)
Sweden (52%)
France (52.8%)
United Kingdom (47.3%)
United States (38.9%)
Russia (34.1%)
China (20%)
Hong Kong (18.6%)
Iceland's government spending is 57 percent of the country's GDP. That means the other 43 percent
is private industry. Sweden's government spending is 52 percent of its GDP. The United Kingdom
features 47.3 percent government funding, and the United States is 38.9 percent. Most countries
feature mixed economies, which makes it easier to trade and do business on a global scale.
As economies develop, the government often take a higher share of total spending. Developed
countries, such as in Western Europe, often choose to provide state welfare support, and greater
government regulation of the environment and business environment.
Government programs in mixed economies vary. Welfare, pensions, defense, Social Security and
health care are some areas in which governments spend large sums to support their populations.
In general, countries with more developed economies have greater government spending as a share
of GDP.
European economies such as Sweden and France have a generous level of social security spending.
Education and health care are free at the point of US. In the US, government spending as a share
of GDP is lower, but health care has to be paid for.
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MIXED ECONOMY AND BANGLADESH
Bangladesh is a rapidly developing market-based economy. The International Monetary Fund

(IMF) ranked Bangladesh in 2010 as the 43rd largest economy in the world.
The economy has grown at the rate of 6.0-7.0 per cent per annum over the past few years. It sounds
good. But the reality is Bangladesh suffers from huge inadequacies in almost all the basic
necessities despite some laudable improvement in some of the social indicators. Besides, the
country over the years has been able to register its achievements in the arena of infrastructure,
industries, banking, services, real estate and education sector. Needless to mention that the benefits
in most cases do not go to the major portion of the population of the country, and are often confined
to the urban inhabitants.
Under the prevailing circumstances, it is indeed important to see which type of economy can be
suitable for Bangladesh - free market economy or controlled economy or mixed economy?
A free market economy is where economic activity takes place without intervention by the
government except to regulate fraudulence and ensure some semblance of market discipline, if
necessary. A free market requires protection of property right but no regulation, no subsidiary, no
single monitory system, no governmental monopolies. The theory holds that within the ideal free
market, property rights are voluntarily exchanged at a price agreed solely through mutual consent
of buyer and seller. Price is the result of buying and selling as determined by the law of supply and
demand. Free market encourages the promoters to invest more in business or to extend the volume
of the business. It increases the business rate of profitability as well as price of the commodities.
It helps growth of industrialization in new sectors as there is no regulation, no intervention on the
part of the government. But it has adverse effect also. As import of finished products and raw
materials is often free, local factories may find it difficult, at times unbearably, in the face of
uneven competition from imported products.
Under free market economy there is ample opportunity for the businessman to adopt unfair and
un-ethical practices as there is no intervention by the government. Due to absence of control on
foreign exchange, free market economy, especially in developing countries, is at times
instrumental in causing shortfall in forex reserve. For the same reason, unbridled imports often
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lead to serious problems in balance of trade situations. Free market economy is highly suggested
for developed countries because their socio-economic structure is developed.
As opposed to the free market economy, under controlled economy - pursued by socialist countries
- the government regulates prices or how wealth is being used and distributed.
Mixed economy, on the other hand, is free market economy but intervention exists in a planned
manner as per the needs of the country and its people. Mixed economy is an economic system in
which both the public and the private sectors lead the economy where market economy and
planned economy both co-exist.
Given the resource constraints and the need to discipline the trade and economic regimes as and
when necessary, Bangladesh should opt for mixed economy. There are occasions when there
occurs a dire need for government intervention, particularly when prices shoot up, for example
ahead of the month of Ramadan.
Besides bringing in market stability, the entire gamut of economic, financial and trade activities
require to be constantly monitored and supervised. In particular, there are areas such as foreign
currency regulations, import restrictions where government must prevail to ensure national
welfare. This is precisely why mixed economy should suit Bangladesh better.
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COMMUNISM:
Communism comes from Latin communis means common and universal .A political theory
derived from Karl Marx, advocating class war and leading to a society in which all property is
publicly owned and each person works and is paid according to their abilities and needs.
Communism is an Economic and social system in which all property and resources are collectively
owned by a classless society and not by individual citizens.
HISTORY OF COMMUNISM:
Communist appeared as long ago as the 4th century BCE. In the ideal state described in Platos
Republic, the governing class of guardians devotes itself to serving the interests of the whole
community. Because private ownership of goods would corrupt their owners by encouraging
selfishness, argued by Plato.
Communism was an economic-political philosophy founded by Karl Marx and Friedrich Engels
