Socialism vs. Capitalism
Two opposing schools of economic thought
Two opposing schools of economic thought
In an economy, socialism vs. capitalism represent opposing schools of thought, and their central arguments touch on the role of government in the economy and economic equality among the citizens. Capitalists believe that the government is better off when the free market determines who wins and who loses.
On the other hand, socialists believe that the government is responsible for ensuring economic equality by introducing programs that benefit the poor such as free education, higher taxes for the rich, and subsidized healthcare systems. In a capitalist economic system, the work of managing resources is left to the private enterprises, and the free market is allowed to dictate the product prices.
The socialism vs. capitalism issue remains a sensitive matter today, particularly the extent of the government’s role in the conduct of a country’s economic affairs.
In socialist economies, the government owns and manages the economic resources such as money and other forms of capital. The citizens of the country work to generate wealth, which is then distributed to everyone. It is characterized by worker’s self-management of the means of production and is based on the premise that what is good for one citizen is good for all of them.
Everything that the people produce is a social product, and it is distributed to all citizens that participated in the production process. The government manages the education and healthcare systems, and the citizens pay for the resources through higher taxes.
A socialist economy ensures that the basic needs of the people are met. The basic needs include things like shelter, education, healthcare, economic security, etc. The government, as the entity managing the resources, can engage in the production of products or services that the people need even if it does not result in a profit to the government.
Even though few countries prefer socialism vs. capitalism, the former does come with some shortcomings. For example, when the government provides the basic needs of the people, the workers see fewer incentives to work hard to generate more income and wealth.
Also, when the government distributes wealth to everyone, the citizens who put more effort into the production process feel less connected to the income they generated. Looking at socialism vs. capitalism systems around the world, examples of socialist economies include the People’s Republic of China, North Korea, and Vietnam.
Capitalism is an economic system where private corporations own and operate the means of production for a profit. The owners of the wealth and properties in the economy make the decisions on how the resources will be utilized, while the prices of goods and services are determined by the competition in the free market economy.
Unlike in a socialist economy, the government exerts minimal control over what the private enterprises produce, when the product is produced, and the quantity to produce. The only role that the government plays in a capitalistic market is to enforce laws and regulations with the aim of creating a level playing field for businesses to operate.
Private enterprises own the means of production, and they operate them for a profit. They incur costs in manufacturing commodities that are sold in the market at a higher price than the cost of production. The income they earn from the business allows them to purchase new raw materials, pay operational expenses and salaries, and still retain some earnings for reinvestment and expansion.
For large corporations, the management assumes the greater role of maximizing the shareholder value by investing in portfolios that earn the investors a high return on their investments. Corporations in capitalist economies are also treated the same way as individuals, and they can perform the same activities such as trading and suing as individuals. Also, capitalism gives businesses more incentives to work hard since they enjoy all the profits and wealth they generate from the economy.
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