Capitalism and Socialism
When analyzing different economies, it is paramount to consider the level of government interference I that particular economy. The reason is that the level of government interference will determine whether an economy is a capitalist economy or a socialist economy. In this article, therefore, the differences between these two types of economies will be highlighted.
In capitalism, it is clear that the means in which gods and service are produced are owned by individuals while in a social economy the means of production of a country are owned by the nation itself. This means that in a capitalist economy any profit generated from production belongs to the shareholders of that particular venture. I a social economy, however, the profits from production are stately owned and distributed fairly throughout the nation in order to complement the salaries that the people earn.
Another key difference is the level of government intervention. A capitalist economy practices a Laisse Faire type of government involvement. They believe that if the government intervenes in the day to day operations of the production process, I will only create inefficiencies in the process. They believe that the market should be free and the forces of demand and supply should guide the market. On the other hand, social economy embraces the need to ensure that the rewards from production are governed by the government. In this way, the government is able to ensure that everyone gets a piece of the pie thorough good infrastructure, access to basic necessities and the ability to self-actualize.
Ownership of property is another thing that differentiates a capitalist economy and a social one. In a capitalist economy, property is in privately owned. The private owners own the property purposefully to generate profit from using them. Profits, in this case, acts as incentive form the owners to engage in economic activities. In a social economy, all the means of productions are owned collectively by everyone. The main goal of owning property is to help the society prosper and not generate profits. However in case, there is a surplus from the production process, the surplus is shared by the community or just the employee members of that organization.
The level of competition in an economy is another factor that differentiates capitalism and socialism. In capitalism, competition determines the ownership of capital resources. Through competition, the most profitable endeavors are determined and pursued. In this economy, completion drives the market to only ensure that the profit maximization is the best cause of action. However, in a social economy, completion does not drive resource allocation. Resource are allocated based on various factors key among them being collective ownership. In this economy, competition is nonexistence and resources are used in a way that will ensure economic democracy. In addition, material balancing is considered in order to ensure that even the sectors that do not generate profits are catered for.
These two types of economies flourish in different types of government and political structure. Capitalism will always favor a democratic republic that does not interfere with the market forces. Socialism, on the other hand, favors a democratic centralism type of government. These government will have the mandate to allocate resources and afterward divide the production output fairly. It is important to note that capitalism causes the need to have different types of classes in the community. It creates a community that is divided between capitalist and the working class. The capitalists in these case are the owners of the means of production while the workforce are the ones who work for the capitalists. The workforce depend only on the wage that they will receive from the owners for their survivals. This is in contrary to socialism where no classes exist. Classes only come into play from a political standpoint and not an economic one. Die to this socialism experiences a bigger degree of labor mobility as opposed to capitalism.
For socialism to work, there is a need for an economic coordination. This economy primarily relies on planning. Plans are developed that will show how production will be undertaken. The plans for production can either be centralized or decentralized depending on the preferences of the society. It is imperative to note that these plans are made and executed by the chosen delegates of the communities. Capitalism, however, depends only on the market forces to determine all the decision relating to investments and production. In this economy, the market can either be completely free or somehow regulated by either the state or private companies.
In summation, capitalism and socialism are completely different. Capitalism has a very little level of government intervention. It allows the market forces to dictate what will be produced and the required investment decisions. I this market equality is not a factor to be considered, rather completion for resources is embraced. Socialism, on the other hand, embraces equality and ensures that resources are divided fairly. The decision to invest and produce are made by the state through careful planning.
Schumpeter, Joseph A. Capitalism, socialism and democracy. routledge, 2010.