Page 24 - 6727

Economic Theory

over-production leads to glut in the market and hence depression. This
leads to economic instabilities;
4) mechanization and automation: capitalism encourages
mechanization and automation. This will result in unemployment

particularly in labor surplus economies;
5) welfare ignored: under capitalism, private enterprises produce

luxury goods which give higher profits and ignore the basic goods required
which give less profit. Thus the welfare of public is ignored;
6) exploitation of labor: stringent labor laws are enacted for the
exclusive profit motive of capitalists. Fire and hire policy will become the

order of the day. Such laws also help to exploit the labor by keeping their
wage rate at its lowest minimum;
7) basic social needs are ignored: There are many basic social sectors

like literacy, public health, poverty, drinking water, social welfare, and
social security. As the profit margin in these sectors is low, capitalists will
not invest. Hence most of these vital human issues will be ignored in a
capitalist system.

4. Socialist Economy

In a socialist economy, the means of production are owned and
operated by the State. All decisions regarding production and distribution
are taken by the central planning authority. Hence the socialist economy is
also called as planned economy or command economy. The government

plays an active role. Social welfare is given importance; hence equal
opportunity is given to all. All such advantages have delivered high level

of human development. Some of the most successful socialist economies
are China, Cuba, Vietnam and North Korea.
The following are the basic characteristic features of Socialism:
1) social welfare motive: in socialist economies, social or collective

welfare will be the prime motive. Unlike capitalism, profit will not be the
aim of policy making. The decisions will be taken keeping the maximum
welfare of the people in mind. Thus social well-being of people will be the

purpose of development;
2) limited right to private property: the right to private property is
limited. All properties of the country will be owned by the State. That is,
the ownership is collective in nature. Hence no individual can accumulate

too much property as in the case of capitalism;

24