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The three systems generally considered the major economic systems in the world are:
Capitalism, Socialism, and Communism.
The three major economic systems in the world, then, are capitalism, socialism, and
communism. The United States practices its form of capitalism. Most of the nations in the
world practice some form of socialism. Although no government truly practices
communism, some nations describe their economy as communist because that is their
ultimate goal. Pure capitalism, socialism, and communism exist only in theory.
Capitalism is an economic system in which the means of production are privately owned
and operated for a private profit; decisions regarding supply, demand, price, distribution,
and investments are made by private actors in the market rather than by central planning
by the government; profit is distributed to owners who invest in businesses, and wages
are paid to workers employed by businesses and companies.
Under this system, the means for producing and distributing goods (the land, factories,
technology, transport system etc) are owned by a small minority of people. We refer to
this group of people as the capitalist class. The majority of people must sell their ability
to work in return for a wage or salary (who we refer to as the working class.)
The working class is paid to produce goods and services which are then sold for a profit.
The profit is gained by the capitalist class because they can make more money selling
what we have produced than we cost to buy on the labour market. In this sense, the
working class is exploited by the capitalist class. The capitalists live off the profits they
obtain from exploiting the working class whilst reinvesting some of their profits for the
further accumulation of wealth.
This is what we mean when we say there are two classes in society. It is a claim based
upon simple facts about the society we live in today. This class division is the essential
feature of capitalism. It may be popular to talk (usually vaguely) about various other
'classes' existing such as the 'middle class', but it is the two classes defined here that are
the key to understanding capitalism.
It may not be exactly clear which class some relatively wealthy people are in. But there is
no ambiguity about the status of the vast majority of the world's population. Members of
the capitalist class certainly know who they are. And most members of the working class
know that they need to work for a wage or salary in order to earn a living (or are
dependent upon somebody who does, or depend on state benefits.)
In capitalism, the motive for producing goods and services is to sell them for a profit, not
to satisfy people's needs. The products of capitalist production have to find a buyer, of
course, but this is only incidental to the main aim of making a profit, of ending up with
more money than was originally invested. This is not a theory that we have thought up
but a fact you can easily confirm for yourself by reading the financial press. Production is
started not by what consumers are prepared to pay for to satisfy their needs but by what
the capitalists calculate can be sold at a profit. Those goods may satisfy human needs but
those needs will not be met if people do not have sufficient money.
The profit motive is not just the result of greed on behalf of individual capitalists. They
do not have a choice about it. The need to make a profit is imposed on capitalists as a
condition for not losing their investments and their position as capitalists. Competition
with other capitalists forces them to reinvest as much of their profits as they can afford to
keep their means and methods of production up to date.
As you will see, we hold that it is the class division and profit motive of capitalism that is
at the root of most of the world's problems today, from starvation to war, to alienation
and crime. Every aspect of our lives is subordinated to the worst excesses of the drive to
make profit. In capitalist society, our real needs will only ever come a poor second to the
requirements of profit.
It is widely assumed that capitalism means a free market economy. But it is possible to
have capitalism without a free market. The systems that existed in the U.S.S.R and exist
in China and Cuba demonstrate this. These class-divided societies are widely called
'socialist'. A cursory glance at what in fact existed there reveals that these countries were
simply 'state capitalist'. In supposedly 'socialist' Russia, for example, there still existed
wage slavery, commodity production, buying, selling and exchange, with production only
taking place when it was viable to do so. 'Socialist' Russia continued to trade according to
the dictates of international capital and, like every other capitalist, state, was prepared to
go to war to defend its economic interests. The role of the Soviet state became simply to
act as the functionary of capital in the exploitation of wage labour, setting targets for
production and largely controlling what could or could not be produced. We therefore
feel justified in asserting that such countries had nothing to do with socialism as we
define it. In fact, socialism as we define it could not exist in one country alone—like
capitalism it must be a global system of society.
Types of capitalism
Anarcho-capitalism
Mercantilism
A nationalist-oriented form of early capitalism that uses the state to advance national
business interests abroad, and holds that the wealth of a nation is increased through a
positive balance of trade with other nations.
Free-market capitalism
Free market capitalism consists of a free-price system where supply and demand are
allowed to reach their point of equilibrium without intervention by the government.
Productive enterprises are privately-owned, and the role of the state is limited to
enforcing property rights.
Social market economy
State capitalism
Corporate capitalism
Mixed economy
Socialism
Socialism is an economic and political theory advocating public or common ownership
and cooperative management of the means of production and allocation of resources.
The ultimate goal for Marxist socialists is the emancipation of labor from alienating
work, and therefore freedom for the individual from having to perform such to receive
access to material goods and necessities. It is argued that freedom from necessity would
maximize individual liberty, as individuals would be able to pursue their own interests
and develop their own talents without being coerced into performing labor for others (the
ruling class) via mechanisms of social control, such as the labor market and the state. For
Marxists, the stage of economic development in which this is possible is contingent upon
advances in the productive capabilities of society.
Planned economy
This form of socialism combines public ownership and management of the means of
production with centralized state planning, and can refer to a broad range of economic
systems from the centralized Soviet-style command economy to participatory planning
via workplace democracy. In a centrally planned economy, decisions regarding the
quantity of goods and services to be produced are planned in advance by a planning
agency. This type of economic system was often combined with a single-party political
system, and is thus associated with the Communist states of the 20th century.
In the economy of the Soviet Union, state ownership of the means of production was
combined with central planning, in relation to which goods and services to make and
provide how they were to be produced, the quantities, and the sale prices. Soviet
economic planning was an alternative to allowing the market (supply and demand) to
determine prices and production. The Soviet economy utilized material balance
accounting to a limited extent, although this never totally replaced financial accounting.
