Socialism Case

Socialism has been used differently by various individuals and groups of people. According to Britannica Academic Edition, 2012 'Socialism' is defined as "an economic system characterized by social ownership of the means of production and co-operative management of the economy, and a political philosophy advocating such a system." Bradly- Thompson defines socialism as 'legal-theft' and 'self- sacrifice'. Whereas, according to Karl Marx, socialism is defined as lower form of communism.

Socialism started to gain popularity in Eastern Europe during the period of 1930s but this theory gave rise to many issues related to the incentives, profits and losses, private property rights and prices, politics and culture. The decline of socialism in Eastern Europe was a result of not only economic factors, but politics and culture also played a vital role. One of the criticisms of socialism was that incentives were either ignored or they played a minimal role. Further, socialism demonstrates an economic system in which decision making is done by the government rather than by the interaction between consumers and businesses. It also points out incentive mechanism to direct economic activity. Since, socialism fails to underline the importance of incentives, it is therefore considered to be a theory which is inconsistent with human nature. If a country has an abundance of natural resources, it does not mean that it can compensate for its lack of an efficient system of incentives. This can be explained by the following example. "Russia is a country which has an abundance of natural resources, be it minerals, oil reserves, natural gas, or precious stones like diamonds and gold. It has rivers, streams and farms which encompasses 11 time zones. In spite of all this, Russia still remains poor".(Mark J. Perry, 1995) Just having large reserves of natural resources does not make any country rich, for a country to develop it requires unlimited resources of its people i.e. the human resource.

Another defect of socialism is that it overlooks the function of private property in creating incentives that would eventually lead to economic growth and development. This idea is expressed by "tragedy of the commons" (G. Harden 1968). The "tragedy of the commons" refers to the depletion of a shared resource by individuals. It refers to the British experience of the sixteenth century where the villages communally owned grazing lands and they made it available for public use. Since the motive of the people was to maximize their own piece of land they did not bother much about its sustainability, and this eventually led to over grazing, which resulted in the land becoming worthless. The point here is that, if the property is owned by the public, there are no incentives for the people to encourage wise planning and management of their resources. Hence, private property creates incentives of conservation and eradicates irresponsibility and waste. Socialism also fails to operate under a system where there is competition, where it deals with profit and loss. This is because the government decides what to produce, how much to produce and how much to charge for a particular product. Therefore, there is no way to measure success or failure of businesses.

The decline of socialism in Eastern Europe was not only because of economic factors. One of the major reasons that led to the decline was the "factor of Gorbachev".(Mark J. Perry, 1995) Gorbachev