Differences between capitalism and socialism: Capitalism is a political and economic theory postulating that the means of production should be controlled by individuals. It is centered on individuals who own and control the production and distribution of goods and services. Savage capitalism is extreme capitalism, where individuals are free and can choose what to sell, how to sell, to whom to sell and the selling price. This is called a laissez-faire market, which operates without interference from government or regulators. The central goal of capitalism is to make profit. It ignores equality because inequality promotes competition and the need for innovation.
According to Karl Marx, capitalism is a system that alienates the masses because of the obvious distinction between the rich (bourgeoisie) and the poor (proletariat). The bourgeoisie owns the means of production and gets all the profits made while the proletariat, which constitutes the majority of the masses, are the laborers who do the work of production. They have no right to profit except the paltry sum paid to them by their employers, the bourgeoisie. Today, this is no longer applicable, as the governments of the world now regulate some of the actions of private businessmen.
Socialism is a political and socio-economic theory that advocates social ownership of the means of production. It is based on public ownership of the machines, tools and factories used to produce goods to satisfy human needs. In its purest form, socialism implies that the government controls all activities related to production and distribution. Socialism aims to ensure an equal distribution of goods and services among citizens and to create an equitable society where there is no distinction between rich and poor.
A modern form of socialism has evolved in the 21st century, it is called democratic socialism. Socialism is subject to the efforts of each individual in the community, who must join together to control the factors of production and share the benefits equitably.
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Differences Between Capitalism and Socialism
1. Taxation: The socialist economy works with taxpayers’ money because essential services are accessible and affordable for all. An example of social services is health care which is provided free to all and cannot function without money, hence the heavy taxes imposed on citizens.
Taxation in a capitalist state is based on individual income. A person pays as much tax as he earns and if he doesn’t earn at all, he pays no tax. This is disadvantageous for anyone who cannot pay for essential services like health care because the government is not making adequate provision for free or affordable health care for all.
2. Ownership of means of production: Means of production here means referring to the land, labor and capital needed to produce goods and services. In capitalism, the means of production are privately owned, based on the belief that individuals should have the right to manage their affairs. It also breeds corruption as the wealthy pressure the government to enact and enforce laws that suit them (monopoly), thus increasing the gap between the bourgeoisie and the proletariat.
Socialists, on the other hand, believe that the means of production should belong to everyone and not just to a select few. Government control of the means of production brings about a balance between rich and poor because basic needs like education and health care would be available to all. In socialist states, there is a universal basic income, universal health care, and tax-funded education that helps indigent citizens.
See also: Advantages and disadvantages of a mixed economy
3. Distribution of income: As highlighted above, socialist states have programs like Universal Basic Income, which allows all workers to receive the same wage. The distribution of income here is also distributed according to the dictates of the government or the needs of the citizens. Income equality in a socialist state allows the poor access to essentials like education and health care, usually at the expense of heavy taxes imposed on the rich.
For capitalists, the distribution of income is determined by market forces. This is based on the belief that allowing market forces to control the distribution of income would ensure efficient management of resources rather than government control.
See also: Countries with the highest standards of living in the world
4. Economic growth/innovation: The availability of choice for consumers in capitalist states equates to more businesses, which drives competition in the marketplace. With competition comes innovation that creates new job opportunities and ultimately drives economic growth. Profit from the sale of goods and services is reinjected into these innovations. Some of these innovations could end up failing and crushing the business.
The socialist system does not compensate for innovation, probably because there is no competition. Workers and companies are generally not motivated to improve goods and services. On the positive side, it avoids business failures for risky investments or monopolies.
5. Choice: In a capitalist economy, which is generally a competitive market, consumers have a range of choices. The average citizen makes the decisions for them and bears the consequences. There is usually more than one person selling a particular product or providing a service, consumers can choose whichever they prefer. It gives the best product at the best price. Freedoms of choice influence demand, which is a key driver in a capitalist economy. The exchange of goods and services is voluntary.
In a socialist state, the government meets all the basic needs of the citizens, so there is no choice to be made because there are no options. The government controls the quality and prices of goods. The exchange of goods, labor or services is somewhat forced.
Socialism is most often criticized for its arrangement of social service programs demanding heavy taxes on citizens, which could slow economic growth. Capitalism, on the other hand, is often condemned for its propensity to allow a wage imbalance and a classification of people according to their financial capacities. It is in the effect of alienating workers who actually produce owners who only own the means of production that Karl Marx bases his critique of capitalism.
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Few countries in the world practice pure forms of capitalism or socialism. Norway, Sweden and Denmark are leaning towards socialism because health care, education and pensions belong to the government, but there is still a gap between rich and poor, as statistics have shown that about 65% of the country’s wealth belongs to 10% of the population. China, Russia and Cuba seem to be the few socialist states in the world. The major difference between capitalism and socialism is ownership of the means of production. A mixed economy is the most popular because it balances the merits of capitalism and socialism.
Edeh Samuel Chukwuemeka ACMC, is a law student and certified mediator/conciliator in Nigeria. He is also a developer with knowledge in HTML, CSS, JS, PHP and React Native. Samuel is determined to change the legal profession by creating web and mobile applications that will make legal research much easier.