Differences Between Capitalism and Socialism
Capitalism may be defined as an economic system in which all or most means of production are owned and controlled by private individuals and in which the economic activity of the government is at a minimum while Socialism is an economic system where the state takes the major economic decisions through detailed planning. Countries that adopt this system do not believe in the efficacy of market forces.
Capitalism and Socialism: the Differences
| Aspects | Capitalism | Socialism |
|---|---|---|
| A theory or system of social organization based on the free market and privatization, where ownership is attributed to individual persons. The capitalist system defends economic freedom, consumer choice, and economic growth. |
A theory or system of social organization based on the exploration of the majority of the common goods, with property attributed to the workers. Under socialism, the state controls the economy, and is responsible for reducing social inequality, through programs that benefit the poor. |
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| The means of production are privately owned, operated and negotiated to generate profits for private owners or shareholders. It has an emphasis on individual profit and not on workers or society as a whole. |
Idea of transformation of society through the balanced distribution of property and wealth, reducing the difference between rich and poor. Profits are distributed among society to supplement wages. |
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| Ideas | Capitalism opposes government intervention in the economy, because capitalists believe that it introduces inefficiencies. A free market produces the best economic result for society. |
All individuals should have access to basic consumer items and public goods. Large-scale industries are collective goods, and therefore the return of those industries must benefit society as a whole. |
| Main defenders | Richard Cantillon, Adam Smith. | Karl Marx, Friedrich Engels, Lenin. |
| Political system | It can coexist with a variety of political systems, including dictatorship, democratic republic, anarchism, and direct democracy. Most capitalists defend a democratic republic . |
It can coexist with different political systems. Most socialists defend participatory democracy. |
| Economic system | Market-based economy with private or corporate ownership of the means of production. Goods and services are produced for profit and that profit is reinvested in the economy to fuel economic growth. |
The means of production are owned by public companies or cooperatives, and individuals are compensated based on the principle of individual contribution. Production can be coordinated through economic or market planning. |
| Social structure | Classes exist according to their relation to capital: capitalists own part of the means of production and earn their income in this way, while the working class depends on wages. | Class differences are diminished. Status derives from political distinctions rather than class distinctions. |
| Religion | Freedom of religion. | Freedom of religion. |
| Private property | Private ownership of capital and other goods is the dominant form of property. Public property and state property play a secondary role, and there may also be some collective property in the economy. |
There are two types of property: personal property (houses, clothing, etc.) and public property, which includes factories and means of production owned by the state, but under the control of the workers. |
| Free choice | All individuals make decisions for themselves, and must live with the consequences of their actions. Freedom of choice allows consumers to drive the economy. |
Religion, employment, and marriage depend on the individual. Education is compulsory. |
| Economic coordination | The market determines investment, production and distribution decisions. Markets can be free markets, regulated markets, or they can be combined with a degree of state-led economic planning within private companies. |
Socialism depends on planning to determine investment and production decisions. Planning can be centralized or decentralized. |
| Examples | The modern world economy operates largely according to the principles of capitalism. The United States is widely considered the bastion of capitalism, yet every developed country has some programs that are socialist. |
Socialist countries are those whose constitutions include declarations on the protection of the working class, such as Cuba, North Korea, China, Laos and Vietnam |
| Ownership structure | The means of production are privately owned and operated for private profit. This encourages producers to get involved in economic activities. Businesses can be owned by individuals, worker cooperatives, or shareholders. |
The means of production are socially owned with the profit produced for the whole of society (in models of public ownership) or for all officials who are members of the company (in models of cooperative ownership). |
| Political movements | Classical liberalism, social liberalism, libertarianism, neoliberalism, modern social democracy, and anarchism. | Democratic socialism, communism, libertarian socialism, social anarchism and unionism. |
| Variations | Free market capitalism (also known as laissez faire capitalism), State capitalism (also known as neomercantilism). | Market of socialism, communism, state socialism, social anarchism. |
| First exponents | The ideas of trade, purchase and sale, exist since the beginning of civilization. Free market or laissez faire capitalism was brought to the world during the 18th century by John Locke and Adam Smith, seeking an alternative to feudalism. |
In 1516, Thomas More wrote in Utopia about a society based on the common ownership of goods. In 1776, Adam Smith defended the labor theory of value, ignoring Kant’s view that prices are derived from supply and demand. |
| Vision of the world | Capitalists view market-based societies as symbols of freedom, taking pride in allowing social and economic freedoms not experienced in the realm of communism and fascism. The focus is individualism as opposed to nationalism. |
Socialism is a movement of the worker and the middle class, all for a common democratic goal. |
Definition of Capitalism Mode of Economy
Capitalist economic system may be defined as one in which all or most means of production are owned and controlled by private individuals and in which the economic activity of the government is at a minimum. In this type of economic system, private individuals play greater role than the government in taking decisions on what, how to produce and the distribution of what has been produced.
Definition of Socialism Mode of Economy
Socialist Mode of Economy is an economic system where the state takes the major economic decisions through detailed planning. Countries that adopt this system do not believe in the efficacy of market forces. Countries that practise this system include China and Cuba.
What are the Differences Between Capitalism and Socialism?
There are certain inherent differences between capitalism and socialism. they can also be regarded as differences between capitalism and communism.
Key Differences (Capitalism vs Socialism)
- Capitalism is the opposite of socialism for while capitalism encourage its political freedom and pays little attention to the economic emancipation of the people, Socialism emphasizes that the traditional individual liberties of western democratic states are irrelevant to poor and ignorant people living in squalor and poverty.
