Socialism Vs. Capitalism is one of the highly debated topics in group discussion. These are two economic systems which are prevalent in or adopted by different countries of the world. Capitalism is the ancient political system, whose origin dates back to 1400 AD in Europe. On the contrary, Socialism, which is evolved from 1800 AD and its place of origin is France.
A capitalist economy is featured with the free market and less government intervention in the economy, wherein top most priority is given to capital. As opposed to a socialist economy, refers to the organization of society, which is characterized by the abolition of class relations and thus give more importance to people.
So, here we have presented you all the differences between capitalism and socialism, which can help you to decide which system is best.
Content: Capitalism Vs Socialism
- Comparison Chart
- Key Differences
|Basis for Comparison||Capitalism||Socialism|
|Meaning||Capitalism refers to the economic system prevalent in the country, where there is private or corporate ownership on the trade and industry.||The economic structure in which the government has ownership and control over the economic activities of the country is known as Socialism.|
|Basis||Principle of Individual Rights||Principle of Equality|
|Advocates||Innovation and individual goals||Equality and fairness in society|
|Means of Production||Privately owned||Socially owned|
|Prices||Determined by the market forces||Determined by the Government|
|Competition||Very High||No competition exists between firms|
|Degree of distinction in the class of people||High||Low|
|Wealth||Each individual works for the creation of his own wealth||Equally shared by all the people of the country|
|Religion||Freedom to follow any religion||Freedom to follow any religion but it encourages secularism|
|Government Interference||No or marginal||Government decides everything|
Definition of Capitalism
Capitalism is defined as an economic system in which the means of production, trade, and industry are owned and controlled by the private individuals or corporations for profit. Also known as the free market economy or laissez-faire economy.
Under this political system, there is minimal government interference, in the financial affairs. The key elements of a capitalistic economy are private property, capital accumulation, profit motive and highly competitive market. The salient features of capitalism are as under:
- The factors of production are under private ownership. They can use them in a manner they think fit. Although government can put some restriction for public welfare.
- There is a freedom of enterprise, i.e. every individual is free to engage in the economic activity of his choice.
- The gap between haves and have-nots are wider due to unequal distribution of income.
- Consumer sovereignty exists in the economy i.e. producers produce those goods only that are wanted by the customers.
- Extreme competition exists in the market between firms which uses tools like advertisement and discounts to call customer attention.
- The profit motive is the key component; that encourages people to work hard and earn wealth.
Definition of Socialism
Socialist Economy or Socialism is defined as an economy in which the resources are owned, managed and regulated by the State. The central idea of this kind of economy is that all the people have similar rights and in this way, each and every person can reap the fruits of planned production.
As the resources are allocated, in the direction of the centralized authority, that is why it is also termed as a Command Economy or Centrally Planned Economy. Under this system, the role of market forces is negligible in deciding the allocation of factors of production and the price of the product. Public Welfare is the fundamental objective of production and distribution of product and service. The salient features of Socialism are as under:
- In socialistic economy, collective ownership exists in the means of production that is why the resources are aimed to utilize for attaining socioeconomic goals.
- Central Planning Authority exists for setting the socioeconomic objectives in the economy. Moreover, the decisions belonging to the objectives are also taken by the authority only.
- There is an equal distribution of income to bridge the gap between rich and poor.
- People have the right to work, but they cannot go for the occupation of their choice as the occupation is determined only by the authority.
- As there is planned production, consumer sovereignty has no place.
- The market forces do not determine the price of the commodities due to lack of competition and absence of profit motive.
Key Differences Between Capitalism and Socialism
The following are the major differences between capitalism and socialism
- The economic system, in which the trade and industry are owned and controlled by private individuals is known as Capitalism. Socialism, on the other hand, is also an economic system, where the economic activities are owned and regulated by the state itself.
- The basis of capitalism is the principal of individual rights, whereas socialism is based on the principle of equality.