in the second half of the 19th century. Marx and Engels met in 1844, and discovered that they had
similar principles. In 1848 they wrote and published "The Communist Manifesto." They desired
to end capitalism feeling that it was the social class system that led to the exploitation of workers.
The workers that were exploited would develop class consciousness. Then there would be a
fundamental process of class conflict that would be resolved through revolutionary struggle. In
this conflict, the proletariat will rise up against the bourgeoisie and establish a communist society.
Marx and Engels thought of the proletariat as the individuals with labor power, and the bourgeoisie
as those who own the means of production in a capitalist society. The state would pass through a
phase, often thought of as a socialism, and eventually settle finally on a pure communist society.
In a communist society, all private ownership would be abolished, and the means of production
would belong to the entire community. In the communist movement, a popular slogan stated that
everyone gave according to their abilities and received according to their needs. Thus, the needs
of a society would be put above and beyond the specific needs of an individual.
Based on the 1848 publication 'Communist Manifesto' by two German political philosophers, Karl
Marx (1818-1883) and his close associate Friedrich Engels (1820-1895), it envisaged common
ownership of all land and capital and withering away of the coercive power of the state. In such a
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society, social relations were to be regulated on the fairest of all principles: from each according
to his ability, to each according to his needs. Differences between manual and intellectual labor
and between rural and urban life were to disappear, opening up the way for unlimited development
of human potential.
MAIN PURPOSE OF COMMUNISM:
According to communist writers and thinkers, the goal of communism is to create a classless
society. Communist thinkers believe this can happen if the people take away the power of the
bourgeoisie (the ruling class, who own the means of production) and create a dictatorship of the
proletariat (the working class).
SOCIAL STRUCTURE OF COMMUNISM:
Communism holds that the only way to solve these problems is for the working class (or
proletariat) to replace the wealthy ruling class (or bourgeoisie), through revolutionary action, in
order to establish a peaceful, free society, without classes or government.
IMPLEMENTATION:
It became the dominant political philosophy of many countries across Asia, Eastern Europe, Africa
and South America. In the late 19th century, communist philosophy began to develop in Russia.
In 1917, the Bolsheviks seized power through the October Revolution.
KEY FEATURES OF COMMUNISM:
Abolition of poverty.
Collective ownership of means of production.
Central planning
Elimination of unfair gaps in income.
Provision of necessaries of life.
Freedom of people is surrendered to the community leadership/public owner like Government.
In case of capitalism, one can have more freedom.
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Communism is the expectation of the worker class even though they themselves have the mind
of a capitalist. Hence it is a Utopian concept, i.e. cannot be realized.
Equitable distribution of resources and benefits is another salient feature of communism.
Current international politics on climatic change even adopts the ideology of communism even
though it is too late. This should have done from the industrial revolution phase at least.
Anti-colonialism or Anti-imperialism is another feature of communism. Communism strictly
objected the social Darwinism phenomenon.
A Communist society can be called a uniform Society with no heterogeneity. Whereas in
Capitalistic society, economic strata can be seen which resulted into heterogeneous society?
The pure philosophy of communism can be achieved only through conscience that is in the
final stage of socio-economic development. How a person can share his bread if he is not
getting sufficient amount of bread? Therefore Communism is a form of Social reformation
which is capable of altering the socio-economic mindset of the people.
Work according to his ability and take benefit according to his needs is the motto of
communism. Communism is a self-driven naturalistic process cultured by human therefore.
That means, Communism is a system which works on the self-driving mechanism of (need)
demand and (ability) supply.
The ideology of communism results into internal security issues in many parts of the
developing and under developing countries of the world. Hence in the contemporary world it
is acting as a force which pushes back the surge of development. At the same time Communism
serves as a power balance in the society which represents the poor strata always.
Communism is anti-feudal in nature.
Complete Decentralization of power is another important feature of Communism.
Class less society and egalitarianism results into Co-operation and there cannot be any
heterogeneity or diversity. Once less diversity, the unification of culture may happens. Thus
Communism unifies culture but at the same time historic cultural diversity will be lacking.
Currently we can see so many cultural diverse products but when the society unifies, there may
not have diverse cultural monuments, literature etc.
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BENEFITS OF COMMUNISM:
Communist ideology supports widespread universal social welfare. Improvements in public health
and education, provision of child care, provision of state-directed social services, and provision of
social benefits will, theoretically, help to raise labor productivity and advance a society in its
development. Communist ideology advocates universal education with a focus on developing the
proletariat with knowledge, class consciousness, and historical understanding. Communism
supports the emancipation of women and the ending of their exploitation.
1. PEOPLE ARE EQUAL:

