Comparative Economics System

Introduction:

The history of human civilization has witnessed the rise and fall of many systems. A program for the improvement of society cannot ignore fundamental institution and the broad plan of organization which underlies our economic systems as a whole. Several comprehensive plans of social organization have been proposed for such a foundation from time immemorial. These are Anarchism, Feudalism, Capitalism Socialism, Communism, Fascism and Islamism. Each presents a different scheme of social organization.

In comparison of economic systems, we are much interested in comparing performances. It is therefore, impossible to reach and objectively valid conclusion, if by “Objective” we mean a Judgment that supporters of all economic systems can be logically forced to accept. But our comparison of performances can achieve any two things it can point out where each system excels the then in meeting certain goals, and it may suggest the extent to which one purpose is sacrificed for another. Since the whole analysis is subjective, we need not be surprised to find those. Whose goals are different or who give different weight to the same goals refuse to accept our point of view.

Description of the economic systems:

Capitalism:

 The concept of capitalism may be traced primarily to the writings of socialist theoreticians. The works of sombart are the first in which the concept of capitalism has been definitely recognized as fundamental to the system of economic thought. Here it is demonstrated that capitalism designates an economic system significantly characterized by the predominance of “Capital.” Like any other economic certain constituent elements which are the economic spirit or outlook the seem total of the purposes, motives and principles. These motives and principles are dominated by three ideas: acquisition, competition and rationality.

Prof. Loucks said, “Capitalism is a system of economic organization featured by the private ownership and the use for private profit of man made and nature made capital.”

 Under capitalism all farms, factories and other means of production are the property of private individuals and firms. They are free to use them with view to making profit. Or not to use them, if it so suits them. The desire the for profit is the sole consideration with property owners in the use of their property. Besides free and unfettered use of their property, every body is free to enter into any contract with other fellow citizent for his profit. What to produce, now to produce and for whom to produce all these central problems of economics are settled by the free working of the forces of demand and supply.

 Socialism:

Socialism, as an alternative to capitalism, has the widest appeal. A swedish king once remarked to his minister.” If one is not a socialist up to the age of twenty five, it shows that he has no hear, but if he continues to be socialist after the age of 25, he has no head.” Socialism seems to have caught the imagination of youth all the world over.

 For along time, the definition of socialism as given by the webs was accepted by a majority of the socialists. Their definition runs thus: “A socialized industry is one in which the national instruments of production are owned by public authority or voluntary association and operated not with a view of profit by sloe other people, but for the direct service of those whom the authority or associations represents.”

According to Dickinson:

 “Socialism is an economic organization of society in which the material means of production are owned by the whole community and operated by organs representative of and responsible to the community being entitled to benefits from the results of such socialized planned production on the basis of equal rights.

Socialism is two kinds:

• Authoritarian socialism
• Liberal socialism

In authoritarian socialism state ownership curves all the means of production and allocates them by planning for the production and allocates them by planning for the production of various goods. In this system there in no sovereignty of consumer.

On the other hand, under several socialism the government takes up the ownership of the means of production but the price system market mechanism is retained. The consumers are given the choice of consumption.

From the above discussion, we can say that socialism implies ownership of means of production.

Mixed Economy:

The third economic system is the mixed economy. It is neither pure-capitalism of the two. In this system, we final the characteristics both of capitalism and socialism.

 According to Samuelson, Within the advanced countries themselves, the scene was drastically changed from the Victorian days of laissez-faire capitalism. Almost unconsciously, undiluted capitalism had been evolving indo a mixed economy with both private and public initiative and control.

Mixed economy means that it is operated both by private enterprise and public enterprise. That is, private enterprise is not permitted to function freely and uncontrolled through price mechanism.

Mixed economy two types:

• Mixed capitalist system
• Mixed capitalist or controlled capitalist

In one type, the government directly controls and regulates the working the working of the economy through its monetary and fiscal policy.

 Another type of mixed economy is one in which the govt. does not merely control and regulate the private enterprise system by means of direct controls and appropriate fiscal and monetary policy but it also pays vital role in the actual production and commodities.