- Capitalism encourages innovation and individual goals while Socialism promotes equality and fairness among society.
- In the socialist economy, the resources are state-owned but in the case of the capitalist economy, the means of production are privately owned.
- In capitalism the prices are determined by the market forces and therefore, the firms can exercise monopoly power, by charging higher prices. Conversely, in Socialism government decides the rates of any article which leads to shortages or surfeit.
- In Capitalism the competition between firms is very close whereas in Socialism there is no or marginal competition because the government controls the market.
- In Capitalism, there is a large gap between rich class and poor class because of unequal distribution of wealth as opposed to socialism where there is no such gap because of equal distribution of income.
- In Capitalism, every individual works for his own capital accumulation, but in Socialism, the wealth is shared by all the people equally.
- In Capitalism every person has the right to freedom of religion which also exists in Socialism, but Socialism gives more emphasis on secularism.
- In Capitalism, the efficiency is higher as compared to Socialism because of the profit incentive that encourages the firm to produce such products that are highly demanded by the customers while in a socialist economy there is a lack of motivation to earn money, which leads to inefficiency.
- In Capitalism, there is no or marginal government interference which is just opposite in the case of Socialism.
As we all know that every coin has two aspects, one is good and the other is bad and same is the case with the two economic systems. It is very difficult to say which system is better than the other. Capitalism leads to the development of the economy of the country along with the creation of wealth but it advocates distinction between the haves and have-nots.
Socialism fills the gap between rich and poor, and makes everything available to all the persons, but at the same time it wipes out the encouragement to work hard, due to which the country Gross Domestic Product falls down and everyone turns out to be poor.
In my opinion, the combination of the two economies is the best i.e. mixed economy that accepts the merits of both. It can help the country to grow and prosper along with less gap between haves and have-nots. There will be a public-private partnership in the economy and administered price exist.
Filed Under: Education
The essay below is not an exact transcript of the video, text has been added or edited, and the video does not cover the entire essay, exactly, but it comes very close. Enjoy!
This is a discussion on capitalism and socialism and why I think we need a careful balance between the two. I will first provide a brief definition of both.
Capitalism is an economic and political system (based on self-interest and competition) in which all the means of production and distribution are privately owned and operated within a free market society.
Socialism is an economic and political system (based on group-interest and cooperation) in which all the means of production and distribution are collectively owned and operated by all members of a society.
In my opinion, both systems, in their purest form, have their pros and cons. Capitalism promotes a free market system whereby citizens are practically free to create almost any product or provide almost any service and ideally start their own business to make their own profits. One of the main selling points of capitalism is that it’s a system that primarily self-regulates. It’s meant to keep prices and the quality of products and services at least half way decent. Of course it doesn’t always work out that way, but that’s the general idea.
Another wonderful thing about capitalism is that it aims to preserve economic freedom from excessive government control. That’s a good thing. However, there is always at least some government regulation involved, as there should be in my opinion. Though most hard core capitalists believe in the French expression Laissez-Faire, which means “leave it alone.” They hold to the idea that if government would just stay out of the way and not legally interfere or try to regulate what business owners can and can’t do, all would go well. But in my view, as well as in the view of most leading economists, this is not realistic. The list of corruption that rises under a completely free market, is too long to go into. But one quick example, is how oil companies would surely release far too many carbon emissions into the atmosphere during their production process if unregulated by the government. You know the old saying, “If you give them an inch, they’ll take a mile.” When unregulated, people will always eventually fall out of line. It’s kind of like when the teacher leaves the classroom, there will always be those children who will stand up on their desks, throw paper airplanes and spit spit-balls. Whatever margin for error is given, it will always be used to its fullest degree. So there must be at least some rules.
