Comparison of Capitalism and Socialism

Socialism and capitalism are the two main economic systems in the world. It is the level
of government involvement in the economy that differentiates the two systems (Xu, 1). In
socialism, everyone, through the government, controls the factors of production (labor, natural
resources, entrepreneurship and capital goods) (Xu, 1). It is the government that determines the
goods and services to be produced, when they are to be produced, who to produce them, and
where to produce them. Unlike socialism, the level of government involvement in the economy
in capitalism is minimal. In capitalism, it is private entities rather than the government that owns
and controls all factors of production (Xu, 1). These private entities or individuals produce, price,
and distribute goods based on the laws of supply and demand. Capitalism, therefore, operates in
free markets where the laws of supply and demand apply.

These two systems, even in their most extreme, have both advantages and disadvantages.
The advantages of socialism include equal access to public goods and services, such as education
and healthcare, lack of exploitation of workers, equitable distribution of profits, and provision of
help for those who for reasons such as disability cannot work (Gander, 2). Its disadvantages
include inability to reward innovation and entrepreneurship, inefficient use of resources, and
need for governments with a lot of powers to effect it (Gunder, 2). The concentration of lots of
powers in government hands often leads to the abuse of those powers. As for capitalism, its main
advantage is its reward for entrepreneurship and innovation, promotion of efficient use of
resources, and ability to create great wealth (Gunder, 2). Its major disadvantages include creation

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of inequality in society, use of production methods that result in pollution, and its lack of care for
those who cannot work such as the disabled and the elderly.

These two systems, therefore, have both pros and cons. It is, however, important to note
that no country is purely capitalist or socialist. Many countries mix elements of both systems so
that they can benefit from the advantages of both systems.

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Source List

1. Xu Chenggang. 2017. “Capitalism and socialism: a review of Kornai’s Dynamism,
   rivalry, and the surplus economy.” Journal of Economic Literature 55, no. 1.
2. Frank Andre Gunder. 2016. “Transitional ideological modes: Feudalism,
   capitalism, socialism.” In Critical Anthropology, pp. 93-110.