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Different economic Systems :

The three systems generally considered the major economic systems in the world are:
Capitalism, Socialism, and Communism.

CAPITALISM has certain characteristics:

• Private ownership of property and of the means of production is the rule.

• Individuals or groups of individuals can invest money in businesses or start their
own businesses (free enterprise).
• Owners and investors take risks, but make and keep profits.
• The type, quantity and price of goods and services produced are determined in the
• Hard work, the desire to compete, and willingness to try new ideas are important
for success.
• Government is to avoid interfering in the economy.

SOCIALISM has certain characteristics:

• Public (government) ownership of the major means of production and private

ownership of the rest exist together.
• Individuals or groups of individuals can invest money in certain businesses or
start certain types of businesses.
• Government provides for the general welfare of its people.
• Government plays an active role in the economy wherever and whenever
necessary to ensure economic strength and social justice.

COMMUNISM has certain characteristics:

• Public (government) ownership of the means of production is the rule.

• All businesses are owned by the government and are to be operated for the benefit
of the people.
• People must cooperate and do their fair share of work.
• The type, quantity and price of goods and services produced are determined by
the government.
• All people are equal and provided with what they need.
• Eventually, there will be no social classes and government will not be

The three major economic systems in the world, then, are capitalism, socialism, and
communism. The United States practices its form of capitalism. Most of the nations in the
world practice some form of socialism. Although no government truly practices
communism, some nations describe their economy as communist because that is their
ultimate goal. Pure capitalism, socialism, and communism exist only in theory.
Capitalism is an economic system in which the means of production are privately owned
and operated for a private profit; decisions regarding supply, demand, price, distribution,
and investments are made by private actors in the market rather than by central planning
by the government; profit is distributed to owners who invest in businesses, and wages
are paid to workers employed by businesses and companies.

Under this system, the means for producing and distributing goods (the land, factories,
technology, transport system etc) are owned by a small minority of people. We refer to
this group of people as the capitalist class. The majority of people must sell their ability
to work in return for a wage or salary (who we refer to as the working class.)

The working class is paid to produce goods and services which are then sold for a profit.
The profit is gained by the capitalist class because they can make more money selling
what we have produced than we cost to buy on the labour market. In this sense, the
working class is exploited by the capitalist class. The capitalists live off the profits they
obtain from exploiting the working class whilst reinvesting some of their profits for the
further accumulation of wealth.

This is what we mean when we say there are two classes in society. It is a claim based
upon simple facts about the society we live in today. This class division is the essential
feature of capitalism. It may be popular to talk (usually vaguely) about various other
'classes' existing such as the 'middle class', but it is the two classes defined here that are
the key to understanding capitalism.

It may not be exactly clear which class some relatively wealthy people are in. But there is
no ambiguity about the status of the vast majority of the world's population. Members of
the capitalist class certainly know who they are. And most members of the working class
know that they need to work for a wage or salary in order to earn a living (or are
dependent upon somebody who does, or depend on state benefits.)

The profit motive

In capitalism, the motive for producing goods and services is to sell them for a profit, not
to satisfy people's needs. The products of capitalist production have to find a buyer, of
course, but this is only incidental to the main aim of making a profit, of ending up with
more money than was originally invested. This is not a theory that we have thought up
but a fact you can easily confirm for yourself by reading the financial press. Production is
started not by what consumers are prepared to pay for to satisfy their needs but by what
the capitalists calculate can be sold at a profit. Those goods may satisfy human needs but
those needs will not be met if people do not have sufficient money.

The profit motive is not just the result of greed on behalf of individual capitalists. They
do not have a choice about it. The need to make a profit is imposed on capitalists as a
condition for not losing their investments and their position as capitalists. Competition
with other capitalists forces them to reinvest as much of their profits as they can afford to
keep their means and methods of production up to date.
As you will see, we hold that it is the class division and profit motive of capitalism that is
at the root of most of the world's problems today, from starvation to war, to alienation
and crime. Every aspect of our lives is subordinated to the worst excesses of the drive to
make profit. In capitalist society, our real needs will only ever come a poor second to the
requirements of profit.

Capitalism = free market?

It is widely assumed that capitalism means a free market economy. But it is possible to
have capitalism without a free market. The systems that existed in the U.S.S.R and exist
in China and Cuba demonstrate this. These class-divided societies are widely called
'socialist'. A cursory glance at what in fact existed there reveals that these countries were
simply 'state capitalist'. In supposedly 'socialist' Russia, for example, there still existed
wage slavery, commodity production, buying, selling and exchange, with production only
taking place when it was viable to do so. 'Socialist' Russia continued to trade according to
the dictates of international capital and, like every other capitalist, state, was prepared to
go to war to defend its economic interests. The role of the Soviet state became simply to
act as the functionary of capital in the exploitation of wage labour, setting targets for
production and largely controlling what could or could not be produced. We therefore
feel justified in asserting that such countries had nothing to do with socialism as we
define it. In fact, socialism as we define it could not exist in one country alone—like
capitalism it must be a global system of society.