It is clear from the above discussion the mixed economy is a mixure of capitalism and socialism. It tries to avoid the two extremes of pure capitalism and pure socialism and the evil associated with each other.

 Welfare Economics:

Welfare economics is a branch of economics which is primarily concerned with the promotion of the welfare of a community as measured in the satisfaction derived from the economic goods at the disposal of the community. It is the function of welfare economics to help in the formulation of economic policies calculated to maximize social welfare. The analysis of the efficiency of an economy with maximum total satisfaction as the yardstick is known as welfare economic.

Quite a good definition would be, “Welfare economics is that branch of economic analysis which is concerned primarily with the establishment of criteria that can provide a positive basis for adopting. Policies, which are likely to maximize social welfare.

From the above discussion we can understand that the principal function of welfare economics is to provide standards for judgment by which on can judge economic policies and events from the point of view of social welfare.

Islamic Economy:

There are two aspects of Islamic economy.

• Philosophical Aspects of Islamic Economics
• Practical Aspects of Islamic Economics or The Rules to Implement Islamic Economy.

The main conception of Islamic Economic is Tauhid and Risalat

Tauhid is all the power of the world, properties, ownership, authority and everything is only for Allah, who is the absolute. He is the only ruler and the absolute owner of universe.

 Risalat is to remove hungernees or by enjoying greedy ness is not only the real object of human life. Rather to establish the truth and justice, to remove the misdeeds, suppression, oppression, tortures, terrorism, corruption from the society and to develop the society & state economically happy and prosperous is the main object of human life.

 In Islamic state and state Management or in Islam the earning of people will be taken at least a distinct part for the betterment of human society. It is called Zakkat. It is very important subject in Islamic Economic System and also it is one of the basis pillars of Islam Allah as he said more than 82 times for the per formation of Salat, by the same side he has also said to give Zakkat about nearly 27 times.

As it is a broad aspects so it is impossible to analysis this type of aspect. So, we prefer one system and it is sociology.

Reasons for choosing the socialism:

The evils of capitalism have given birth to socialism has started as a reaction to industrial revolution that took place in the Western European countries. The industrial revolution of the Western European countries made some people very rich in the midst of poverty elsewhere. It resulted in the exploitation of labour, women and children by the capitalists.

 Social Justice:

It assures of social justice. Under socialism, the inequalities of income are reduced to the minimum and the national income is more equitably and evenly distributed. The socialist principle provides for a fair share for all.

 Better Allocation of Resources:

As compared with capitalism, he productive resources of the nation are more economically and optimally allo­cated among the various productive uses Owing to extreme inequalities of income and the existence of monopolies in the industrial sector, capitalism is incapable of a rational and economical allocation of the” productive resources of the community. As a result, the productive resources of the community are misallocated.

Under socialism a central plan­ning authority determines the allocation of resources among the various uses whose sole aim is to promote social welfare and social security.

Rapid Economic Growth:

Another important benefit of a socialist State is that it promotes rapid economic growth. The task of promoting economic growth is not left in the hands of free private enterprise or market mechanism. The free private enterprise and the market forces cannot ensure rapid economic growth. A socialist State adopts economic planning as a means of promoting rapid economic growth.

Improving Productive Efficiency:

Under it national output can be significantly increased. This is due to the fact that under socialism, the production is undertaken to increase social welfare and not for the benefit of any particular individual/Under social­ism, improved techniques of production and scien­tific research are made freely available to all organizations that may need them. On the other hand, under capitalism, improved production techniques and results of scientific research, which are known to certain firms, are generally kept absolutely secret so that the competing firms cannot avail themselves of them. And what is more, the monopoly concerns under capitalism limit their output so that they may raise the prices of their products in order to increase their monopoly profits.

Social Security and Welfare:

Socialism provides social security for all citizens. The socialists believe that people should be given protection against uncertainties relating to income, work and living conditions and the burden of this provision should be borne by the entire society. That is why modern socialists include in their programme schemes of social insurance covering unemploy­ment, accidents, sickness, old-age pensions, death grants, etc. In fact, an individual is provided security from cradle to the grave.

