Just like every other economic system, the socialist economy has several disadvantages and advantages. In the following sections, we will see the advantages of socialist economy and its impact on society.

See also: What is one way a command economy affects the lives of private citizens?

In the socialist economic system, it is the state that controls and owns the means of production which also implies that private ownership of means of production is prohibited. Social and economic equality is the bedrock of a socialist economy. Here, the government is responsible for providing food and other fundamental services to the citizens, and also, it must provide proper economic roles for people.

Another critical feature of socialist economies is that markets and self-interested individuals do not make important economic choices. The government which owns and controls a large portion of the economy’s resources makes decisions with regard to what to produce, how to produce, for whom to produce, when to produce, and how to allocate the resources. This method is also known as central planning.

Socialist states share ownership of resources and the influence of central planning gives room for a more equitable distribution of goods and services and a better society. With this, the ultimate goal of a socialist economy is to ensure wealth maximization in the economy. It aims to have an equal distribution of wealth amongst all its citizens, not just the welfare of its richest companies and individuals.

The socialist economic structure is directly opposed to that of capitalism as the state holds and controls the factors of production. In other words, all factories, machines, plants, capital, and so on are owned by the State. Therefore, on the basis of equal rights, all citizens gain from the production of commodities and services. Most socialist systems also give substantial social advantages to people, such as guaranteed employment or unemployment insurance, as well as free or significantly subsidized health care, child care, and education. Because of this, the socialist economy is also known as the command economy.

See also: Features of Socialist Economies

Advantages of socialist economy

1. Better utilization of resources
2. Elimination of unemployment
3. Economic equality
4. Promotes common good and maximizes social welfare
5. Reduction in poverty
6. Regulates the excesses of the free market
7. Environmental protection
8. Greater efficiency
9. Absence of monopolistic practices
10. Absence of business fluctuations
11. Proper planning
12. Public goods

Best utilization of resources

One of the advantages of socialist economies is their better utilization of resources. Socialists argue that due to characteristics like central planning, absence of private property ownership, absence of profit motive, and well-defined objective, a socialist economy can bring about more efficient and effective resource usage.

Planning is carried out systematically after making a thorough research on the available resources and the economy’s basic demands. As a result, there will be no question of misusing resources to produce undesirable and unnecessary items. The planning would strive to generate and make distributions to all citizens within the boundaries of the set target.

The absence of private property and the profit incentive would discourage the centrally-planned economy from manufacturing remunerative or luxury products and squandering resources. This implies that overproduction, underproduction, resource waste, and resource misallocation may all be prevented in this economic structure. In turn, there will be no commercial uncertainty, volatility, depression, etc.

Elimination of unemployment

Another seeming advantage that relates to a socialist economy is a decrease or elimination of unemployment. Since the economy is planned, it can reduce the factors that bring about economic instability and unemployment. In turn, the approach attempts to provide economic stability by eliminating cyclical oscillations or fluctuations.

During the Great Depression of the early 1930s, when other nations across the world were suffering from depression and unemployment, Russia remained noticeably unaffected. This was because of the socialist economic structure, which safeguarded it against commercial and economic instability.

In capitalist economies, there are extensive mechanisms that are put in place to combat cyclical variations. This will be accomplished by governmental spending, monetary policy, and other means. Despite all of these steps, capitalism can only reduce the intensity of depression but under socialism, it can be completely abolished.

Still on the advantages of a socialist economy in reducing unemployment, when compared to capitalist nations, frictional unemployment still exists in capitalist economies. If technical advancements occur, trained workers will be displaced, resulting in temporary unemployment. However, in a socialist economy, these technological advancements would not result in frictional unemployment since manufacturing processes and varied activities would be perfectly coordinated. This is an advantage that this economy has over the free market economy.

So, unlike the free market’s invisible hand, which cannot be influenced by a single firm or individual, the government may set salaries and job opportunities to achieve the desired unemployment rate and salary distribution in a centrally planned economy. In essence, one of the advantages of a socialist economy is that employment security is guaranteed, meaning that no employee is laid off without a fair or legitimate reason unlike it is in a capitalist economy.

Economic equality

The most significant advantage of socialist economies is their aim to achieve considerably greater economic equality than is feasible via capitalist economies. Inequality cannot be justified under any conditions, whether moral, social, political, or economic.

It is certain that economic inequality brings about pain and deterioration as it restrains equality of opportunity and keeps members of society impoverished from reaching their full potential. Even in capitalist economies, efforts to lessen inequities cannot progress or succeed beyond a certain point.

Socialists argue that under capitalism, heavy taxes and other fiscal efforts to combat inequalities have limitations since they discourage savings and productive effort, and capital accumulation is severely inhibited. There is no such anxiety in a socialist economy, as capital development is encouraged and undertaken directly by the state through central planning. In essence, socialism provides the advantage of establishing a society centered on economic equality.