During the Great Depression, many socialists considered Soviet-style planned economies
the remedy to capitalism's inherent flaws – monopoly, business cycles, unemployment,
unequally distributed wealth, and the economic exploitation of workers. The lack of self-
management in the workplace, the existence of financial calculation and a bureaucratic
elite based on hierarchical and centralized powers of authority have led many socialists to
classify this economic model as either Bureaucratic collectivist, Coordinatorist, State
capitalist or Deformed workers' states.
State-directed economy
A state-directed economy is a system where either the state or worker cooperatives own
the means of production, but economic activity is directed to some degree by a
government agency or planning ministry through coordinating mechanisms such as
indicative planning and dirigisme. This differs from a centralized planned economy (or a
command economy) in that micro-economic decision making, such as quantity to be
produced and output requirements, are left to managers and workers in the state and
cooperative enterprises rather than being mandated by a comprehensive economic plan
from a centralized planning board. However, the state will plan long-term strategic
investment and seek to coordinate at least some aspects of production. It is possible for a
state-directed economy to have elements of both a market and planned economy. For
example, investment decisions may be semi-planned by the state, but decisions regarding
production may be determined by the market mechanism.
State-directed socialism can also refer to technocratic socialism; economic systems that
rely on technocratic management over the means of production and economic policy.
In Western Europe, particularly in the period after World War II, many socialist and
social democratic parties in government implemented what became known as mixed
economies, some of which included a degree of state-directed economic activity. These
governments nationalized major and economically vital industries while permitting a free
market to continue in the rest. These were most often monopolistic or infrastructural
industries like mail, railways, power and other utilities. In some instances a number of
small, competing and often relatively poorly financed companies in the same sector were
nationalized to form one government monopoly for the purpose of competent
management, of economic rescue (in the UK, British Leyland, Rolls-Royce), or of
competing on the world market.
Market socialism
Market socialism refers to various economic systems that involve either public ownership
and management or worker cooperative ownership over the means of production, or a
combination of both, and the market mechanism for allocating economic input,
investment, and in deciding what to produce. In state-oriented forms of market socialism
where state enterprises attempt to maximize profit, the profits can be used to fund
government programs and services through a social dividend, eliminating or greatly
diminishing the need for various forms of taxation that exist in capitalist systems.
The current economic system in China is formally titled Socialist market economy with
Chinese characteristics. It combines a large state sector that comprises the 'commanding
heights' of the economy, which are guaranteed their public ownership status by law, with
a private sector mainly engaged in commodity production and light industry responsible
from anywhere between 33%(People's Daily Online 2005) to over 70% of GDP
generated in 2005.However by 2005 these market-oriented reforms, including
privatization, virtually halted and were partially reversed. The current Chinese economy
consists of 150 corporatized state enterprises that report directly to China's central
government. By 2008, these state-owned corporations had become increasingly dynamic
and generated large increases in revenue for the state, resulting in a state-sector led
recovery during the 2009 financial crises while accounting for most of China's economic
growth.
The Socialist Republic of Vietnam has adopted a similar model after the Doi Moi
economic renovation, but slightly differs from the Chinese model in that the Vietnamese
government retains firm control over the state sector and strategic industries, but allows
for private-sector activity in commodity production.
Anarchist communism is a theory of anarchism which advocates the abolition of the state,
private property, and capitalism in favor of common ownership of the means of
production, direct democracy and a horizontal network of voluntary associations and
workers' councils with production and consumption based on the guiding principle: "from
each according to his ability, to each according to his need".
Communism
Communism is a sociopolitical movement that aims for a classless society structured
upon communal ownership of the means of production and the end of wage labour and
private property.
A variety of different forms of communism have developed, each based upon the ideas of
different political theorists, usually as additions or interpretations of various forms of
Marxism, the collective philosophies of Karl Marx. Marxism-Leninism is the synthesis of
Vladimir Lenin's contributions to Marxism, such as how a revolutionary party should be
organized; Trotskyism is Leon Trotsky's conception of Marxism and Maoism is Mao Tse
Tung's interpretation of Marxism to suit the conditions of China at that time.
Communist theory generally states that the only way to solve the problems existing
within capitalism is for the working class, referred to as the proletariat, who is the main
producer of wealth in society and is exploited by the capitalist class, as explained in
theories such as surplus value, to replace the bourgeoisie as the ruling class to establish a
society without class divisions, called socialism, as a prelude to attempting to achieve the
final stage of communism.
Pure communism, or the stage in history after socialism, refers to a classless, stateless
society, one where decisions on what to produce and what policies to pursue are made in
the best interests of the collective society with the interests of every member of society
given equal weight in the practical decision-making process in both the political and
economic spheres of life.
In modern usage, communism is often used to refer to the policies of these governments,
which were one party system operating under centrally planned economies and a state
ownership of the means of production. Most of these governments based their ideology
on Marxism-Leninism. These systems, sometimes referred to as state socialism are
argued by many, including those on the left, that states never made an attempt to
transition to a communist society, while others even argue that they never achieved
socialism.
In the 20th and 21st centuries democratic elections led to communist, and communist
inspired, governments being elected in other parts of the world such as in Chile and
Venezuela. Today, although communism is a less influential political force compared to
what it was in much of the twentieth century, there are still powerful communist and
aligned socialist movements in many parts of the world, especially southern Asia and
South America, and since the Economic crisis of 2008 there has been a resurgence of
interest in communist theory, especially the theories of Karl Marx.