Socialism and Planned Economies

Socialism is characterized by social ownership of the means of production.

Learning Objective

Distinguish between economic planning in socialist versus capitalist economic systems

Key Points

A planned economy is a type of economy consisting of a mixture of public ownership of the means of production and the coordination of production and distribution through state planning.
Socialism has many variations, depending on the level of planning versus market power, the organization of management, and the role of the state.
In a socialist system, production is geared towards satisfying economic demands and human needs. Distribution of this output is based on individual contribution.
Socialists distinguish between a planned economy, such as that of the fomer Soviet Union, and socialist economies. They often compare the former to a top-down bureaucratic capitalist firm.

Terms

planned economy
An economic system in which government directly manages supply and demand for goods and services by controlling production, prices, and distribution in accordance with a long-term design and schedule of objectives.
socialism
Any of various economic and political philosophies that support social equality, collective decision-making, distribution of income based on contribution and public ownership of productive capital and natural resources, as advocated by socialists.

Example

There are few clear examples of purely socialist economies; nonetheless, many of the industrialized countries of Western Europe experimented with one form of social democratic mixed economies or another during the twentieth century, including Britain, France, Sweden, and Norway. They can be regarded as social democratic experiments, because they universally retained a wage-based economy and private ownership and control of the decisive means of production. Variations range from social democratic welfare states, such as in Sweden, to mixed economies where a major percentage of GDP comes from the state sector, such as in Norway, which ranks among the highest countries in quality of life and equality of opportunity for its citizens.

Full Text

Planned Economy

A planned economy is a type of economy consisting of a mixture of public ownership of the means of production and the coordination of production and distribution through state planning.

Planned Socialist Economy

Economic planning in socialism takes a different form than economic planning in capitalist mixed economies. In socialism, planning refers to production of use-value directly (planning of production), while in capitalist mixed economies, planning refers to the design of capital accumulation in order to stabilize or increase the efficiency of its process. While many socialists advocate for economic planning as an eventual substitute for the market for factors of production, others define economic planning as being based on worker-self management, with production being carried out to directly satisfy human needs. Enrico Barone provided a comprehensive theoretical framework for a planned socialist economy. In his model, assuming perfect computation techniques, simultaneous equations relating inputs and outputs to ratios of equivalence would provide appropriate valuations in order to balance supply and demand.

Hierarchy of Needs

Worker self-management and production to satisfy human needs are key.

The command economy is distinguished from economic planning. Most notably, a command economy is associated with bureaucratic collectivism, state capitalism, or state socialism.

Socialism

Socialism is an economic system characterized by social ownership, control of the means of production, and cooperative management of the economy. A socialist economic system would consist of an organization of production to directly satisfy economic demands and human needs, so that goods and services would be produced directly for use instead of for private profit driven by the accumulation of capital. Accounting would be based on physical quantities, a common physical magnitude, or a direct measure of labor-time. Distribution of output would be based on the principle of individual contribution.

There are many variations of socialism and as such there is no single definition encapsulating all of socialism. They differ in:

The type of social ownership they advocate;
The degree to which they rely on markets versus planning;
How management is to be organised within economic enterprises; and
The role of the state in constructing socialism.

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