Econ Class 5

Strengths of Socialism:

• Reduction of relative poverty - A welfare state which provides a minimum basic income for those who are unemployed, sick or unable to work maintains a basic living standard for the poorest in society and helps to reduce relative poverty.
• "Free" health care - Free health care at the point of use means everyone is entitled to basic health care. This increases the living standards of those who cannot afford to pay private doctors. By improving the nation's health it also contributes to increased labour productivity and higher economic growth in the long term.
  • Not actually free. Tax contributes to health care.
  • Compare countries? e.g. USA, Germany. In general, healthier nations are generally more productive, and will have more stable economic growth in the long run. In USA, the business cycle is more erratic. This may be because of health care
  • Induced demand - building more hospitals -> people use hospital more frequently, demand is induced -> more hospitals required.
  • In the US, there is no universal health care and uninsured workers can slip through the net and either not be entitled to health care or go bankrupt trying to pay the bills.
• In Denmark, starting pay at McDonald's is roughly $22 an hour. Workers get life insurance, maternity leave, a pension, and six weeks of paid vacation each year.
• A more equal society is more cohesive - A society which has equality of opportunity and limited inequality is likely to be more cohesive. If people perceive they live in a very unequal society - exploited by employers and earning significantly less than their bosses, it can lead to frustration and resentment. If everyone feels they have a fair stake in society, it can help create a more harmonious society where workers are committed to the success of the firm which they work for.
• Socialist values encourage selflessness rather than selfishness - Capitalism encourages attitude to make profit, even at the cost of other individuals or the environment. A socialist society does not pursue profit as its highest goal, but social cohesion and the common good.
• Benefit of public ownership - Companies can be run in the public interest rather than just for the benefit of shareholders.
  • For example, industries like railways and education
• Environment - An economy which is regulated to work towards the long-term welfare will place a higher value on the environment

Weaknesses of Socialism:

• Lack of incentives - if an economy has high rates of progressive taxation, it could cause disincentives to work and setting up business. Entrepreneurs may feel that if the government is taking a high percentage of their profits, they would prefer not to take the risk or work abroad.
• Government failure - In an ideal world, the government would be successful in regulating firms, labour markets and running public industries
  • However, government intervention is prone to government failure and an inefficient allocation of resources. For example, labour market regulations such as high minimum wages could lead to unemployment and a lack of flexibility, which firms need to deal with a sudden increase in demand. If firms are highly regulated, it is an extra cost which may discourage investment and lead to lower economy growth.
• Welfare state - it can cause disincentives - If a welfare state is too generous, it is argued it may create a disincentive to get a job and therefore it can reduce the labour force and individual effort.
• Powerful unions can cause labour market antagonism. ideally, socialism aims at a more harmonious society. However, if the socialist policies are geared towards strengthening trade unions and aiming for perfect inequality, it can lead to antagonistic labour relations with a "them and us" mentality - workers against owners. This attitude can cause time lost to strike and unproductive factories.

Socialism Pros:

• More equal society
• Reduction of povety
• Regulates excesses of free market - externalities, monopoly and monopsony?
• Universal health care improves living standards and labour productivity
• Promotes common good and social welfare rather than selfish aims
• More equal society increases social cohesion
• Can promote protection of environment

Socialism Cons:

• Higher tax reduces incentives to invest and work
• Entrepreneurs may prefer to move tax havens abroad
• Welfare state can create disincentives to work
• Government failure in regulation and ownership of industry
• Excess labour market regulation can lead to less employment and structural employment
• Powerful unions cause antagonism between workers and owners.

Communism:

• An economic or political system in which the state or the community owns all property and the means of production (literally everything), and citizens own the wealth.
• Classless society (theoretically)

Strengths of communism

• Centrally planned economy - It can quickly mobilize economic resources on a large sacle, execute massive projects, and create industrial power. it can move so effectively because it overrides individual self interest and subjugates the welfare of the general population to achieve critical social goals.
• May of the leaders are in charge for life, even through they might not hold a title from monarchy. This structure makes it easier for the leadership to transform the economic vision of the country to what the person in charge wants.
• Equality - on a level that capitalism can never offer - the idea of communism is that capitalist societies will eventually crumble because the weight of wealth on top of the poor will eventually cause the system to become top heavy.

**Economics is conceptual. It's about society, and how we solve problems**

• Allows for employment opportunities - to be given out to everyone - When you live under an authentic communist government, then anyone who wants a job will have one. If you don't like the idea of working, the you must support your community in some other way.

Weakenesses of communism

• Government owns everything - including property, business and production means.
  • This eliminates the free market from domestic society - no laws of supply and demand to set prices that consumers play
  • Price mechanism allows people to adjust price to compensate for production
  • The needs of the consumer are not really met.
• This causes planners to lose the feedback they need to understand what is necessary for the production cycle and what could use an upgrade. There is no up-to-date information about what the needs of the consumers happen to be either.
• Because of this disadvantage, it is not unusual for the government to produce too much of one item and too little of another. Surpluses and shortages in critical need areas can be strong enough at times that government disruptions can occur.
• Central planning - Although the government can mobilize significant resources for almost any need at a moment’s notice through the structures of communism, there is a difference between the ability to centrally plan and its overall implementation.
• Because a free market doesn’t exist under this structure, the citizens will setup black markets to help them trade the items they want or need that are not part of the planner’s provisions.
  • In Soviet union, Americans would go there to sell things on the black market.
• This disadvantage destroys the trust that is found in the pure vision of communism. The goal is to give people what they need according to who they are as individuals.
• Communism looks at each person as a resource, provides them a common set of basic essentials, and then expects compliance under the threat of further freedom restrictions.
• Efficiency and productivity are difficult to achieve since there is little motive for workers.
• There is never a need to have entrepreneurs operating in a communist space because the government maintains control of everything.
• You produce at a specific level.
• That means the production cycles operate just well enough to produce what is needed for domestic consumption and the limited export market that may be available.
• Because innovation is what pushes an economy forward, shepherded by the development made possible by entrepreneurs who wish to experience success, the living situation in a country practicing this form of government can be exceptionally stifling.
• Poverty – There is a reason why only five active governments in the world today practice communism. North Korea, China, Laos, Cuba, and Vietnam are transitioning from socialism and are not true forms of this government structure any more either.
• China is the one exception to this disadvantage because of its efforts to integrate some elements of capitalism or free markets into its society.
  • They have used capitalism to pull people out of poverty.
• For the other five countries that continue to use this governing structure, the result is a higher level of poverty than other nations. North Korea, Cuba, and Laos are struggling in particular because the first emphasis is to maintain the structure of the government. People are asked to get by on the bare minimum – and even that is not enough sometimes.
• During a bout with famine in North Korea in the 1990s, an estimated 3 million deaths occurred because of the economic shortfalls and lack of resources.
• Deaths peaked in 1997 from this issue.
• Then the government cracked down on anyone who used the terms “famine” or “hunger” because it would indicate a failure on the part of the government to negate the issue.

Economic systems fall on a spectrum

• Absolutes are communism and pure competitions, and mixed economies are in between.

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