In a communist regime, people are treated equally in the eyes of the government regardless of
education, financial standing, et cetera. Economic boundaries don't separate or categorize
people, which can help mitigate crime and violence.
2. EVERY CITIZEN CAN KEEP A JOB:
In a communist system, people are entitled to jobs. Because the government owns all means
of production, the government can provide jobs for at least a majority of the people. Everyone
in a communist country is given enough work opportunities to live and survive. Every citizen,
however, must do his or her part for the economy to receive pay and other work benefits.
3. THERE IS AN INTERNALLY STABLE ECONOMIC SYSTEM:
In communism, the government dictates economic structure; therefore, economic instability is
out of the question. Every citizen is required to work in order to receive benefits, and those
who don't have corresponding sanctions. This creates an incentive to participate and to
encourage economic growth.
4. STRONG SOCIAL COMMUNITIES ARE ESTABLISHED:
In communism, there are certain laws and goals which determine resource and responsibility
allocation. If the citizens abide by these laws, this leads to a harmonious spirit of sharing one
goal. Consequently, this builds stronger social communities and an even stronger economy.
5. COMPETITION DOESN'T EXIST:
In communist societies, everyone can work harmoniously without stepping on each other's
toes. Work, responsibility, and rewards are shared equally among the citizens. If people have
no sense of envy, jealousy or ambitions that counter the goals of the state, then a harmonious
economic development can be maintained.
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6. EFFICIENT DISTRIBUTION OF RESOURCES:

In a communist society, the sense of cooperation allows for efficiency in resource distribution.
This is very important, especially in times of need and in emergency situations.
DISADVANTAGES OF COMMUNISM
IT HAMPERS PERSONAL GROWTH:

One of the setbacks of communism is its being too controlling on the lives of the people. Since
it is a classless society, everyone is equal in social status and no one is above the other. This
can also be a disadvantage since people will feel they are at the end of the road because there
is no room for personal improvement. In Cuba, for example, all medical professionals,
medicines and hospitals are controlled by the government. The fees of these professionals are
regulated by the government and they cannot demand for higher fees.
IT DICTATES ON THE PEOPLE:
In a communist society, the government has the power to dictate and run the lives of people.
Although its goal is one of equality, there is basically less or no personal freedom at all to
criticize the government or demand for changes. Moreover, there is no freedom of speech and
whoever goes against the government can be subjected to punishments.
IT DOES NOT GIVE FINANCIAL FREEDOM:
Another setback of communism is the fact that entrepreneurs cannot expect to make more
money than the others. As opposed to a free market economy, the command economy which
is practiced by most communist countries ties the hands of business people. Consequently, it
is hard to get rich in these countries.
In a Communist system, the central authority dictates the means and quantity of production,
and places strict rules on businesses.
Since there is no competition amongst firms, each is given the same amount of money and
each worker is paid the same, with the same expectations of each.
All businesses are ultimately owned by the government.
Populations tend to be treated homogeneously, meaning that common goals or sets of rules
will not apply to different segments of the population and community.
Without a price mechanism, supply and demand are difficult to balance perfectly over time.
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HOW DOES COMMUNISM SOLVE THE FOUR FUNDAMENTAL PROBLEMS OF THE ECONOMY?
What to Produce?
Economy refers the wealth and resources of a country or region in terms of production and
consumption of goods and services. Communism produces equality towards all. It is just opposite
of capitalism. Capitalism only talks about profit. Others hands, communism talks about elimination
of class and abolition of poverty. Communism produces equity and similar benefit to all of the
citizens.
How to produce?
Communism creates a government which will define what needs to the people how their standard
of living will increase. There is central planning department created by the government.
Intelligence is working there. With their direction economy will produce product and services for
the enrichment of people life.
Economy produces goods and services for the citizen of a country. Communism also produces
goods and service for the people. Government defines which needs to people which product solves
the problems of a society. Then, economy produces goods and services.
How much to produce means amount of production of goods and services. Every economy
produces goods and services by using natural resources. In communism, everything is under
government control. Government intelligence defines how much product and services are
necessary for their people. Then, produce as per their calculation.
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References
C, N. (n.d.). Capitalism | Economic Systems | World | History. Retrieved from Hisory Discussion:
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ECONOMIC SYSTEMS OF BUSINESS

