Socialist economics

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The economic structure of socialism is characterized by an adequate material and technical basis and a system of production relations based on social ownership of the means of production. Lenin wrote: “A large-scale machine industry capable of reorganizing agriculture is the only material basis that is possible for socialism”.[1] The material and technical basis for socialism consists of large-scale machine production, based on electrical energy and spanning all branches of the national economy. Large-scale machine production constitutes the foundation for the shape and development of socialist production relations, which strengthen the role of the working class as the leading force in socialist society, and serve to build up the socialist economic system.

Socialist production relations, which completely dominate social production, ensure the rapid and stable growth of the productive forces in conformity with a plan. The distinguishing feature of the socialist economic system is harmony between the production relations and the character of the productive forces. The establishment of public ownership radically changes the developmental goal and mode of functioning of production. The spontaneous forces of anarchy and competition are replaced by the organization of economic processes in conformity with a plan. The direct producers are united with the means of production, full employment is ensured, each individual is assigned to work corresponding to his capacities, and broad new prospects are opened for the development of the personality.

The characteristic feature of a socialist society is the complete dominance of public ownership of the means of production in all spheres and sectors of the national economy. By the mid-1930’s the socialist sector had become dominant in the Soviet economy. By the early 1970’s, the socialist economy included 100 percent of the fixed productive capital, the national income, and the output of industry and agriculture (see Table 1).

Under socialism, there is the citizen’s personal property in consumer goods and household articles, as well as public ownership of the means of production and fixed nonproductive capital, including housing, theaters, museums, and stadiums. Another variety of personal property is the property of the kolkhoz household, which includes certain very simple means of production (agricultural equipment and domestic animals).

Table 1. Proportion of the socialist sector of the economy in the USSR (in percent)
Fixed productive capital
National income35.044.099.1100
Industrial output76.382.499.8100
Net agricultural output1.53.398.5100
Retail trade turnover of commercial enterprises47.376.4100100

Socialist production relations constitute a single, integral system, all the elements of which have a socioeconomic content characteristic of this stage of development of society, whether they are characteristic of the communist formation in general or typical, to varying degrees, of several socioeconomic formations. Thus, under socialism, ownership of the means of production by all the people—a typical feature of both phases of communism—assumes the form of a specifically socialist state ownership. Likewise, commodity-money relations, which are characteristic of several social formations, have a specific content under socialism.

The system of economic categories and laws of socialism corresponds to the unified system of socialist production relations. A leading role in this system is played by the fundamental economic law of socialism, which is manifested in the dominance of social ownership of the means of production and in the characteristic orientation of the development of production: that is, the subordination of industrial development to raising the standard of living of the people and comprehensively developing the personality of every member of society. The mode of functioning of a socialist economy is described by the law of the planned, proportional growth of the national economy.

Under socialism, economic laws lose the role of spontaneous regulators of social production. Society consciously applies these laws to bring about a steady increase in production and to utilize the advantages of the socialist economic system. Successful mastery of the economic laws through a system of planned direction of the national economy lends a dynamic quality to the socialist economy and accelerates the rates of growth. Rapid, steady growth of the national economy is one of the principles of the development of socialism and one of its main advantages over capitalism. Between 1950 and 1975 the average annual increase in industrial output in the socialist countries was more than twice that of the capitalist countries. The average annual increase in industrial output in the USSR during the same period was more than twice the corresponding indicator for the USA (see Table 2).

Table 2. Growth rates of industrial output in the socialist countries and the developed capitalist countries (percent of 1950 figures)
 195019651974Annual average
Socialist countries10050199810.1
Developed capitalist countries1002183405.2

The establishment of social ownership of the means of production creates the decisive prerequisites for the socioeconomic equality of all members of society. Under socialism equality means the elimination of exploiting classes, the equal relationship of all members of society to the means of production, and equal opportunities for every member of society to use his abilities. However, equality does not lead to equalization, to a leveling of tastes and needs, or to the abolition of incentives for labor. Socialism affirms the following principle: “From each according to his abilities; to each according to his labor.” Distribution according to labor is the basis for the workers’ interest in the results of their labor. Applying the principle of material interest in planning, the socialist state achieves the true unity of the economic interests of society, collectives, and individual workers.

The socialist economic system is characterized by a specific economic mechanism, including a system of managing the national economy in conformity with a plan, and all the forms and methods of management associated with such a system, which is based on a single economic plan for the entire state. Economic management integrally combines directive targets and economic levers influencing production, including profit, credit, prices, and economic accountability. The economic mechanism of socialist society functions on the basis of the application and creative development of the Leninist principles of socialist economic activity. The extensive involvement of the toiling masses serves as the basis for the administration of the socialist economy and all public affairs. Management by the people in the interests of the people is a typical feature of socialist society. One of the most active forms of mass participation in management is socialist competition (emulation), which is increasingly aimed at mobilizing internal production reserves, utilizing factors that intensify economic growth, and assimilating the achievements of the scientific and technological revolution.


  1. Poln. sobr. soch., 5th ed., vol. 44, p. 9