Economic Stability:

There is another advan­tage of socialism viz. it ensures economic stability. Socialism eliminates trade, cycles which cause a great hardship to the people. We do not come across depression, unemployment and idle productive capacity in socialist economies. In the capitalist countries, absence of effective demand causes cyclical unemployment and business depression. This absence of monetary effective demand is due to the excess of people’s savings over investment expenditure. But since under socialism, the means of production are owned and controlled by the State the level of investment and the level of aggregate demand can also be effectively determined. This ensures economic stability.

Strategy:

Goals cannot, however, be realized without a proper strategy. It is here that socialism has a clear advantage. Not only the goals integral part of the socialism ideology, but also some major ingredients of the strategy constitute a part of the sociology and are inviolable.

 The most important element of the Islamic strategy for reading the sociology goals is the integration of all supposedly mundane aspects of life.

Observation

It claims some merits

Social Ownership of Means of Production:

The socialists believe in the abolition of private ownership in the instruments of production. Land, factories, railways, mines and every other means of production must be nationalized. Their ownership and control are to be vested in the State so that the State may provide work for everybody.

No Private Enterprise:

Generally, there is to be no private enterprise. Production is to be initiated and conducted by the state-which will pay wages and other costs and keep profits to itself. Interest and rent as payments respectively to the capitalists and the landlords will disappear, for the State will be the capitalist, landlord and entrepreneur. However, in agriculture, as mentioned above, co­operatives may be permitted.

 Economic Equality:

Living on unearned in­come is to be discouraged. Remuneration for work is to be according to the nature of work and is not to be equal. Earnings will vary according to ability^ A limited operation of the law of demand and supply in this connection is envisaged.

Equality of Opportunity:

Although, as we have said above, (socialism does not guarantee perfect equality of income, it aims at providing equality of opportunity. In fact, to provide equality of opportunity is a basic objective of socialism.’* Every individual, whether/ he belongs to a rich family or a poor family has an equal opportunity to rise in life under socialism. Every young person is given equal opportunity to receive education or training according to his aptitude so that he can enter a profession of his choice.

Economic Planning:

The State is in charge of both production and distribution. The allocation of the productive resources- of the community will be determined according to the direction of a central authority. In fact, economic planning is an essential feature of socialism

Economic planning is most closely associated with the Russian system. Although now for some years, economic planning has been adopted by capitalist countries too, yet it cannot be comprehensive an effective as under socialism, because under capita­lism the means of production are under, the control of private individuals and the direction of produc­tion and of productive resources is done through price-mechanism.

Social Welfare and Social Security:

Another important feature of socialism is that it is social welfare consideration-which guides productive activity in the economy rather than private profit. Under capitalism, only production of such commo­dities and services is undertaken which are expected to yield maximum profit. It follows, therefore, that under capitalism, luxury goods are produced for the rich rather than goods of mass consumption required by the poor. The poor are thus deprived of the necessaries of life while the rich are enabled to lead a luxurious and wasteful life. This is so because production of luxuries is more profitable than the production of necessaries of life. In this way profit motive is the determining factor of economic activity under capitalism. But situation is entirely different under socialism. Commodities and services of such type and in such quantities are produced which are essential for promoting social welfare. The motive power of economic activity under socialism is social welfare and not private profit. Central economic auth­ority under socialism, which determines and guides all economic activity, performs the work that is performed by market mechanism under capitalism. Planning Commission keeps social welfare uppermost in consideration.

Under socialism, the State devotes its attention to ameliorating the lot of the common man by provid­ing him and his family with adequate medical aid, full and free education and ample means of recrea­tion and entertainment. Freedom from want is guaranteed and fear, born of insecurity, is to be banned.

Classless Society:

The socialists believe in a classless society where the distinction between the rich and the poor and the ‘haves’ and the ‘have-nots* has completely disappeared. Thus, the caste system – that prevails in India is repugnant to socialists. In a socialist State, every individual enjoys equality of opportunity regardless of caste, creed, family and religion. A socialist state is really a secular state.)