Types of capitalism


Anarcho-capitalism is a libertarian and individualist anarchist political philosophy that

advocates the elimination of the state and the elevation of the sovereign individual in a
free market. In an Anarcho-capitalist society, law enforcement, courts, and all other
security services would be provided by voluntarily-funded competitors such as dispute
resolution organizations and private defense agencies rather than through taxation, and
money would be privately and competitively provided in an open market.


A nationalist-oriented form of early capitalism that uses the state to advance national
business interests abroad, and holds that the wealth of a nation is increased through a
positive balance of trade with other nations.

Free-market capitalism

Free market capitalism consists of a free-price system where supply and demand are
allowed to reach their point of equilibrium without intervention by the government.
Productive enterprises are privately-owned, and the role of the state is limited to
enforcing property rights.
Social market economy

A social market economy is a nominally free-market system where government

intervention in price formation is kept to a minimum, but the state provides for moderate
to extensive provision of social security, unemployment benefits and recognition of labor
rights through national collective bargaining schemes. The social market is based on
private ownership of businesses.

State capitalism

State capitalism consists of state-ownership of profit-seeking enterprises that operate in a

capitalist manner in a market economy; examples of this include corporatized
government agencies or partial ownership of shares in publicly-listed firms by the state.
State capitalism is also used to refer to an economy consisting of mainly private
enterprises that are subjected to comprehensive national economic planning by the
government, where the state intervenes in the economy to protect specific capitalist

Corporate capitalism

Corporate capitalism is a free or mixed market characterized by the dominance of

hierarchical, bureaucratic corporations, which are legally required to pursue profit. State
monopoly capitalism refers to a form of corporate capitalism where the state is used to
benefit, protect from competition and promote the interests of dominant or established

Mixed economy

A largely market-based economy consisting of both public ownership and private

ownership of the means of production. In practice, a mixed economy will be heavily
slanted toward one extreme; most capitalist economies are defined as "mixed economies"
to some degree and are characterized by the dominance of private ownership.

Socialism is an economic and political theory advocating public or common ownership
and cooperative management of the means of production and allocation of resources.

As an economic system, socialism is a system of production based on the direct

production of use-values by allocating economic inputs (the means of production) and
investments through planning to directly satisfy economic demand. Economic calculation
is based on either calculation-in-kind or a direct measure of labour time, output for
individual consumption is distributed through markets, and distribution of income is
based on individual merit or individual contribution.
The socialist perspective is generally based on materialism and the understanding that
human behavior is largely shaped by the social environment. In particular, scientific
socialism holds that social mores, values, cultural traits and economic practices are not
the property of some immutable natural law but exist relative to the specific form of
social organization in existence, which itself is determined by the level of technological
and material development in a society, and are therefore social creations.

The ultimate goal for Marxist socialists is the emancipation of labor from alienating
work, and therefore freedom for the individual from having to perform such to receive
access to material goods and necessities. It is argued that freedom from necessity would
maximize individual liberty, as individuals would be able to pursue their own interests
and develop their own talents without being coerced into performing labor for others (the
ruling class) via mechanisms of social control, such as the labor market and the state. For
Marxists, the stage of economic development in which this is possible is contingent upon
advances in the productive capabilities of society.

Planned economy

This form of socialism combines public ownership and management of the means of
production with centralized state planning, and can refer to a broad range of economic
systems from the centralized Soviet-style command economy to participatory planning
via workplace democracy. In a centrally planned economy, decisions regarding the
quantity of goods and services to be produced are planned in advance by a planning
agency. This type of economic system was often combined with a single-party political
system, and is thus associated with the Communist states of the 20th century.

In the economy of the Soviet Union, state ownership of the means of production was
combined with central planning, in relation to which goods and services to make and
provide how they were to be produced, the quantities, and the sale prices. Soviet
economic planning was an alternative to allowing the market (supply and demand) to
determine prices and production. The Soviet economy utilized material balance
accounting to a limited extent, although this never totally replaced financial accounting.
During the Great Depression, many socialists considered Soviet-style planned economies
the remedy to capitalism's inherent flaws – monopoly, business cycles, unemployment,
unequally distributed wealth, and the economic exploitation of workers. The lack of self-
management in the workplace, the existence of financial calculation and a bureaucratic
elite based on hierarchical and centralized powers of authority have led many socialists to
classify this economic model as either Bureaucratic collectivist, Coordinatorist, State
capitalist or Deformed workers' states.

State-directed economy

A state-directed economy is a system where either the state or worker cooperatives own
the means of production, but economic activity is directed to some degree by a
government agency or planning ministry through coordinating mechanisms such as
indicative planning and dirigisme. This differs from a centralized planned economy (or a
command economy) in that micro-economic decision making, such as quantity to be
produced and output requirements, are left to managers and workers in the state and
cooperative enterprises rather than being mandated by a comprehensive economic plan
from a centralized planning board. However, the state will plan long-term strategic
investment and seek to coordinate at least some aspects of production. It is possible for a
state-directed economy to have elements of both a market and planned economy. For
example, investment decisions may be semi-planned by the state, but decisions regarding
production may be determined by the market mechanism.

