Economic System And The Role Of Factors

Of Production In Its Operation Essay, Research Paper

1. Discuss the concept of an economic system and the role of factors of production in its operation.

In theory, at least, there are three basic economic systems’ socialism, communism, and capitalism. In modern reality, however the distinctions between these alternative systems have become blurred. It is safe to say that no pure system exists today. The U.S. capitalist economy exhibits certain socialist characteristics and the Soviet Union’s and China’s communist economies are being restructured to include a number of capitalist practices. To prepare for what lies ahead, each basic type of economic system requires a closer look.

Socialism

Described by Karl Marx (1818 – 1883) as a forerunner of communism, socialism is an economic system in which the state owns the principal means of production but private property of some sort still exists. What distinguishes communism from socialism is the disappearance of private property in the later stage, communism.

Marx’s view of the process from socialism to communism by means of the class struggle was neither universally accepted in his own time nor today. In fact, many saw non-revolutionary socialism as an end in itself. These so-called utopian socialists dreamed of ideal societies in which all worked according to their abilities and received what they needed. Today, in countries like Sweden, France, and Britain, Marxist and utopian socialists coexist. Their coexistence with parties advocating free enterprise has produced mixed economic systems. Between World War 11 and the late 1970s, these countries and others nationalised such major industries as airlines, steel, coal mining, and banking. Heavy taxation of profits usually accompanied the more serious efforts at socialist economies. These taxes were used to pay for government services, such as health care, that free-enterprise systems leave largely to the private sector.

Beginning in 1980, however, the pendulum began to swing the other way as a wave of privatisation, the selling of government-controlled companies and industries to private investors, swept the mixed economies. In this decade private shareholders have purchased, in part or completely, almost sixty state-owned businesses around the world, valued at more than $90 billion. By the 1990s, some 2,000 more-including companies owned by countries such as Britain, France, Mexico, and Bangladesh-will share the same fate.

A term often used to describe the mixed economies of Western Europe is democratic socialism. These countries have governments selected in free, open elections. Though their legal systems are often quite different from ours, they are designed to protect individual rights.

Communism

More than half the world’s population lives under political systems that claim to be organised according to principles developed by Karl Marx. A great scholar and fierce political writer, Marx viewed history as a series of struggles between social classes. He foresaw conflict between the working class and the capitalist class for control over the means of production, the factories in which the workers toiled and the capital needed to organise and build the plants. Marx also advocated a labour theory of value, which holds that labour is what gives value to goods and services and labour therefore deserves to be rewarded for this production.

According to Marx, the working class would ultimately triumph. From that victory would emerge communism, a classless, propertyless society whose banners would read “From each according to his ability, to each according to his need !116AIthough many planned economies have been based on Marxist doctrine with all property owned by the state, pure communism has never been a reality. Indeed, Mikhail Gorbachev’s attempt to revitalise the stagnant Soviet economy is reversing cherished Marxist principles.

Within Russia’s still state-owned industrial sector, managers are being encouraged to pay more attention to customers and less to central planners. By the early 1990s, all but a thousand or so of the more than 500,000 prices currently fixed by Moscow are meant to be set by negotiations among individual enterprises…. As he vigorously peddles his perestroika (restructuring), Gorbachev doesn’t want to hear the old Marxist dictum, “from each according to his ability, to each according to his need(s).” He lambastes past tendencies to “level off” incomes and hails reliance on performance-based pay, insisting that “no limit be set”

Capitalism

Capitalism is an economic ideal based on the belief that private citizens should be free to produce and sell goods and services for profit, without government interference. This model traces back to a book written in 1776 by an obscure Scottish professor and bureaucrat. The book was titled The Wealth of Nations and its author was Adam Smith (1723-1790). Smith envisioned the free marketplace as the appropriate mechanism for determining wages, prices, and profits. The key to societal well-being, according to Smith, was guaranteeing the individual maximum freedom of economic action. In Smith’s words, the pursuit of economic self-interest

improves society as a whole as if by “an invisible hand.

If Adam Smith were alive today, he would certainly be shocked at what we call capitalism. He would see mini