Socialism and capitalism

Capitalism vs. socialism . Two different political, economic and social systems in use by countries around the world. The United States , for example, is generally considered a prime example of a capitalist country. Sweden is often considered a strong example of a socialist society. However, Sweden is not socialist in the true sense of the word. In practice, most countries have mixed economies with economic elements of both capitalism and socialism.

We show you below the most important differences between capitalism and socialism :

  SenseCapitalism refers to the economic system that prevails in the country, where there is private or corporate property in commerce and industry.The economic structure in which the government has ownership and control over the economic activities of the country is known as socialism.
  BasePrinciple of individual rightsEquality principle
  DefendingInnovation and individual goals.Equality and equity in society.
  Means of productionPrivately ownedSocially owned
  PricesDetermined by market forces.Determined by the government.
  CompetenceVery highThere is no competition between companies.
  Degree of distinction in the class of peopleAltoLow
  WealthEach individual works for the creation of their own wealth.Equally shared by all the people of the country.
  Religion Freedom to follow any religion.Freedom to follow any religion but encourages secularism.
  EfficiencyA lotLittle
 Government interferenceThe government interferes little or nothingThe government decides everything

What is capitalism:

The Capitalism is an economic system where the means of production are owned by particulare s. “Means of production” refers to resources that include money and other forms of capital. Under a capitalist economy, the economy runs through individuals who own and operate private companies. Decisions about the use of resources are made by the individual or individuals who own the business.

In a capitalist society, incorporating companies are typically treated by the same laws as individuals. Corporations can sue and be sued. They can buy and sell properties. They can perform many of the same actions as individuals. They live for profit. They exist to make money. All companies have owners and managers. Sometimes, especially in small businesses , the owners and managers are the same people . As the business grows, the owners may hire managers who may or may not have an ownership stake in the business. In this case, the managers are called the owner’s agents.

Management’s job is more complex than just making a profit. In a capitalist society, the goal of the corporation is to maximize shareholder wealth. It is the government’s job to enforce laws and regulations to ensure a level playing field for private companies. The number of laws and regulations in place in a particular industry generally depends on the potential for abuse in that industry.

What is socialism:

The socialism is an economic system in which the means of production, such as money and other forms of capital, are owned by the state or the public. Under a socialist system, everyone works for wealth, which in turn is distributed to everyone. Under capitalism , you work for your own wealth . A socialist economic system operates on the premise that what is good for one is good for all. Everyone works for their own good and for the good of everyone else. The government decides how wealth is distributed among the people.

In a pure socialist economy , there is no free market like we see in a capitalist nation. The government provides for the people. Taxes are generally higher than in a capitalist system. There may be government-run health care and an entire government-operated education system. It is a mistake to think that people do not pay for these services. They pay for them through higher taxes. Socialist systems emphasize the equitable distribution of wealth among people.

Characteristics of the socialist system

  • In socialism the means of production are owned by the state.
  • Economic activities are planned by the central planning authority.
  • Absence of competition
  • Equal opportunities for all.
  • There is no economic freedom for the people.

Advantages of socialism

Greater efficiency

Economic efficiency in socialism is greater than in capitalism, the means of production are not left to market forces, but are controlled and regulated by the central planning authority towards the chosen end. The central planning authority conducts a comprehensive study of resources and uses them in the most efficient way.

Greater well-being

In a social economy, there is less income inequality compared to the capitalist economy due to the absence of private ownership of the means of production. In the socialist economic system, everyone works hard and is paid according to their abilities.

Absence of monopolistic practices.

One of the benefits of socialism is that it is free from monopolistic practices. Since in socialism all the means of production are owned by the state, the monopolist’s holdings are absent. Instead of a private monopoly, there is a state monopoly on the productive system, but this is operated for the well-being of the people.

Absence of business fluctuations.

A socialist economy is also superior to a capitalist economy as it is free from business fluctuations. The generally planned economy coordinates the action of various producing units, avoids discrimination between saving and investment, and makes full use of available resources. It is able to control production and avoid the general deflationary trend.

Economic growth

I will regard economic growth as an important advantage of socialism because it embraces economic planning as a means of promoting rapid economic growth. A planned socialist economy works properly according to plan in a systematic and orderly manner and marches rapidly towards economic progress.