- The means of production are controlled by a few under capitalism and by the majority or the state in a socialist state.
- Capitalism allows the assistance of private property but the socialist state emphasizes public ownership.
- Capitalism encourages competition and the free interaction of the laws of supply and demand. In a socialist state, such things are not allowed. Rather rationing and price control are the main instruments used in the allocation of resources under the socialist mode of production.
- The fundamental human rights of the citizens are protected and guaranteed under capitalism. In a socialist state, the rights of the people may be curtailed in the interest of the overall society.
- One political party is officially recognised under socialism but liberal democracy encourages the existence of several political parties.
- In a socialist state, there is a dominant ideology called Marxism/Leninism, but there is no such all-pervasive ideology in a capitalist state.
- There are regular elections to choose political leaders in capitalist / liberal democracy state but in socialist states, election are only head to legitimize the rule of the leaders.
The particular ideological path or method adopted by a country largely depends on its historical experience, the collective experience and orientation of the people, the character of the political leadership and the determination of the people to determine their own destiny.
Advantages of Socialist Economy over Capitalist Economy
A socialist economy has a number of advantages over the capitalist economy. They include;
There is a more even distribution of income and wealth in the socialist economy. Productive resources are owned collectively and no single individual is allowed to control excess wealth while income inequality, which is a feature of capitalism is reduced under the socialist system.
There is a higher level of employment of both human and material resources in the capitalist system. Under socialism, the central committees find jobs for all and direct labour and other factors of production to areas where they would be most effectively utilized.
There is greater certainty of production of essential but non-protitable goods and services under the socialist system. Under capitalism, non-protitable services such as the enforcement of law and order and defence, may not be embarked upon.
There is less exploitation of consumers under socialism. Consumers pay a fair price for what they purchase. The general absence of middlemen and the lack of competitive advertising leads to relatively low prices for goods. In addition, the growth of private monopolies, which would normally exploit consumers, is checked.
There are lower incidences of strikes, layoffs, closures, crimes, etc, under the socialist system. This is because the protit-motive is not as high as the case under capitalism, and there is a greater level of contentment by the majority of the people.
The under privileged and the handicapped are better catered for in the socialist system. Since they are taken care of, they are reasonably happy and the greater majority of the people are better off. The story is the reverse under capitalism.
Features of Capitalist Economy
- It is a market-based economy, made up of buyers (people) and sellers (private or corporate companies);
- The goods and services produced are destined to profit, and that profit is reinvested in the economy;
- The government should not interfere in free market economies, that is, the market determines investments, production, distribution and decisions;
- Government interference is only permitted by making and enforcing rules or policies that govern the conduct of business;
- There is a need for continuous production and purchase for a capitalist economy to function efficiently;
- Capitalists believe that the government does not use economic resources efficiently as a private company.
Features of Socialist Economy
- The means of production are owned by public companies or cooperatives, and individuals are compensated on the basis of the principle of individual contribution;
- There is equal opportunity for all;
- Large-scale industries are cooperative endeavors, and therefore the returns from those industries must be returned and benefit society as a whole;
- Economic activity and production are planned by the central planning authority and based on human consumption needs and not on economic demands;
- Socialists believe that economic inequality is bad for society and the government is responsible for reducing it through programs that benefit the poor.
Advantages of Capitalist Economy
1. Consumer Choice
Individuals choose what to consume, and that choice leads to more competition and better products and services.
2. Efficiency of the Economy
Goods and services produced on a demand basis create incentives to reduce costs and avoid waste.
3. Economic Growth and Expansion
This process increases the gross national product (GDP) and raises living standards.
Advantages of Socialist Economy
1. Decrease Inequality
In socialism, no individual can have much more than the other, and businesses are owned by the government. Money is not a controlling factor in a socialist society.
2. Needs are Met
Everyone’s needs must be met. This means that health care is universal, education is free, food is provided, as well as clothing and other items necessary for life.
3. Mobilization of Goods
Disasters of all kinds can strike at any time, and when they do, an immense amount of services and goods are needed to ensure that everyone is safe and cared for.
Under socialism, the government has full control of those goods and can easily mobilize them to the areas that need them most.
4. Has Widely used Ideas
The idea of socialism is used in practically all countries, in some way. It is the only way to ensure that some of the most basic and necessary things are provided to all people.
Some examples of this are the public education system in the United States and universal health care in Canada.
Disadvantages of Capitalist Economy
1. Power Monopolies
Companies with monopoly power (when a specific person or company is the only supplier of a certain good) can abuse their position by charging higher prices.
2. Inequality
A capitalist society is based on the right to pass wealth on to future generations.
If a small group of people retain all the wealth and that wealth continues to be transmitted to the same groups of people, inequalities and social division occur.
3. Recession and Unemployment
An economy based on the market of consumers and producers can have many variations, such as shortages and unemployment.
Disadvantages of Socialist Economy
1. The Historical Failure
All over the world, various countries tried the idea of socialism, and all of them failed.
This is one of the biggest problems with socialism, the fact that it has been proven not to work, no matter how many different adjustments the government tries to apply.
2. Nothing is Yours
Private property is prohibited in a socialist society. This means that you have nothing, since the goods belong to “everyone” or to the government.
3. Less Innovation and Growth
With socialism, you have your basic needs taken care of, so you don’t have to worry about your meals or whether you have a home.
This may sound good, but it can make people settle, and with it innovation, creativity, motivation and other forms of advancement of society diminish.
4. It is Expensive
It costs a lot of money to provide everyone with the things they need, and that money must come from somewhere.
So all the money that is earned by citizens is taxed in huge percentages to cover all costs.