The prime objective of a socialist State is that the society is not divided into two classes of labour and capitalists as under capitalism. That is why big zamidars and capitalists have no place under socia­lism. Severe restrictions are imposed on the control and ownership of private wealth. Every individual gets a reward according to his work and ability. It is in this way that class-conflict, which prevails under capitalism, is put an end to under socialism and a classless society is created.

It has some real dangers and difficulties

Bureaucracy and Red Tapism:

The most im­portant set of arguments advanced against socialism is one against the bureaucratic running of the economic machinery. Bureaucracy is considered to be inefficient in running a business. The civil servant does not feel the same keen self- interest as the employee of a private corporation, where his tenure is not so secure. The civil servant knows that he will get promotion by seniority; no amount of alertness or extra work is going to push him up in the graded list. His main concern is to let things go on somehow without a positive breakdown. One thing that he wants to avoid is public criticism. He will, therefore, take no bold risks and will be content with a moderate measure of success, being merely guided by rule and precedent. Initiative and resourcefulness arc at a discount. The business policy will be timid and unenterprising. There is routine and red-tape, a place safe for men of mediocre calibre and no room for extraordinary and dashing spirits. No first-rate work can be done by second-rate-men. Bureaucracy will further mean bossism, loss of individual liberty, Gestapo, etc.

Not Successful in Business:

Government department cannot claim to score success in busi­ness, where quick decisions have to be taken and bold policies are called for. The government person­nel is not such as can conquer new fields} The government can, and does, attract able men but conditions in government service are not congenial for the display of extraordinary ability. The reward is not consider worth the trouble.

In Sufficient Resources:

It is also urged that government cannot raise the huge amounts of capital which are necessary for the efficient running and expanding of all industries and trades.

Misallocation of Resources:

Under socia­lism, there will be no automatic indicator for the most economical allocation of the resources of the community among different industries. Under capi­talism, there are consumers’ preferences-which, through price-mechanism, bring about an optimum allocation of these resources. But, under socialism, it will be ail groping in the dark. Some commodities will be produced in excess and wasted, whereas there may be a shortage of others resulting in unsatisfied demand. [A chronic mat-adjustment in demand and supply is feared, y he task of organizing ^production, of allocating every acre of land to its proper use, of setting every worker on the right job and of investing every rupee in the direction of maximum benefit is too big to be performed by any

Loss of Consumer’s Sovereignty:

Under capi­talism, the consumer enjoys sovereignty of course this sovereignty is limited by his income, existence of monopoly, etc., yet the domain is wide enough for him to pick and choose. But,(under socialism, he will lose this sovereignty altogether. Consumption will have to adjust itself to production. This loss to the consumer is a real loss. He will not be able to maximize his satisfaction.

The State will no doubt fix the prices, but it will be all arbitrary. The price fixation will be rigid and will lack the resiliency of market mechanism, which is sensitive to: even the slightest change in the consumers’ preferences.

Lack of Incentives:

It is also feared that incentive to hard work and stimulus to self-improvement will disappear altogether when per­sonal gain or self-interest is eliminated.)People will not give their best. Inventive ability, enterprising spirit and the go-ahead attitude will languish, and creative work will become impossible. It is remarked-that “a government could print a good edition of Shakespeare’s works, but it could not get them written.”

Loss of Economic Freedom:

There will be loss of economic freedom under socialism. A serious charge against socialism is that, when freedom of enterprise disappears, even the free choice of occu­pation will workers will be assigned certain jobs and they cannot change them without the consent of the planning authority. Every worker is dovetailed in the scheme, and he must remain there. This loss of freedom may be really galling.

