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FDI: The abbreviation for Foreign Direct Investment, this is the acquisition of controlling interest in foreign firms and businesses from one country in another country. FDI can also take the form of constructing factories, structures and equipment (or any form of physical capital) in foreign soil. FDI does not include foreign investment into the stock markets (portfolio investment). Most economists consider foreign direct investment more useful than portfolio investment since this last one is generally regarded as temporal and can leave the foreign country at the first sign of trouble. FDI on the other hand, is considered more durable and with larger economic (potential) benefits.

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SOCIALISM:

In theory, an economy, or economic system, that is a transition between capitalism and communism and is based on: (1) government, rather than individual, ownership of resources, (2) worker control of the government, such that workers, rather than capitalist, control capital and other productive resources, (3) income allocated on need rather than on resource ownership or contribution to production. In practice, socialism is a type of economy based on--(1) government ownership and control of the most crucial resources, like those for energy production, communication, transportation, and health care and (2) a heavy dose of central planning by government.
Although socialism represents the theoretical transition from capitalism to communism, the primary goals of modern real world socialism are: (1) to correct the inefficiencies of market failures, (2) to obtain more equal wealth and income distributions, and (3) to equalize economic opportunities. To accomplish these goals, government exerts a significant amount of government control, while less than communism, more than capitalism.

Perhaps more so than other economic systems, socialism comes in many different varieties. Some nations practice a form of socialism that comes very close to communism, with extensive government control. Socialism found in other nations has a distinctive capitalistic flavor, with a great deal of market activity.

Government Ownership and Control

A distinguishing characteristic of socialism is government ownership and control over key industries and resources. Government ownership and control generally begins with transportation, energy, and communication. Socialist governments generally view these industries and their associated resources as the ones most likely abused by private ownership.

More active socialist governments tend to exert greater control over other industries, such as health care, heavy manufacturing (such as steel production), and agricultural production. In the extreme, everything is owned and controlled by government, resulting in communism.

Central Planning

Government ownership of resources and control of industries under socialism necessitates control of allocation decisions. This is often accomplished through central planning. While less extensive than found in communism, detailed plans are needed to allocate resources in the absence of market exchanges. And while such planning generally lacks the efficiency incentives found in markets, it can improve the efficiency if the markets would otherwise fall victim to failures.

For example, transportation systems are usually owned and controlled by governments under socialism due to the possible market failure of market control, especially the emergence of natural monopoly.

A Mixed Economy

Socialism occupies a large section of the spectrum of economic systems, bounded by a pure market economy on one end and a pure command economy on the other. Socialism tends to lay closer to the pure command economy of the spectrum, but it can also edge toward the pure market economy side dominated by capitalism.

Socialism, like all other real world economic systems, is thus a mixed economy. Allocation decisions are undertaken by both governments and markets. Some socialistic nations rely more on governments and less on markets, while others rely a little more on markets and a little less on governments. But all rely on both to some degree.

The Politics of Socialism

The concept of socialism dates back almost to the beginnings of philosophical thought into the human prospect. Socialistic principles, for example, can be found in the works of Plato and the New Testament of the Christian Bible.

Over the centuries socialism has been as closely aligned with political thinking as with economic analysis. It has formed the foundation of numerous political parties and helped inspire scores of revolutions. On the spectrum of political thinking, socialism is more likely embraced by liberals and the political left than by conservatives and the political right.

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Recommended Citation:

SOCIALISM, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: June 24, 2019].


Check Out These Related Terms...

     | capitalism | communism | market socialism | command economy | pure command economy | pure market economy |


Or For A Little Background...

     | economy | economic system | ownership and control | central planning | equity |


And For Further Study...

     | nationalization | four estates | distribution standards | three questions of allocation | resource allocation | mixed economy | government functions | laissez faire | needs standard | liberal | conservative |


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