ECONOMIC SYSTEMS OF BUSINESS

SUBMISSION DATE: JULY 15, 2017

ECONOMIC SYSTEMS OF BUSINESS:

CHARACTERISTICS OF ECONOMIC SYSTEM:

Characteristics of economic system are

FUNCTIONS OF ECONOMIC SYSTEM:

Problem of allocation of resources

TYPES OF ECONOMIC SYSTEM:

FOUR FUNDAMENTAL PROBLEMS OF ECONOMY:

Every economy must consider the following questions

Each of the economic system solve this problems in different ways

Capitalism is defined as an economic system characterized by private or corporate ownership of

THE ORIGINS OF CAPITALISM

Capitalism is founded on the following pillars:

A market mechanism that determines prices in a decentralized manner through interactions

Freedom to choose with respect to consumption, production, and investmentdissatisfied

The four basic problems of an economy are.

3. FOR WHOM TO PRODUCE?

4. HOW MUCH TO PRODUCE?

MAIN FEATURES OF CAPITALISM:

10. CONSUMERS SOVEREIGNTY:

1. PRODUCTION ACCORDING TO THE NEEDS AND WISHES OF CONSUMERS

3. AVAILABILITY OF GOODS AT CHEAPER PRICE

1. INEQUALITY IN THE SOCIETY

6. WORKING CLASS DOES NOT HAVE ADEQUATE SOCIAL SECURITY:

1. The Free Market and Property Rights:

2. Profit and Exploitation:

3. Inefficiency and Waste:

4. Unequal Distribution of Wealth and Income:

Some view a significant disparity and concentration of wealth to be a problem endemic to

5. Employment and Unemployment:

6. Imperialism and Human Rights Violations:

These measures are:

Social security Acts to protect the interest of labor;

According to Hicks, socialism is

3. CENTRAL PLANNING AND CONTROL

In a nutshell, the features of socialism can be listed as below

Equality of opportunity to rise in life.

The four basic problems of an economy are.

The main advantages of the socialist economy are as under:

1. Social Justice is assured:

2. Rapid Economic Development:

3. PRODUCTION ACCORDING TO BASIC NEEDS:

4. BALANCED ECONOMIC DEVELOPMENT:

5. IT HAS ECONOMIC STABILITY:

6. IT HAS MORE FLEXIBILITY:

7. CONSERVATION OF NATURAL RESOURCES:

8. EQUITABLE DISTRIBUTION OF WEALTH AND INCOME:

9. NO EXPLOITATION AND CLASS STRUGGLE:

10. SOCIAL WELFARE ACTIVITIES:

11. THERE IS NO WASTAGE OF COMPETITIVE ADVERTISEMENT:

There are certain disadvantages of this system which are as follows:

1. NO SUITABLE BASIS OF COST CALCULATION:

2. CHOICE OF WORKING INCENTIVES:

3. IT BECOMES LACK OF INCENTIVES:

4. THERE IS LOSS OF ECONOMIC FREEDOM:

5. LACK OF DATA, EXPERTS AND ADMINISTRATORS FOR PLANNING:

6. LOSS OF ECONOMIC FREEDOM AND CONSUMER SOVEREIGNTY:

7. IMPERFECTIONS IN PLANNING LEAD TO DIS-SATISFACTION ON A BIG SCALE:

8. TOO MUCH POWER IS CONCENTRATED IN THE STATE:

9. THERE IS LOSS OF PERSONAL LIBERTY:

10. BUREAUCRACY AND RED-TAPISM:

MIXED ECONOMIC SYSTEM