Promoting the common good and maximizing social welfare

The promotion of the common good and maximizing social welfare is a remarkable advantage of a socialist economy. This structure seeks to maximize social benefit through maximizing satisfaction. This social welfare includes universal healthcare and free education among many others. This is an indication that under a socialist economy, a greater number of people will be satisfied. This is in contrast with the capitalist economy where products are created for people who are willing to pay because of the profit incentive.

Also, since there is no private ownership of the means of production in a socialist economic structure, there is less income disparity than in a capitalist economy. Here, everyone works hard and gets compensated according to his or her talents and abilities. Also, items required by the poor will be created, resulting in maximum pleasure for a vast number of people.

The availability of universal healthcare is an advantage of the socialist economy that comes with social welfare which can raise the standard of living. When individuals have access to free healthcare at the point of use, they can obtain the fundamental care they require to be healthy. This advantage of socialism can improve the quality of life of individuals who cannot afford the expense of a private doctor. When there is an improvement in societal health, there are other benefits to consider such as increased economic growth.

Reduction in poverty

Another seeming socialist economy advantage is that when everyone is given a chance to work, there will be a decrease in poverty. Also, policies are put in place to ensure that everyone has access to education, healthcare, and employment, especially the poor and working class.

One of the most serious criticisms that capitalists have about socialism is the redistribution of money. When the extremely wealthy are taxed to help the very poor, the entire society benefits from an increase in total utility or pleasure. However, the classless nature of this economy bridges the gap between the rich and the poor.

The excesses of the free market are regulated

A socialist society has different advantages from public ownership. It gives room for the agency to be administered in the best interests of the public rather than to maximize profits for shareholders. It is for this reason that the government owns certain utilities. It enables firms involved in the distribution of products or services to operate for the benefit of all rather than focusing on just making possible profits in the business.

This advantage of socialist economies makes it easier for firms and governments to pay close attention to cutting consumer prices. It also assists individuals in looking for long-term investment possibilities while enhancing safety thereby ensuring that everyone receives what they require for a happy and productive existence.

Environmental protection

Environmental protection is one of the critical advantages of socialist economy that can be implemented more readily. In other words, the economic structure combats negative externalities, that is, the environment is safeguarded. By employing legislation and environmental protection regulations, the government guarantees that people who create environmental pollution are penalized. It also implies that manufacturers and enterprises must meet environmental goals. The government does this by ensuring that environmental demands are addressed through methods of production and distribution.

When the economy has regulations in place that work toward the long-term welfare of everyone, then a higher level of value is placed on concerns that are harmful to the environment.

Greater efficiency

Socialists argue that the economic efficiency advantage is higher under socialism than under capitalism because the means of production are not left to market forces but are controlled and managed by the central planning authority toward a certain aim. The central planning authority conducts a thorough inventory of resources and allocates them in the most efficient manner possible.

Central planning, therefore, is an advantage to the socialist economy because it offers a more efficient distribution and manufacturing system. This implies that it regulates the operation of economic systems. It also guarantees that enterprises are adequately managed in order to suit the requirements of customers in society. Therefore, it implies less money spent and more efficient economic processes.

Absence of monopolistic practices

One of the advantages of socialist economy that should not be ignored is that it is devoid of the monopolistic behaviors inherent in capitalist societies. Because the state owns the means of production in socialism, monopolistic exploitations do not exist under this structure. In place of a private monopoly, it is the state that then monopolizes the system of production which is run and managed for the benefit of the people.

Absence of business fluctuations

The fact that business fluctuations are absent under a socialist economy is an advantage; because key proponents of socialism argue that a socialist economy outperforms a capitalist economy that is devoid of business fluctuations. In general, a planned economy coordinates the actions of multiple producing units, prohibits discrimination between saving and investment, and maximizes the use of available resources. It has control over production and can avoid the broader deflationary tendency.

Proper planning

Proper planning is a major characteristic as well as an advantage of a socialist economy. In essence, this structure implements rules that allow for comprehensive and appropriate economic planning. This is accomplished by establishing a central planning system that guarantees everyone gets a fair share of available resources. The government chooses how much is produced and how much is exported or sold to other countries.

A socialist economy also establishes a structure in which the country’s economy may prepare for both the long and short term, putting it in a stronger position than the capitalist economy. It is dependent solely on the capitalist system, which is prone to collapse after a few years.

Public goods

Another socialist economy advantage is the fact that government invests in the creation of public goods. Here, rules are implemented to allow for government investment in public works development. The government implements policies to guarantee that building projects are carried out. This is to offer the necessary infrastructural and environmental initiatives.

The government also invests money in public works projects such as dams, road constructions, and bridges that are important to preserve the environment and land. Everything is dependent on what the government deems to be in the best interests of society.

See also: What is the goal of a command economy?