UK Accounting Glossary
A political theory advocating state ownership of industry.
Socialism is an economic system that is founded on cooperation in contrast to competition. It employs centralized planning and distribution to achieve economic ends. Socialism advocates collective or state ownership and administration for production and distribution of goods.
Socialism has no specified program and doctrine. A number of socialists support views that oppose each other. Some adherents prefer complete nationalization of a country’s means of production, exchange and distribution. A few socialists recommend state control of a country’s capital within the market economy frame. Social democrats espouse discriminate nationalization of major national industries. Tax-funded welfare programs are also recommended by social democrats.
All forms of socialism announce an economic system where the country’s means of production and distribution are owned and controlled either by state or workers. The erstwhile U.S.S.R implemented state ownership of production with centralized planning. The state determined the whole process- from the quantity to be produced, the means of production, and the sale prices of the commodities. The system was regarded as an alternative to market demand that determines commodity production and prices.
The period after World War II saw many European countries following and implementing a type of economic practice popularly known as a mixed economy. Governments of these European countries nationalized key industries while allowing free-market economics to determine the rest. Some companies formed in this era were the result of a number of small companies clubbed together. Famous examples of this type include the iconic British car brand Rolls Royce. Another prime example of socialist economic policy is the nationalization of British coal mines in 1947.
A number of socialists suggest an economic system that is worker-managed. A ‘cooperative economy’ is an example of this type of economy. In a cooperative economy, workers themselves administer the firms and regulate labour divisions and remuneration levels. Productive resources would be under the legal ownership of the cooperative. These resources would then be rented out to the workers enjoying usufruct rights.
Critics of socialism point out to the fact that socialist economics cannot correctly determine production quotas and prices due to the marked absence of a price mechanism. Rational economic decisions cannot be made in a socialist state. A loss of economic and political freedoms is also seen.
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This glossary post was last updated: 9th January 2020.