In both, the means of production and distribution are owned by the workers, either directly or through government agencies. Socialism can be compatible with individual liberty, democratic government, and freedom of choice.
Communism is imposed by an authoritarian state in which individual rights and liberties are held to be inferior to the rights of the people as a whole. Most advanced democracies contain some elements that could be termed socialist. Nationalized healthcare, mass transit systems, and even public libraries all are examples of government services that are owned and run by government agencies, subsidized by taxpayers, and available to all.
Communism calls for the elimination of private property ownership and thus effectively abolishes wealth accumulation. Socialism calls for public ownership of essential services and levies the high taxes that are needed to support them. The gap in the quality of life between the richest and the poorest narrows. The two biggest experiments in communism in the 20th century were the Union of Soviet Socialist Republics U.
The U. China remains a one-party state, and that state is the Communist People's Party. Nevertheless, it has introduced government reforms that have made its system a hybrid of communism and socialism with a dash of pure capitalism.
A socialist economy offers collective ownership, usually through a state-controlled agency, worker cooperative, or outright state ownership with delegation to representatives. Socialist market economies generally discourage private ownership.
In addition, in socialist market economies, goods and services are produced for their usefulness, with the aim to eliminate the need for a demand-based market. In this way, it discourages accumulation, which is assumed to be the root cause of wealth imbalance. Interestingly, no pure socialist, pure capitalist, or pure communist economy exists in the world today.
Cuba has a mostly state-run economy including a national healthcare program, government-sponsored education free for its citizens at all levels, subsidized housing, utilities, entertainment, and even subsidized food programs. Together, these social programs are meant to compensate for the low salaries of Cuban workers, making them better off than their international counterparts in many other countries.
The reason is that Cuba's economy was in disarray. GDP was registered at 2. In addition, the country has experienced shortages of consumer staples, energy rationing, and price inflation.
As of today, Cuba operates with a parallel financial system; one that operates on the usual social programs in critical sectors while allowing a free-market economy in the tourism, export, and international business sectors. The country has continued to introduce reforms through new laws aimed at bringing in higher foreign investment , which was a shift from being a complement of the economy to an essential part of it.
A significant portion of the Chinese economy is still government-controlled, although the number of government programs has declined significantly. How has China managed to grow its economic influence?
Policies allow entrepreneurs and investors to take profits but within the controls of the state. North Korea—the world's most totalitarian state—is another prominent example of a socialist economy.
Like Cuba, North Korea has an almost entirely state-controlled economy, with similar social programs to those of Cuba. There is no stock exchange in North Korea either. Around mid, North Korea was better educated and more productive than China based on international trade per capita. However, the economic and social situation has been precarious in North Korea since a massive famine hit the country between and Today, many world powers have discontinued aid and trade with North Korea due to the many human rights abuse allegations of the totalitarian government.
These sanctions by other world powers have significantly restricted any economic development of the North Korean economy. Apart from the challenges of dynastic rule in North Korea, which prevents the country from becoming self-reliant, the campaign of "military-first politics" also imposes a heavy burden on the economy. This has completely closed off North Korea on nearly all fronts.
In May of , the United Nations estimated that 10 million North Koreans were facing severe food shortages. Due to a lack of self-sufficient manufacturing facilities and markets in the country and increasing dependency on China, private firms and businesses are on the rise in North Korea. Similarly, declining sales in their home markets has forced many US and European companies to relocate China firmly to the centre of their long-term global growth strategies.
Breaking into the China market successfully can seem like an almost impossible task to foreign companies with limited or no experience of doing business there. With a population expected to exceeds 1.
While it is true that China represents a huge potential market for foreign manufactured goods and services, it is also the case that understanding where these opportunities lie and how to access them can be extremely challenging. Whether it be the large Western multinationals with an established China presence or the first-time market entrant with no previous China experience, foreign companies of all shapes and sizes often find their China success stymied through insufficient lack of local understanding.
The first realization that foreign companies often need to make is that China is in no way a uniform and homogeneous market.
Although China is unified in the geo-political sense, socially and economically the picture is much more disparate and fragmented. Uneven rates of economic growth in different parts of China over recent years have served to exacerbate many of the economic and social differences that already existed between different provinces. For example, there are huge variations between different provinces in terms of population levels, per capita GDP, average income levels, consumer spending habits, education levels, literacy rates, lifestyles and so on.