Disadvantages of socialism

Elimination of individualism

Socialism has many disadvantages, but the first thing that comes to mind is the lack of economic freedom. In the socialist economic system everything is controlled by a centralized body. Individuals cannot own any assets, everything belongs to the state. Workers are assigned specific jobs and are not allowed to change them without the consent of the planning authority.


In socialism there is much involvement of the bureaucracy and they are the engines of all economic machinery. The civil servants of work are not comparable with the private employers. Public officials simply do the job because it is their duty and they will be paid regardless of the consequences. This is how inefficiency arises and, in the long run, the economy suffers.

An artificial system

Since a socialist economy is a planned economy, every aspect of the economy must be determined by the government. The forces of demand and supply do not apply, which is one of the disadvantages of socialism.

Consumers suffer

In the final analysis, it is the consumer who loses. Consumer sovereignty does not apply in a socialist economy. Consumers do not enjoy consumer status as in a capitalist economy. The options of goods and services are able to maximize your total satisfaction.

Economic equality 

The socialists demand a more equitable distribution of wealth, but in practice it is proven that complete economic equality is virtually impossible. There is a distinction between rich and poor. Furthermore, since it is a planned economy, the poor suffer even more.

Non-existence of economic and political freedom.

The freedom of business, the freedom of choice of occupation and many other essential freedoms for an economy to prosper are outside society. The true spirit of democracy is fading. Although it has been agreed that the six basic necessities of life are met within a socialist economy, all of this comes at the expense of economic and political freedom.

Non-existence of competition.

It is because of competition that an economy becomes prosperous. Competition between producers and consumers leads to the production of a good quality product that may even be relatively cheap, as it is one of the drawbacks of socialism. Thus, the talents and initiatives of humanity develop and, in the final analysis, the country incurs rapid growth.

Advantages of capitalism

Private property

Everyone has the right to own property. People have the right to own their homes, cars, and televisions. They can even own stocks and bonds.

Own interest

People are free to pursue their own good. They can do whatever they want regardless of pressure from politicians or consideration of what their neighbors think of their actions. The idea is that people’s actions will help society as a whole. People are the most productive when they can earn money that gives them financial and political freedom.


Since people have the right to own assets, companies will see this demand and start making products to satisfy consumers. As demand grows, more companies will jump into the market and start competing with each other for consumer money. This should be a good thing; more competitors mean better quality products and lower prices. At the same time, these companies will have to hire more workers and pay them better wages.

Freedom of choice

Now the consumer can choose from an offering of different products from various companies. No one can tell you that you have to buy a specific product from a specific company. Workers have the freedom to work for any company they choose. They can demand higher wages and better benefits.


Among the many advantages of capitalism is the idea that capitalism fosters efficiency in the market. Businesses must find cost-effective ways to produce high-quality products that consumers want to buy.

Efficient resource allocation

Companies produce goods according to the demands of consumers. Companies don’t make products that nobody wants to buy. Companies have incentives to be productive; Inefficient companies will go out of business.

Limited government intervention

In a capitalist society, the government has a smaller role. Taxes are lower and there is less government intervention in the free market. The role of government is to protect the rights of private individuals, not to interfere with their personal freedoms.

Disadvantages of capitalism

Focus on profit

The obsessive focus on profits leads to social and economic inequality. The population that controls the means of production tends to accumulate more wealth than the workers who helped create that wealth for the rich. Because rich families can pass their wealth on to their heirs, the rich get richer and the workers stay poor.

Financial instability

Financial markets go through periods of irrational exuberance, causing boom and bust cycles. During a prolonged recession, people can lose their jobs, have their homes repossessed, and experience a decline in their living standards.

Monopoly power

Since capitalism is a free market, it is possible for a single company to become all-powerful and dominate a market. When this happens, a business can charge whatever price it wants and consumers have no choice but to pay higher prices.

Workforce limitations

In theory, factors of production should be able to shift from unprofitable use to profitable business. But this doesn’t work for the workforce. A farmer who has just lost his job cannot get on a plane and fly to a big city to take a job as a waiter.

Negligence in social benefits

Private companies don’t really care about providing social benefits like health care, public transportation, and education. Neither of these areas makes a profit. So the government has to step in to provide these services.

Characteristics of capitalism

  • Free enterprise economics
  • Private property
  • Freedom to choose occupation
  • Market mechanism.
  • Consumer sovereignty
  • Freedom to save and spend
  • Competition between sellers
  • Freedom to enter into contracts
  • Inheritance
  • There is no central plan

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