Capitalism, on its own, is not flawless, and is too often unfair. For example, it’s not fair that a young teenager can come out with a number one hit single of a song the singer didn’t even write and make millions, while a hard working adult works all day in the Sun, digging ditches, yet can barely feed his family or pay his rent. Wealth is often unjustly distributed. In fact, it is and has been the American way. In America, people can gain wealth by finding it, by winning it, by stealing it, or by inheriting it. Money is too often not truly earned.
Unfortunately, most capitalists think that competition, and free markets solve all problems. Competition is good, but too much competition can be a bad thing, leading to inferior products and/or services. For example, things are usually made just well enough to outdo the competition in order to maximize profits, which is unfortunately the real goal of most capitalizing Americans. Parts are often cheep, services are rushed, and many wear a fake smile while they trick you into paying for things you don’t really need. It’s a dog-eat-dog world, a “sink or swim” ideology. But thankfully capitalism, when properly regulated, does help to keep prices, product quality, and the government in check.
Socialism on the other hand is a system that promotes equal opportunity, financial safety nets, shared profits and shared sacrifice. Under pure socialism, every able-working person would always have a job and always have an income. Though we currently live within a dominantly capitalistic system, we do have many socialized programs and services like our public school system, our public libraries, the police and fire departments, Social Security, Medicare, and welfare programs like unemployment checks, food stamps, and Medicaid. Many socialized programs serve as a safety net for those who lose their jobs or become too ill to work. Imagine what would happen if your house caught on fire, yet for whatever reason, good or bad, you couldn’t afford to have the fire department come and put it out. Though your neighbors, who could afford to hire the fire department, chose to do nothing about it. In all likelihood, your house would burn down, along with damaging the homes of your neighbors who stood by. Therefore, at least some safety nets should be in place.
However, the word socialism has become demonized by capitalists and is now somewhat synonymous with Democrat. Some of the main complaints and concerns many have with socialism is that it increases the size of government, can lead to wasteful spending, and can encourage “social loafing” or laziness, whereby people who could work harder choose not to, because they believe other citizens will pick up the slack. Therefore, you get a lot of free-loaders riding the coat tails of others. I agree these are all very valid concern, but the solution is not to get rid of socialism altogether. Let’s not go from one bad extreme to the other and over compensate. When people abuse their car by speeding, making illegal turns, or getting into accidents it’s not logical to get rid of all cars or ban all driving. The answer is to find more ways to prevent people from taking advantage of the system. For example, social psychologists have discovered that having a good work plan, involving specifically assigned duties, and having fair evaluations of individual performances dramatically reduces social loafing.
But some still worry that individuality would become lost within a purely socialized society and argue that it would cradle and overprotect citizens. I agree this would likely be the case which is why I believe some capitalism is needed to help remedy those problems. We have to maintain a healthy level of individuality and personal reward. If you are familiar with many of my philosophical views, you will know by now that I always advocate balance in everything. Total socialized assistance is wrong and so is having absolutely no socialized assistance. The solution is in a careful balance between the two.
Many also argue that a socialized system can not be as financially successful as a capitalistic one. There was an economic experiment conducted by a Mayo high school student, in Rochester Minnesota, named Paul A. Leonard. The experiment was intended to compare the financial success between a capitalistic group and a socialistic group. The results showed that students performed more pushups and acquired more candy under a more stressful capitalistic system in comparison to a less stressful socialistic system. Even though Paul’s classroom experiment was only meant to be analogous to the real world, as all experiments are meant to be, I still thought the experiment was oversimplified. Paul’s experiment maintained ideal conditions and gave the false impression that pure capitalism would be a total success. For instance, he did not factor in important variables like unemployment, price fluctuations, inflation and deflation, and theft often found within a capitalistic system. A more accurate picture would have shown some students, within the capitalistic group, merely standing by to reflect the idea that no one could afford to hire them to do the pushups or students stealing candy from other classmates in order to survive.