No Economic Equality:

Some people have been disappointed in socialism, because in Russia, where it has been in operation, it has failed to bring about economic equality. The difference between the rich and the poor is still there. The dream of classless society is far from being realized. The workers under capitalism, e.g., in the U.S.A. and the U.K., are not so worse off. They enjoy a high standard of- living. They arc not convinced the under capitalism the poor go on becoming poorer. The rich are no doubt getting richer but the lot of the poor is also undoubtedly improving. It is thus that some degree of skepticism in the efficacy of socialism as a panacea for all social ills has grown and damped the ardour of some enthusiastic socia­lists.

Concentration of Power in the State:

The greatest danger of socialism is that too much power is concentrated in the State. Under socialism, the State is not merely a political authority but it also exercises unlimited authority in the economic sphere To the extent all power is concentrated in the State; the danger is that the State is everything) and individual nothing. He may not count at all. He is reduced to a cypher. After all the human institu­tions are for man and not man for these institutions.

Loss of Personal Liberty:

That under socia­lism there is no unemployment is conceded, hut the critics retort by saying that there is also no unem­ployment in a jail.) They regard a socialist State as one big prison house and they do not think that employment is any compensation for the loss of liberty.

Not Scientific:

It may also be pointed out in the end that Marxian socialism is not so scientific after all. Labour is not the only source of value and has not the sole right to its appropriation. Few are convinced of the accuracy of Marx’s materialistic interpretation of history. Economic motives are no doubt the strongest but they are not the only ones to sway human actions.

Problem Identification:

It will be of interest to know how Soviet Russia has tackled the various economic problems:

Private property. Private property in the form of a house, a car, a few animals and other consumers’ goods is allowed. A man is free to buy government bonds or securities. He can keep a deposit in the bank. Property up to the amount of 50,000 rubles can be transmitted by inheritance. But living on unearned income is discouraged and all unearned income is subject to very heavy taxation. Only bourgeois property-which is the result of exploita­tion, is sought to be abolished.

Pricing System. Under the free enterprise, com­petitive and individualistic system, the pricing system automatically solves the major economic problems. Some economists, however, notably Mrs. Hayek and Robbins, are of the opinion that rational accounting is impossible under a socialist regime and¹ that it is all groping in the dark. But there are other economists like Pious who do not see any difficulty in this. Dickinson and some other econo­mists are of the opinion that the capitalist apparatus of marketing and pricing can be retained in socia­lism.

Russians have been able to fix prices of the goods. Costs of raw materials and wages, transport and all other costs are added and then a small percentage for a little profit. This gives a selling price. It is a little arbitrary. The prices do not reflect the intensi­ties of consumers’ demands, although some note is taken of the relative scarcities. But, in a socialist society, prices of goods will be low enough to clear the available supplies and also high enough to cover the socially necessary marginal costs of production. The price under socialist planning need not be market price as under capitalism. It is purely a book-keeping or accounting price set by the plan­ning authority.

In recent years, however, the crude quantitative goods in the physical units arc being replaced by profitability criteria of performance. By this process of economic valuation socialism seems to be moving n the direction of capitalism.

Supply of Labour and Wages. There is now freedom of choice of occupation. There are also ample facilities for technical training. The Govern­ment is prepared to bear the cost of training on the condition that the trainees, after completing train­ing, work in government factories for a term o f years on conditions settled beforehand. Money wages are paid and there are variations according to ability, efficiency and the nature of work.

Standard wages are fixed after a thorough motion-study and time-study in order to ascertain the standard time required for a job. Efficiency premia are paid to better workers who lake less time. Wages are also supplemented by the payment to the workers of a lump-sum social dividend payment. This payment varies with the size compo­sition and health status of the family. By means of such payments, inequalities of income arc mitigated. If there is a comparative shortage of .some type of labour, higher wages are of course offered to attract the right type and sufficient supply of labour.

Workers are assigned definite jobs. The workers could also be transferred from one place to another just like government servants. The government tries to adjust supply to demand.

Finance:

The Russians had repudiated foreign Debts and could not hope to secure foreign loans. They relied, therefore, mostly on created money. Paper money was issued by the State in enormous amounts. There was inflation with all the usual consequences—exorbitant prices and a very high cost of living, etc. They also raised loans from the people. Later on, income from socialized industry flowed in and helped to finance the later stages of planning.