As such, it is certainly no exaggeration to state that rather than representing a single, unified market, China is actually a collection of individual sub-markets defined by vastly differing demographic, economic and cultural characteristics.
The nature and make-up of markets in different parts of China also varies considerably, which means that foreign companies should think carefully about which geographical location offers the best vantage point to target the broader China market. In the past, foreign businesses have often been drawn to coastal provinces such as Zhejiang, Guangdong, Jiangsu and Shanghai, due to higher populations and incomes in those areas.
In particular, foreign companies involved in consumer markets have tended to focus their attentions on these higher income coastal regions. Although foreign companies in the b2c sector still remain focused on coastal cities, business-to-business markets are often far more geographically scattered.
As in many countries, China has actively encouraged the setting up of industrial clusters in specific cities or regions, and in many cases entire industry supply chains can be concentrated in a small handful of cities. In many b2b markets, such clusters can help foreign companies to know where its target customers are, which cities to focus on and even where to base its operations particularly where local manufacturing will take place.
The first step of any effective China market entry strategy is therefore to identify the geographical location of the target market s and the best specific location to target first. Shanghai, Beijing and Guangzhou — highly populated areas with a large, middle-class representation and income levels well above the national average. Although being based in a Tier 1 city may offer the lowest risk point of market entry , it will also mean that the company faces higher operational costs and more competition.
Not only do Tier 2 cities have the advantage of lower set-up and operating costs, but the increase in consumer spending power in these areas is creating a rapid growth in demand for foreign manufactured goods and products. Over the long term, including Tier 2 and even Tier 3 cities in their strategy can enable foreign companies to gain first-mover advantage in these cities and lead to greater long-term market success. Whether to set up in more tried and tested locations or to take the risk of setting up in a less developed market is likely to depend on a variety of different factors, and ultimately this decision will be based on having thoroughly research the market landscape.
For example, it is critical to spend time mapping out the location of customers and suppliers, understanding how distribution channels vary between different locations, and fully researching any local regulatory barriers that could block market entry in specific regions. Companies planning to set up a local manufacturing facility will be required to research a broader range of factors, such as local manufacturing and transport infrastructure, access to key raw materials, local investment policies, the availability and cost of human resources, and a myriad of other factors.
Understanding government policy and regulations is critical to success in Chinese b2b markets. There are still a lot of industries that remain off-limits to foreign companies, and many industries where severe limitations remain in place. China now has a host of different ministries and regulatory organizations with responsibility for industry regulations and laws.
In industries with greater levels of regulation such as the healthcare and food sectors , foreign companies will need to attempt to unravel the web of complex laws and regulations, and try to understand which authorities have primary responsibility for implementing them.
Regulation is becoming more stringent, as are to efforts ensure that companies actually conform to them.
In the wake of the melamine poisoned milk scandal in , the Chinese authorities have taken a tougher line against companies that openly flaunt the food safety law, whilst the SFDA is also tightening regulations on pharmaceuticals and medical devices to avoid similar events from occurring in the future.
Likewise, environmental problems caused by poor environmental regulatory enforcement and widespread pollution in years gone by have led to the introduction of much tighter environmental legislation. Foreign companies are now required to go through lengthy environmental assessments before gaining permission to produce locally. Government regulations can very often impact significantly on the timeline and costs of market entry, and companies are advised to examine the implications of such regulations prior to committing to the market.
For example, in the medical and pharmaceutical sectors, long product or clinical trials may be required, which result in a longer sales cycle than may be the case in other countries. It is also worthwhile noting that just because a product has previously been approved by regulatory authorities in Europe or the US does not automatically guarantee that the same product will receive approval in China.
In addition, the government transferred some of its state-owned assets to social security funds. These transfers are designed to help ensure that pensions are financed, or could be used to fund other social programs. In , two Chinese economists, Chenggang Xu and Julan Du, conducted a study designed to determine the type of economy that operates in China.
Interestingly, they concluded that the system encourages capitalism and that it does not represent a socialist market economy.
More precisely, the two experts described the economy as an unstable form of capitalism. Most literature on market socialism agrees that this type of private share ownership should not exist in market socialism.
The study's conclusion was also explained by the fact that enterprises keep all profits instead of redistributing them to the public. Other studies have not arrived at the same conclusions, but mostly agree that the country does not practice market socialism.
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