In the real world, we are not just dealing with mere pieces of candy in exchange for pushups. In the real world, people suffer greatly. They become homeless, sick, and die when, for whatever reason, they fall behind. Anyone, regardless of how rich or good looking or decent, can eventually become down on his luck and find himself in desperate financial need. Don’t be naive thinking that as long as you do the right thing and work hard that you are completely safe from any financial collapse. The insensitivity of unbridled capitalism–a financial machine that cares only about itself, as a whole, and not the individual–will leave you far behind to be crushed within its gears and turbines. Yes, capitalism can make a nation more financially powerful, in the short run, but look at the costs. Most are overworked, over stressed, and can’t spend enough time with their loved ones. Children, on average, are not being properly raised. It’s not good to have an economic system which primarily focuses on acquiring money at almost any costs. The amount of money a nation makes should not be the only measure of its worth.
So it’s true that a purely socialistic system may not be as financially successful in the short run as a purely capitalistic system. However, a purely socialistic system profits in other ways. Such a system is often more humane, more compassionate, less stressful, and less corrupt than a purely capitalistic system. In simplest terms, whenever there is a gain, there will be a loss and for every loss there is a gain. This Yin-Yang effect is why I always advocate a combination of both systems. It comes back to the balancing act I strongly believe in.
Capitalists celebrate financial independence, self-reliance, and individuality, whereas socialists celebrate interdependence, cooperation, and community. These are all good qualities when properly balanced. Socialists hate unbridled capitalism and capitalists often criticize any form of socialism. But it’s unfortunate that many have not yet come to realize that some socialism is a good thing, just as some degree of capitalism is a good thing. Independence and self reliance are fine attributes, however, there are times when we not only need to depend on others, but should depend on others, because it allows us to be better people and it helps us to be more communal.
To sum up, pure unbridled capitalism is too insensitive, too selfish, and too cruel. It’s a cut-throat philosophy—an every man for himself ideology. With pure capitalism, there is an inescapable loss, and that is the nation’s moral sole. On the other hand, pure socialism can be overprotective and may inhibit individual recognition and rewards for personal efforts, talents, and strengths. Both capitalism and socialism, alone and independent of the other, are doomed to fail. However, both socialism and capitalism are needed. We need a system that provides incentives to work hard and rewards those who do, yet at the same time, a system that is compassionate enough to lend a helping hand when necessary—one that does not cruelly punish those who truly, for legitimate reasons and unjust circumstances, can’t work as hard or produce as much. Keep in mind that what affects one citizen ultimately affects all other citizens and one bad apple spoils the bunch. We are all apart of the same team whether we like it or not. So we need to start exercising a more cooperative effort in order for the human race to survive. It’s easy to do the wrong thing and it costs to do the right thing. We need a system that supports and maintains a healthy balance between capitalism and socialism, between competition and cooperation, between independence and dependence, between the private sector and the public sector, and between regulation and freedom.
Right now we are very out of balance, and as a result, nations are falling. When there are children who are not getting properly educated, it means something is wrong with the system. When people are starving, it means there’s something wrong with the system. When people can’t get proper healthcare, it means there is something wrong with the system. We must all pull our resources together to aid one another during these desperate times or the entire system will fall and all our cherished money will become completely worthless. Personally, I would prefer to trade in some of my cash to help my fellow man and to keep my sole in tact. Remember, what goes around comes around. The more you support your fellow citizens, the more they will be able to support you in your time of need. “All for one and one for all” should be the slogan for America . . . and the world.
Again, there is no perfect political system. No matter how well a system of government is designed and built, corruption will always manage to seep through the cracks. But, it’s our civil duty to do all we can to push back any and all forms of corruption and injustice as much as possible.
Down through the ages, we come closer and closer to creating the perfect society, even though we have had many setbacks. Like a pea rolling back and forth along the walls of a huge bowl, we are slowly but surely finding our way towards the center of equilibrium. Like a set of adjustable lenses the answers are coming into focus. Soon the arrow of correctness will hit the bull’s-eye straight enough.