In this article, we are going to pick one of the highly debated topics, i.e. Socialism Vs Capitalism. Do you know what does they actually mean? 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. Now look at the other side of the coin, there is Socialism, which is evolved from 1800 AD and its place of origin is France. The former gives emphasis on capital, but the latter gives 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
|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||Principal of Individual Rights||Principal 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.