Capitalism and socialism constitute opposing economic and political ideologies. The main proponents of modern capitalism and socialism are Adam Smith and Karl Marx respectively. Among the best models of free market economies include Hong Kong and Singapore. Some eastern European nations run variants of socialism (Hanson, 2003, p. 121).
Capitalism is an ideology of production in which factors of manufacturing belong to and are controlled by individuals with the object of profit making (Gale Group, 2010a). A capitalist economic system is characterized by wage labour, accumulation of capital and competitive markets.
Socialist economic systems are marked by state ownership and control of factors of production (Gale Group, 2010b). In such a system, the economy is managed through cooperative enterprises. The model is grounded on the tenet of production for consumption, where goods and services are made to meet people’s needs and economic demands (Hanson, 2003, p. 121).
There exist clearly cut differences between the capitalist and the socialist economic systems. The altercations in the capitalist-socialist discourse concern equality and function of government. Capitalists contend that individuals are more adept to efficiently using resources than the state (Gale Group, 2010a). On the contrary, socialists hold that the government has an obligation to correct the economic inequalities existing in the society (Gale Group, 2010b).
The philosophies and ideologies behind capitalism and socialism are divergent. Capitalism is founded on the philosophy of private ownership of capital with the motive of making profit. Capitalists have little concern for the workforce as emphasis is laid on the profit accruing from an investment. On the flip side, socialism is grounded on the principle of public ownership of the factors of production. Individuals in this system are compensated depending on their contribution in the production process.
Capitalism calls for the creation of a laissez-faire economic system (Gale Group, 2010a). The capitalists argue the government intervention in the production process leads to inefficiencies and hence the free market is the best placed economic model to achieve efficiency in resource allocation. Socialists believe in the ideology of collective benefit (Hanson, 2003, p. 121).
Economic planning and coordination are also at the centre of the capitalist-socialist discussion. In capitalist economies investment, manufacturing and distribution decisions are determined by the markets (Gale Group, 2010a). Markets in a capitalist economy may be free, regulated or mixed with some extent of government directed plans and planning by the private sector.
Socialist economies depend heavily on state planning to chart investment and manufacturing decisions. Centralized or decentralized planning may be exercised in a socialist economy. Though the competitive markets may also exist in socialist system, their function is to allocate the factors of production to different publicly owned enterprises (Lavigne, 1995, p. 52).
In capitalist economic models, the rate of employment is determined by the pressures of demand and supply in the labor markets. At times of economic boom the level of joblessness in market economies decline tremendously (Gale Group, 2010a). Nevertheless, during an economic recess the capitalist systems of production witness soaring levels of unemployment. In socialist economic systems, the state directs employment.
This implies that governments can lender full employment even when employees are not engaged in anything essential. Price determination is also a major aspect of departure between capitalism and socialism. In capitalist economic models price determination is within the ambit of market forces. Companies with monopoly power are able to take advantage of their position and levy higher prices. In economic systems modeled in the socialist ideologies the state sets and controls prices (Gale Group, 2010b).
Some advocates hold that capitalism is the bedrock of personal and political freedom (Gale Group, 2010a). It is argued that social interactions can only be best organized in a capitalist society because it provides space for free will and reason. Generally, socialists value justice more than profit (Gale Group, 2010b). Leading socialists blame the world economic crisis, poverty and environmental degradation on the profit seeking culture.
Reference List
Gale Group. (2010a). Capitalism: Opposing Viewpoints in Context. Web.
Gale Group. (2010b). Socialism: Opposing Viewpoints Online Collection. Web.
Hanson, P. (2003). The Rise and Fall of the Soviet Economy: An Economic History of the USSR. Harlow: Pearson Education.
Lavigne, M. (1995). The Economies of Transition: From Socialist Economy to Market Economy. London: Macmillan.