Under this system the state owns, and controls all means of production. Decisions pertaining to production and distribution are made through central planning. The state dictates the consumption pattern.

FEATURES 

The salient features of a socialist system are:

(i)  Government Ownership/Control:

In socialist countries, the major means of production are either owned by the Government or their use is controlled by the Government. In communist countries like the USSR and China, the means of production are mostly owned by the State. In some socialist economies, the private sector also plays a very important role. In such cases, the Government directs and regulates investment allocation and production pattern in accordance with national priorities. In some countries, such as India, some of the basic sectors, including a major part of institutional finance, are in the public sector so that the resource allocation and investment pattern of the private sector may be regulated by regulating the flow of the basic inputs to the private sector. When the state owns almost the whole of the means of production, it is much easier to achieve the desired pattern of resource allocation. Stale cap1talism, of course, has its own defects. Communist countries like China have now wide opened their doors to foreign private capitalists to foster development.

(ii)        Central Authority:

The socialist economies generally have a central authority like the central planning agency to formulate the national plan for development and to direct resource mobilization, allocation and investment to achieve the plan targets. Socialist economies arc sometimes called command economies because the central planning authority commands the pattern of resource utilization and development. They are also called centrally planned economies. Centrally planned economics include the USSR, China, the German Democratic Republic (East Germany), Poland, Romania, etc.

(iii)     Restriction on Consumption:

In communist countries, there is no consumer sovereignty because the state decides what may be made available to consumers, unlike in the market economics where the consumers have the freedom to choose from a wide variety. The consumers in a communist system, thus, have to content themselves with what the state thinks is sufficient for them.

(iv)      Restriction on Occupation:

The freedom of occupation is absent or restricted in socialist countries. An individual may not have the freedom to choose any occupation he is qualified for. Similarly, individual freedom of enterprise is absent or regulated.

(v)        Fixation of Wages and Prices:

The wage rates and prices in a communist economy are fixed by the Government and not by market forces. Non-communist socialist countries may also fix wages and prices or regulate them by certain means.

(vi)      Distribution of Income:

An equitable distribution of income is an important feature of the socialist system. This does not mean, however, that socialist systems aim at perfect equality in income distribution. Wage & differentials, depending, on the nature and requirements of the job, are recognized in socialist countries. The objective of equitable income distribution may be achieved by fixing the wage rates and other economic rewards or by means of fiscal and other appropriate measures.

We have mentioned above the important theoretical features of socialism. In the real world, there is a variety of socialist systems; but all of them have one thing in common, namely, greater government control of the means of production than in the capitalist systems.

TYPES OF SOCIALISM

 The traditional socialism emphasized government ownership of factors of production. But a number of today’s socialist systems are based on government control of the means of production rather than pure state capitalism. Even the Euro-communism has a more liberal view than the Russian and Chinese systems. However, the Chinese and Russian systems are becoming somewhat liberal.

Socialist Command Economy

The command economy is characterized by public ownership of the means of production, collective determination of economic decisions, and the allocation of resources by commands issued by the planning elite. The primary feature of the command economy is the centralization of decision making.  There is no horizontal communication between producing and consuming units. All communication is vertical, i.e., between the individual economic unit and the planning agency.

In a command economy, there is no individual freedom of choice of consumption and employment. The state determines what shall be produced in what quantities and by what methods. Similarly, the state determines the assortment and the amount of goods and services that may be consumed by individuals.

Just as there is no pure capitalist economy in the world, there is no pure command economy. However, some economies, like the Soviet economy, come near to this system, and they are generally regarded as command economics. However, as mentioned earlier, changes appear to have begun.