The allocation of scarce resources can be largely influenced by the system of government in a country or region. This section provides a brief thumbnail of three forms of government and the prominent decision-making mechanisms they entail.
Communism is a system designed to minimize imbalance in wealth via the collective ownership of property. Legislators from a single political party — the communist party — divide the available wealth for equal advantage among citizens. The problems with communism include a lack of incentives for extra effort, risk taking, and innovation. The critical role of the central government in allocating resources and setting production levels makes this system particularly vulnerable to corruption.
Socialism shares with communism the goal of fair distribution and the pitfall of inadequate incentives. Rather than the government controlling wages as under a communist system, wages are determined by negotiations between trade unions and managers. Another difference between socialism and communism is that under socialism, a single political party does not rule the economy.
