Capitalism and Socialism, Essay Example

Capitalism refers to the ownership and use of factors of production by private citizens or individuals (Clore, 2008) while socialism refers to the ownership and use of factors of production by the government or the state (Thompson, 1993). In other words, capitalism preaches that the private citizens should be left alone to conduct their private affairs as they please, with little or no interference from the government. This is because it results in more efficient allocation of scarce productive resources and increases the incentive to work. On the other hand, socialism believes that the government is in the best position to allocate production resources according to the needs of its citizens and socialism also ensures more fair and equitable distribution of wealth.

Capitalism also proposes that political power should be accessible to all. Capitalism allows possession of wealth beyond basic needs as long as it has been obtained legally and legitimately. Capitalism encourages individual pursuit for excellence and achievements even at the cost of common good. There is a potential for greed in capitalism because capitalism gives incentives to individual to work hard and accumulate private property. This may be why capitalism results in intense competition supported by the belief that competition is a zero-sum game. The government’s only role is to ensure that laws are followed and there is a safety net for the least well-off members of the society. Capitalism may also encourage ignoring environmental costs because ultimately economic value creation is what matters in capitalism (Center for Economic and Social Justice, 2010).

Socialism on the other hand concentrates political power in the hands of the governing elite. Capital resources are managed by the bureaucracy which decides how the wealth is to be distributed among the citizens. Socialism proposes that everyone should have just enough income and wealth to get by in order to encourage equitable distribution of wealth. Citizens are dependent upon the state and cooperative behavior rather than competition is encouraged for the overall wellbeing of the society. Government also sets wages and prices instead of letting them being determined by the market system. There may be economic inefficiencies because the government purpose in creating jobs is as much to provide employment as it is to engage in commercial activity (Center for Economic and Social Justice, 2010).

The criticism against capitalism is that it results in greed which may also result in unethical behavior. In addition, it ignores the social costs including the environment in pursuit of economic gain. Capitalism is also criticized for increasing the wealth gap between the classes which could result in class warfare. Capitalism is also criticized for ignoring the interests of the most for the gains of the few. On the other hand, socialism is criticized for encouraging laziness and lack of worth ethics and production efficiency. This is because the government guarantees employment to everyone, thus, there is no incentive to work harder. The disincentive to work hard is also due to the fact that government strives for equitable distribution of wealth. Socialism is also criticized for inefficient allocation of already scarce resources.

The economic theory most closely related to capitalism is laissez-faire system and socialism is often referred to as communism. Capitalism and socialism do have some similarities. One is that both systems strive to provide safety net to the least well-off members of the society. Both systems do believe government has a role to play in the economy though they disagree to the extent to which government should be involved. Both systems also agree that competition is zero-sum game but capitalism allows it while socialism strives for more equitable distribution of wealth (Center for Economic and Social Justice, 2010).

References

Center for Economic and Social Justice. (2010). A Quick Comparison of Capitalism, Socialism, and the “Just Third Way”. Retrieved February 19, 2012

Clore, D. (2008, July 15). Socialism and Capitalism. Retrieved February 19, 2012, from http://www.nolanchart.com/article4246-socialism-and-capitalism.html

Thompson, C. B. (1993, October). Socialism vs. Capitalism: Which is the Moral System. Retrieved February 19, 2012, from http://www.ashbrook.org/publicat/onprin/v1n3/thompson.html