Major difference between Socialism vs Capitalism in Economic Systems

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Socialism and capitalism are considered to be the two main aspects of the economic systems. The majority of the developed countries all over the globe follow the major concepts laid under the theory of socialism and capitalism. It is the depth to which the respective government would exercise control over the economy that constitutes to be the major difference between the principles of socialism vs capitalism.

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The major difference between socialism vs capitalism

  1. Socialism is an economic and political system under which the means of production are publicly owned. Production and consumer prices are controlled by the government to best meet the needs of the people.
  2. Capitalism is an economic system under which the means of production are privately owned. Production and consumer prices are based on a free-market system of “supply and demand.”
  3. Socialism is most often criticized for its provision of social services programs requiring high taxes that may decelerate economic growth.
  4. Capitalism is most often criticized for its tendency to allow income inequality and stratification of socio-economic classes.

Socialist governments strive to eliminate economic inequality by tightly controlling businesses and distributing wealth through programs that benefit the poor, such as free education and healthcare. Capitalism, on the other hand, holds that private enterprise utilizes economic resources more efficiently than the government and that society benefits when the distribution of wealth is determined by a freely-operating market.

Definition of capitalism

Capitalism is an economic system under which private individuals own and control businesses, property, and capital—the “means of production.” The volume of goods and services produced is based on a system of supply and demand, which encourages businesses to manufacture quality products as efficiently and inexpensively as possible.  By following this concept, it could be ascertained that the quality of the products is sustained in a cheaper and productive approach.

The condition of laissez-faire or free market could be observed in the economy which follows the concept of capitalism. There is no restriction for individuals to take active participation in the economy. It depends upon the will and decision of the citizen on where to invest their money. The same independence lies in the type of product or services to be generated. It is with the only true absence of government interference that the concept of true laisses-faire could be enjoyed by the citizens. Thought the true laisses-faire is implied by no country, and a certain level of government interaction could be observed in most of the economies.

The factor of income inequality is not even a matter of concern for the components of capitalist economies. It is the presence of financial inequality among the components of the economy that theoretically increases the magnitude of innovation and competition, which is very crucial for the dynamic growth of the economy. The utilization of the general workforce is not under the economy which works on the format of capitalism. Hence the major backdrop is the humungous rate of unemployment while the economic recession happens. It is based on the demand and requirement of the public that the products are being generated in the market and supplied for customized interests

Definition of socialism

Socialism describes a variety of economic systems under which the means of production are collectively retained or owned by a very unit of the economy that follows the framework of socialism. The business and other enterprises in socialism are majorly controlled by the government, which is democratically elected by the citizens. Though in some of the socialist economies, the working class or their cooperatives control the economy as an exception. Some of the socialist economies allow the presence of individual enterprises, but they would be levied with huge taxes and reformations.

The basic principle followed in the concept of a socialistic framework is to contribute to the economy as per the personal capability and earn as per the contribution. Thus, it is ensured that every unit would get an equal part from the growth registered by the national economy. The wages to the employees or the workers are only dispensed after deducting a particular section that would be used to carry out the social programs. It is to serve the common good, which is considered to be the primary objective of socialism

The major contradiction of the socialistic ideologies with that of the capitalistic ideologies in this socialism vs capitalism is that it would try to reduce the wealth gap between the rich and poor people. Hence some adverse measures are taken by the government to control the local labor market. By taking this stance, the government would effectively reduce the rate of unemployment in the nation even though the local economy would have to face a huge setback.

Critical analysis of socialism vs capitalism

The main arguments in the socialism vs. capitalism debate focus on socio-economic equality and the extent to which the government controls wealth and production.

Consumer prices

It is the components of free-market forces that determine the fluctuations in consumer prices under the capitalistic framework. Though the major counter put forward by the socialists regarding this principle is that it would encourage the particular companies to emerge as monopolies. It would lead to the inconsiderate exploitation of power that enables them to manipulate heavily with the prices, which may be labeled way above the production costs.

It is seen in this socialism vs capitalism article that it is the government agencies that control the level of consumer prices in the socialistic economy. The counter by the capitalists to this approach is that the move could pose a high scarcity of the essential products in the market. The instance of Venezuela could be taken as the best example. Most of the citizens in Venezuela sleep hungry as per the report of Human Rights Watch. Around 3 million citizens have left the country because of the scarcity of food, and even it was raised as the political weapon in the country. The economy has been worsened to a very abysmal level by the deteriorating health of the population and hyperinflation. These have all occurred because of the socialistic policies implied under President Nicolas Maduro (O’connor, 1988).

Income inequality and ownership

The natural right of the citizens could be ensured if the ownership of property is allocated to them as per the supporters of capitalism. People could control their own affairs only if they have this power entailed to them. As per the argument of the supporter of capitalism, it is the private entities that could utilize more efficiently the available resources as compared to that of the government agencies. It is more competitive when the free market decides the level of profit or loss endorsed by someone. The economy would also get an additional boost since the people would have the power to invest their money as per their will.

Though as contrary, the concept of dividing the property to everyone is strictly followed in the socialistic framework of the economy. The major criticism made against the capitalistic approach under this aspect is that the approach of allotting private ownership helps the rich segment of the society to accumulate more and more wealth. It would be hence pointed out in the socialism vs capitalism article that it is at the mercy of the rich that the gap between the rich and poor would later depend upon. The occurrence of income inequality would make a dee rooting impact on society, and hence the government should endorse the programs that would help the poor. The situation could be further made impartial by levying higher taxes on the rich segment of the society.

Innovation and efficiency

It is the profit accrued while conducting the trade that would act as the major motivation for the private entities and hence requires a proper innovative and productive mindset. The higher level of competition would eventually benefit the customers since the manufacturers would provide the products at cheap competitive prices. Though there is a high possibility of a business being getting failed in the capitalistic format, the same would turn out to be an opportunity for another entity. It is the approach of the concept of creative construction that would lead to the emergence of much better and efficient entities.

In this socialism vs capitalism article, it is highly being argued by the supporters of the socialist framework that the system would prevent the enterprises from being closed down or entering into a huge loss. The government would prevent the emergence of any monopoly in the market by imposing strict rules and policies. Though it is being criticized by the capitalists that the same situation would bring stagnation and inefficiency in the production center, provided the fact that the worker would not get any incentive for providing extra contribution.

Taxation and healthcare

It is fiercely argued by the supporters of socialist behavior that it is the duty of the government to provide the public with the required help and social services. The factors like education and healthcare services should be considered essential and should be provided free of cost. The establishments like health clinics and educational enterprises are owned by the government in the socialistic setup.

Though the contrary to the socialistic vision is being debated by the people who support the capitalistic theories. It is being argued by them that the interference of the government leads to the occurrence of high chances of stagnation, lack of productivity, irresponsibility, etc. within the organization since no one is motivated towards the incentives for higher performance.

 

 

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