How Socialism Solve Economic Problems?
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What to produce ?
In socialism, planning authorities decided what to produced. The Central Planning Authority or the government will collect detailed statistics on the resource availability in the country and link it with national priorities. If the planning authorities or government feels that the nation needs more computer for current and future consumption, more resources will be allocated for the production of computers over other products. Furthermore, under socialism we would produce for use and to satisfy the needs of all the people. Under capitalism, the industries operate for the main purpose which is to earn profit for their owners. Under capitalism, food is not grown primarily to be eaten. it is grown to be sold so that they can earn profit. Cars are not manufactured primarily to be driven. They are made to be sold. If there are enough buyers here and abroad, then the capitalist will have their factories turn out cars, appliances, shoes and everything else for which buyers can be found. However, if there are less of buyer, the domestic and foreign markets cannot absorb them, then these factories shut down and the country stagnates, no matter how much people need these commodities.
Meanwhile, under socialism the factories and industries would be used to benefit all of citizens, not restricted to the creation of profits for the enrichment of a small group of capitalist owners. Under socialism also, the citizens may received the finest facilities and they would be devoted to developing complete human beings, not wages slaves who are trained to hire themselves out for someone else`s profit.
How to produce ?
Under Socialism, The Central Planning Authority also decides on the techniques to be used in the production of different goods and services. The choice is between traditional and modern technique of production. For example, the planning authority has a choice of producing computer using more labour or more machinery. The Central Authority also can decided to use both of the traditional method and modern method. The Central Planning Authority will keeping in view the plan priorities, availability and efficient utilization of resources and the net social benefit.
The Central Planning Authority lays down the rules for the guidance of plant manager. Firstly, each manager should combine productive goods and services in such that the average cast of producing a given output is the minimum. Secondly and thirdly, the manager should also see that industry produces exactly as much of commodity as can be sold at a price which equals the marginal cost. Thus under this method prices are equal to their marginal cost. Since goods are produced in anticipating of demand, it is accounting prices which are the bases of price determination. Thus, in turn, depends on the process of which are the bases of price determination. This, in turn, depends on the process of trail and error which necessities marginal adjustments in prices from time to time.
For whom to produce ?
The distribution of the national product is decided by the Central Planning Authority. The distribution of various commodities among citizens is done through a set of administered fixed processes. Necessity goods are fixed at lower prices and luxury goods at higher prices. The purpose of these fixed prices is to reduce inequalities in the distribution of income. The Central Planning will making the decision for whom to produce, social preference is given weight age. In other words, production of those goods and services are given more weight age which are needed by the majority of the people over luxury items. The distribution of the production is done through a set of assigned prices fixed by the central planning authority.
These are the prices at which the goods are sold. the prices of essential commodities are kept at a lower level so that the basic needs of all the people are satisfied. In case of shortages of scarce goods and services, the state can introduce rationing so that every individual can get an equal share. Thus from each according to his capacity and to each according to his work constitutes the fundamental basis of the distribution of income in a socialist economy. So basically, under socialism the amount of distribution of goods and services are done by the Central Planning Authority compared to capitalism where the third economic decision as to who will be receiving goods and services is answered through the price system. Meanwhile, under mixed economy, the distribution of goods and services is decided by the public and private sectors.