Economic system refers to, the production and distribution of goods and services within a society. Production component of economic system is concerned with the question or decision, what to produce? Whether, to invest in the production of weapons or growing more food (agriculture). Whether to invest in information technology or infrastructure. Whether to invest in large organizations or small enterprises. Distribution component of economic system is concerned with the issues such as, who gets what from the outcome of production. How profit from the production will be distributed among workers and owners? How and who will support the vulnerable groups who can’t work or don’t have job skills? How Individuals will be paid? On the basis of their technical skills or education. The distribution factor has impact on social stratification, family, education and government. Economic system is considered as the backbone of each and every society, on which the social structure rest upon.
The most influential and eminent existing economic systems in the world are capitalism and socialism. Every country adopt one amongst the two economic system or the combination of both. Whichever, they consider fit for the progress of society. Societies are evolving since its conception. Due to the social change; social institutions, its norms, operations, roles and statuses of individuals within institution change too. The evolution of society, from hunter-gatherers society to postindustrial society has introduced different economic systems. The change in economic system occurred over the time due to, change in production of goods, methods of production, distribution of labor, distribution of goods, introduction of new goods and advancement in tools or equipment’s used for production.
Capitalism
Capitalism is the economic system in which there is private ownership of property as well as, its objective is to maximize profit. In this economic system few people own means of production. They regulate the production and distribution of product and services. Moreover, Capitalist invest their capital (property or money) to produce goods and services. Owner is entitled to the profit; which is gained from the production and distribution of goods and services. Profit is the money which owners gain from selling the product in open market; after deducting all the expenses which are incurred in production and distribution. Owner can reinvest those profits in the same business or in other businesses or can spend it on personal use. Many capitalist invest in diversify businesses to accumulate more wealth. However, in capitalist societies government has less involvement in commerce regulatory policy.
In capitalism economic system, the prime objective of capitalist is to maximize profit. Due to which workers or employees do not get the fair share of their work. Owners try to minimize the cost of their production to gain more profit. Workers salary are among one of the costs or expenses of production. Those employees are well paid who have skills or education which are in short supply and demanded by many organization. When people with skills and education increase they are paid less by capitalist to increase their profit. Product price is decided on the principle of demand and supply, if the demand is high and supply is less than the price of the product is high. However, if the demand of the product is low and supply is high than the price is low. The demand, supply and price is dependent on the market competition. If the organization have monopoly they can control the prices and supply of the product. However, if there are many producer in the market than organization do not have control over prices because of competition.
After industrial revolution economies of many countries were dominated by the capitalists. They controlled every aspect of production and distribution in the country. Few businessman had monopoly in the industry. They produced raw material which required for the products. They owned the factories which were producing different products. Retail stores was also owned by them, which sells product to the consumers. This monopoly lead to the exploitation of workers and citizens by the capitalists for profit maximization. Governments passed many laws to regulate the businesses and break their monopolies.
Socialism
In socialism, the ownership of property is with government and the outcome of the production is distributed equally among the members of society. Under socialism the worker get fair share of the wealth which is generated from the production of goods and services. Everyone who contributed in the production is entitled to the wealth which is accumulated from the sale of product. To ensure the equal distribution government regulate property, production and distribution.
Socialism is the system which benefit the members of entire society. However, in capitalism few people benefit from the production who owns the means of production. Socialist believe that, capitalist exploit the people and society for their personal gain. Furthermore, capitalism create inequality in the society because of unfair distribution of wealth. Socialism try to control the problem of inequality which is created because of capitalist economy.
The criticism on socialism is that, it decides for business what to produce, how much to produce and the price of the product. Sociologist think that it might decrease the wealth generation. There should be decentralization in some decisions regarding production.
Mixed Economy
Those societies which use combination of both the economic systems (socialism and capitalism) is called mixed economy. In capitalist system the criticism is on the unlimited power and liberty of capitalist. It is believed that, capitalist use this liberty to exploit workers for maximizing profit. In socialism the criticism is on the centralized authority of government over production and distribution. Many countries faced both the problems with socialism and capitalism, now many western countries have adopted the mixed economy. In mixed economy few of the areas in economy like health, education, communication, transportation and railroads are regulated by government to ensure that every member of society should get these basic facilities. However, other areas of the society is regulated by the private ownership but still government have passed laws to protect the rights of workers like minimum wage law.
The Political Economy
Political economy refers to, the interaction of political and economic system. Both economic systems can exist in authoritarian and democratic settings. Democratic states can adopt either economic systems (socialism and capitalism) same can be done by Authoritarian states. Some sociologist believe that, referring to socialist authoritarian states as communism is the wrong use of term. There are many authoritarian countries which follows capitalism these include, Singapore and Saudi Arabia. On the other hand there are many democratic countries which have adopted socialism as their economic system such as, United Kingdom and Sweden. Therefore, socialism and capitalism can exist in either Authoritarian and democratic countries.
Written by; Khushdil Khan Kasi