State-directed socialism can also refer to technocratic socialism; economic systems that
rely on technocratic management over the means of production and economic policy.

In Western Europe, particularly in the period after World War II, many socialist and
social democratic parties in government implemented what became known as mixed
economies, some of which included a degree of state-directed economic activity. These
governments nationalized major and economically vital industries while permitting a free
market to continue in the rest. These were most often monopolistic or infrastructural
industries like mail, railways, power and other utilities. In some instances a number of
small, competing and often relatively poorly financed companies in the same sector were
nationalized to form one government monopoly for the purpose of competent
management, of economic rescue (in the UK, British Leyland, Rolls-Royce), or of
competing on the world market.

Market socialism

Market socialism refers to various economic systems that involve either public ownership
and management or worker cooperative ownership over the means of production, or a
combination of both, and the market mechanism for allocating economic input,
investment, and in deciding what to produce. In state-oriented forms of market socialism
where state enterprises attempt to maximize profit, the profits can be used to fund
government programs and services through a social dividend, eliminating or greatly
diminishing the need for various forms of taxation that exist in capitalist systems.

Yugoslavia implemented a market socialist economy based on cooperatives and worker


The current economic system in China is formally titled Socialist market economy with
Chinese characteristics. It combines a large state sector that comprises the 'commanding
heights' of the economy, which are guaranteed their public ownership status by law, with
a private sector mainly engaged in commodity production and light industry responsible
from anywhere between 33%(People's Daily Online 2005) to over 70% of GDP
generated in 2005.However by 2005 these market-oriented reforms, including
privatization, virtually halted and were partially reversed. The current Chinese economy
consists of 150 corporatized state enterprises that report directly to China's central
government. By 2008, these state-owned corporations had become increasingly dynamic
and generated large increases in revenue for the state, resulting in a state-sector led
recovery during the 2009 financial crises while accounting for most of China's economic

The Socialist Republic of Vietnam has adopted a similar model after the Doi Moi
economic renovation, but slightly differs from the Chinese model in that the Vietnamese
government retains firm control over the state sector and strategic industries, but allows
for private-sector activity in commodity production.

De-centralized planned economy

Some socialists propose various decentralized, worker-managed or self-managed

economic systems, as in Mutualism. A de-centralized planned economy is one where
ownership of enterprises is accomplished through various forms of worker cooperatives;
planning of production is done from the bottom up by local worker councils in a
democratic manner. One such system is the cooperative economy, largely free markets
economy in which workers manage the firms and democratically determine remuneration
levels and labour divisions. Productive resources would be legally owned by the
cooperative and rented to the workers, who would enjoy usufruct rights.

Another, more recent, variant is participatory economics, based on Anarcho-

Collectivism, wherein the economy is planned by decentralized councils of workers and
consumers. Workers would be remunerated solely according to effort and sacrifice, so
that those engaged in dangerous, uncomfortable, and strenuous work would receive the
highest incomes and could thereby work less.

Anarchist communism is a theory of anarchism which advocates the abolition of the state,
private property, and capitalism in favor of common ownership of the means of
production, direct democracy and a horizontal network of voluntary associations and
workers' councils with production and consumption based on the guiding principle: "from
each according to his ability, to each according to his need".

Communism is a sociopolitical movement that aims for a classless society structured
upon communal ownership of the means of production and the end of wage labour and
private property.

A variety of different forms of communism have developed, each based upon the ideas of
different political theorists, usually as additions or interpretations of various forms of
Marxism, the collective philosophies of Karl Marx. Marxism-Leninism is the synthesis of
Vladimir Lenin's contributions to Marxism, such as how a revolutionary party should be
organized; Trotskyism is Leon Trotsky's conception of Marxism and Maoism is Mao Tse
Tung's interpretation of Marxism to suit the conditions of China at that time.

Communist theory generally states that the only way to solve the problems existing
within capitalism is for the working class, referred to as the proletariat, who is the main
producer of wealth in society and is exploited by the capitalist class, as explained in
theories such as surplus value, to replace the bourgeoisie as the ruling class to establish a
society without class divisions, called socialism, as a prelude to attempting to achieve the
final stage of communism.

Pure communism, or the stage in history after socialism, refers to a classless, stateless
society, one where decisions on what to produce and what policies to pursue are made in
the best interests of the collective society with the interests of every member of society
given equal weight in the practical decision-making process in both the political and
economic spheres of life.

In modern usage, communism is often used to refer to the policies of these governments,
which were one party system operating under centrally planned economies and a state
ownership of the means of production. Most of these governments based their ideology
on Marxism-Leninism. These systems, sometimes referred to as state socialism are
argued by many, including those on the left, that states never made an attempt to
transition to a communist society, while others even argue that they never achieved

In the 20th and 21st centuries democratic elections led to communist, and communist
inspired, governments being elected in other parts of the world such as in Chile and
Venezuela. Today, although communism is a less influential political force compared to
what it was in much of the twentieth century, there are still powerful communist and
aligned socialist movements in many parts of the world, especially southern Asia and
South America, and since the Economic crisis of 2008 there has been a resurgence of
interest in communist theory, especially the theories of Karl Marx.