Economic Systems: Socialism and Capitalism Essay
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I have observed that when Americans discuss the relative merits of socialism vs. capitalism, the chief debates that come up are
• What would happen if we remove the stimulus for innovation and productivity that a free market generates? This implies having a free market including individual ownership and control, and to varying degrees a laissez-faire government.
• Would it be possible to have a thriving society in which we would not have 20% of the population living in poverty and without adequate healthcare, housing or economic security?
Fundamentally, we characterize and differentiate capitalism from socialism by the way they handle production (industry), distribution, and exchange (trade) of wealth and goods. In capitalism, capital…show more content…
It was also at this time that monopolization became widespread. Eventually, incorporated entities became able to perform many of the actions of individuals such as being able buy and sell property, hold patents, sue and be sued, etc. (Peavler).
The philosophy, such as proposed by Adam Smith, came to be that an economy has a natural design. Left to its own devices -- and removed from politics, religion and all other pursuits -- it will regulate itself as long as no one throws a spoke in the wheel and everyone benefits. The government's only real role in capitalism became to maintain peace and order so the economy can work without interruption (Newman).
In its purest sense, a socialist economy communally controls the production, distribution and exchange of resources. This community control is implemented by the state through a central government acting on behalf of the citizens. The roots of socialism lie in Thomas Moore’s idea of a utopian society. During the 18th and 19th centuries the industrial revolution and concomitant urbanization, resulted in increasing concentration of wealth and power (Hoyt).
Many feared that the freedom to engage in capital mercantilism had the natural consequence of
Their distinctions are many, but perhaps the fundamental difference between capitalism and socialism lies in the scope of government intervention in the economy. The capitalist economic model allows free market conditions to drive innovation and wealth creation; this liberalization of market forces allows for the freedom of choice, resulting in either success or failure. The socialist-based economy incorporates elements of centralized economic planning, utilized to ensure conformity and to encourage equality of opportunity and economic outcome.
In a capitalist economy, property and businesses are owned and controlled by individuals. In a socialist economy, the state owns and controls the major means of production. In some socialist economic models, worker cooperatives have primacy over production. Other socialist economic models allow individual ownership of enterprise and property, albeit with high taxes and stringent government controls.
The capitalist economy is unconcerned about equity (in the sense of equality). The argument is that inequality is the driving force that encourages innovation, which then pushes economic development. The primary concern of the socialist model, in contrast, is an equitable redistribution of wealth and resources from the rich to the poor, out of fairness and to ensure "an even playing field" in opportunity and outcome.
The capitalist argument is that the profit incentive drives corporations to develop innovative new products that have demand in the marketplace. It is argued that the state ownership of the means of production leads to inefficiency because without the motivation to earn more money, management, workers and developers are less likely to put forth the extra effort to push new ideas or products.
In a capitalist economy, the state does not directly employ the workforce. This can lead to unemployment during times of economic recession. In a socialist economy, the state is the primary employer. During times of economic hardship, the socialist state can order hiring, so there is full employment even if workers are not performing tasks that are particularly useful.
Some countries incorporate both the private sector system of capitalism and the public sector enterprise of socialism to overcome the disadvantages of both systems. These countries are referred to as having mixed economies. In these economies, the government intervenes to prevent any individual or company from having a monopolistic stance and undue concentration of economic power. Resources in these systems may be owned by both state and individuals.