Merits of Socialism:
Thus, a socialist economy discards the use of market mechanism and replaces it with some form of regulatory authority, such as the planning commission. It also abolishes the institutions of private property and inheritance. Given these features of the socialist economy, it tries to remove the basic demerits of capitalism by pursuing the objectives of
- Distributive justice, and
- Social Security.
1. Distributive Justice:
It is not the same thing as 'equal' distribution. It does not amount to wiping out 'inequalities'. Instead, it means that in socialism, distribution of income takes place on the basis of comparative needs of the members of the society. However, it should be noted that it is difficult to achieve this objective on account of the following difficulties.
(a) It is extremely difficult to establish the comparative needs of the members of the society, particularly when the country has a large population. Till now, we have not been able to find a scientific (that is, non-discretionary) method of solving this problem. Moreover, if we follow any scheme of asking the people themselves about their needs, each person will insist that his need is more pressing and urgent than that of the others. It is also stated that even if we accept the opinions as expressed by individuals as correct ones, we may reach contradictory conclusions. Another problem with investigation of individual needs through some kind of enquiry is that it is an expensive exercise. The resources used up in such an exercise can be used for producing additional goods and services.
(b) If income is divided on the basis of relative needs of the members of the society, every one is assured of his share of the national income irrespective whether he as contributed to its creation or not. For this reason, the incentive to work and produce is lost. The economy is pushed to a low level of output and poverty.
(c) Since the working of a socialist economy is directed by official machinery, all decisions are subject to rules framed for the purpose. As a result, the process of decision-making becomes slow and wasteful. The rate at which productive capacity of the economy increases declines. And its existing productive capacity also remains under-utilized.
2. Social Security:
Socialism also tries to remove another drawback of capitalism, namely the absence of social security. The term social security represents a system by which every member of the society is assured of an income, which is sufficient for satisfying his basic needs. He is entitled to this minimum income irrespective of whether he is able to work or not.
Thus, he continues getting this income even when is ill, old, too young, or otherwise unemployed.
A major defect with providing social security is that members of society lose initiative and become indifferent to work. By their very nature, human beings are willing to work and take initiative if they are rewarded for the same. Factually, therefore, a socialist economy tries to overcome this hurdle by providing social security not fully but only partially. Essentially, it means that every one is assured of an income, which is sufficient to meet his basic needs but no more. For getting additional income, one has to work. And this additional income is directly related to the nature of work and initiative undertaken by its recipient.
Demerits of Socialism:
Thus, while socialism is able to get rid of the problems of income inequalities, unemployment and cyclical fluctuations of national income and prices, it is not able to provide economic incentives and disincentives for hard work and initiative. As a result, it continues to suffer from slow growth rate, poor productivity of labor and low per capital income. On account of these weaknesses of the economy, it becomes difficult to raise the consumption standards one masses. And this gives rise to the necessity of restructuring the economic system for better results.