Rent:

Even a socialist State cannot do away with the concept of rent. Change of economic order from capitalism to socialism will not turn scarce land into an unlimited quantity. Rent as an index of producti­vity will help in the best allocation of the available land among its various types of land, the good land being put a. higher tag.

As Samuelson puts it, “Only by putting a price upon inert sweat less land are we using it, and sweating breathing labour, most productively! The price or rent of land rises so as to ration its limited supply among the best uses.”⁹ Even a socialist State will have to direct land from one use to another so as to make its marginal productivity in all uses the strict. This marginal productivity will be indicated by rent. This is the only way to ensure a correct allocation of valuable human or material resources.

Interest

The Russians have not abolished inter­est altogether. The Government itself pays interest on State loans. Interest shows an attempt to bring the demand for, and supply of, capital into equili­brium. The banks also pay interest on personal accounts. Interest as remuneration to the capitalist, i.e., payment to private owners of idle money, does not occupy an important place in Russian economy, since private capital has practically disappeared. The State borrows and pays interest and appro­priates the profit of industry.

What role docs interest play in a socialist State? In a capitalistic State, we know that interest performs three important functions (a) It determines people’s income from bonds and other assets; (b) it is a necessary payment to induce people to part with liquidity; and (c) it relates future and present economic values, i.e., it helps society to decide how much of the national income should be invested in capital formation and where should the capital be used.

Now the first two functions have no bearing in a so j-ilist State. Since capital is no longer the property of private individuals, interest as an income-determining factor or as an inducement for dishoarding does not exist. But whatever the form of economy, interest must continue to perform the third function, viz., to determine the allocation of the economic resources of the community as between present and future and the allocation of capital among different uses in the present.

Wages:

The system of setting accounting prices on labour, as in the case of other productive resources will not do, for the amount of labour is not a fixed quantity. People can choose their occupation and they can also choose whether to work in or work less, i.e., whether to prefer income or leisure. Hence, it is essential ‘to have a system of actual market wages rather than accounting wages. These rates will vary according to the agreeableness or disagreeable-ness of the job, possibility of supplementary earning, training or skill required to do a job, productivity of individual workers, etc. Marginal productivity will determine the wage.

Thus, there will be no dead level of wages in a socialist State. The wages will depend on the valua­tion that society places on the needs and worth of individual workers and the necessity for compensa­tion to those who have to do dirty, irksome and arduous jobs. Inequality of incomes will no longer be accounted for by inequalities of property but by such factors as mentioned above.

Allocation of factors of production:

The State planning authority tries to estimate the amounts of factors required for the targeted production in an industry and arranges for the supply. It is first decided which industries have to be developed and to what extent. The factors of production are diverted in channels set by the State and according to consumers’ preferences. For example, the Rus­sians concentrated first on heavy industries. Natur­ally, there was a shortage of consumers’ goods whose prices shot up. In a capitalistic system, factors of production would rush towards consumers’ goods industries to make up for the deficiency. But a socialist State does not allow this diversion. Shortage would continue and rationing and price control introduced. In Russia, the normal functioning of the price-mechanism, which brings about an optimum distribution of resources, as judged by the consumers’ valuations, is nullified by State action.

Thus, the resources are allocated not according to the valuation of the consumers but, according to the valuation of the State. The State decides what is best for the nation at a particular period of its life and arranges the distribution of the sources accordingly. The consumers adjust their demands according to production and the exigencies of the State.

 Recommendation:

1. Increasing private ownership.
2. Pricing system should be fair.
3. Supply of labour and wages should be increased.
4. Finance, rent, interest should be fair.
5. Factors of production should be allocated perfectly.

Conclusion:

 After observing all the elements of the socialism, capitalism, mixed economy, welfare economy we found that socialism is the best economic system because it is related to the public welfare and state and government’s rules and regulations.

Data Collection:

1. Towards a just monitoring system.
2. Modern Economic System.
3. Challenge of Islamic Economics.
4. Website.

The End