Capitalism and Socialism Systems - Essay Example

Capitalism and Socialism Systems It is observed that certain economic systems are playing a vital and crucial role in maintaining businesses around the globe. One of the pivotal factors that keep the business running is capital, which is considered one of the basic elements in an economic system. Provision of goods and services is the most important responsibility of every economic system, and effective fulfillment of this responsibility decides the efficacy of a specific system. Some of the existing economic systems in different parts of the globe are capitalism, socialism, and mixed-economy systems. Specifically, this paper will discuss and compare two of the most important economic systems, capitalism and socialism. Since two decades, our globe has witnessed heap of economical changes, which has resulted in the abolishment of communism. The world trade organization has come into being under auspices of United Nations, making it mandatory for all member countries to open their trade borders for other member countries since the year 2005. The administration of W.T.O has given a new scope to capitalism. Most custom duties were abolished or minimized to the extent of fifty percent, and no duty was imposed on the gadgets of information technology since then. After the industrial revolution, a new economic and political system was developed that is now referred is Capitalism, or open market economy. In such system, free markets prevail, profits are made in an unlimited manner, and ownership of capital is not restrained by any imposition. In other words, methods of productions are implemented and applied by the businesses in a freely manner. Moreover, private ownership of different means of production and distribution is allowed and encouraged in capitalistic economy system. Some of the examples of such means are railways, industries, land, etc, which allow the individuals to make profit. Furthermore, studies have noted that concentration of wealth is facilitated in capitalism, which results in the creation of competition, and corporations are developed in the result. In addition, capitalists are provided with authoritative powers by the generation of capitalism. Furthermore, private sector is the most important sector in the capitalistic economic system, which controls the processes of production and distribution, which becomes possible by the least-possible interference of the government. (Seldon, pp. 23-25) In order to further explore the capitalism economic system; there are two available classification of capitalism in terms of its history, such as Laissez Faire Capitalism and Modified Capitalism, which should be analyzed for effective comparison of capitalism with socialism. In specific, absence of governmental control is referred as Laissez faire in French language. During the industrial revolution, the United States and some of the European countries witnessed the commencement of capitalism; however, first and second World Wars resulted in the end of this system of capitalism. During the period, government interference was minimal that allowed manufacturers and sellers to plunder uncontrollable profits from the consumers, and a number of other evils were produced. Prices went high and quality became low, as the producers to curb competition created business combinations. Great Depression was the ultimate result of such rampant behavior of producers that created unemployment and a number of businesses filed bankruptcies. (Reisman, pp. 48-50) Another major form of capitalistic economy is the modified capitalism, which is considered far better economic system in comparison to laissez faire capitalism, and thus, it is essential to analyze this form to understand the different aspects of capitalism. After the Great Depression, strict and radical steps were taken by the United States government to restrain and eliminate the evils of Laissez faire capitalism. Moreover, stern laws were enacted in the country and all. Nowadays, modified capitalism is prevailing in most of the countries that allow capitalists, producers, and consumers to develop economically in a rapid manner. Some of the countries that have implemented modified capitalism are the United States, Japan, Germany, Australia, etc. Ordinance factories, railways, heavy industries, banks, insurance companies, utility services, etc are in the private sector. In capitalism, own businesspersons due to minimum interference of the government devise business policies, and different sources of capital are determined in an effective manner. Moreover, businesspersons are allowed to decide the nature of goods and services, which will decide the extent of profit. However, various governmental laws restrict the freedom of businesses, which is essential for effective controlling for avoiding rampant behavior that was visible in Laissez faire capitalism. Another major advantage of capitalism is abundant supply that is beneficial for people, as well as, the country. Moreover, natural price level is maintained in capitalistic economy due to better quality and abundant supply of products. Surprisingly, market of the producers is expanded by the competition in capitalism. Supportive climate for investments is created under capitalism. Profitable projects are created that allow businesses to invest and get huge profits. In other words, maximum opportunities related to investment are offered in capitalism. In the result, more manufacturers are attracted due to profit opportunities, and consequently, an increment is observed in the industrial growth of the country. Another major characteristic of capitalism is that is allows free flow of capital, which plays a pivotal role in the advancement of economy of the country. Under the capitalism, consumer is the king and plays the role of a dictator in the market economy. In other words, steps are taken and efforts are made to satisfy consumers according to his requirements, and thus, merit is encouraged in the capitalistic system. In the open market economy, jobs are given to best and qualified persons, whereas, incompetent personnel are rejected in the capitalism. (Friedman, pp. 71-73) Until now, the paper has analyzed some of the attributes of capitalism that makes it one of the most popular economic systems around the globe. However, it is not the perfect system, and thus, it has couple of disadvantages that will now be discussed in following section of the paper, which will allow an effective comparison with other economic systems. Sovereign component in capitalistic economy is capital. Although significant importance has been given to human resource by the implementation of modern management in present era, element of capital dominates the human workforce, which is one of the major disadvantages of capitalism. Stress is the result of capitalistic economy, as more and more profit is expected by the owners from their managers, as primary importance is given to capital and profit, and not the human resources. In capitalism, poor gets poorer, and wealth is concentrated at only one place, which results in the enhancement of class conflicts. In other words, capitalism divides the society into two classes, rich and poor. However, necessary laws can be enforced by the government to avoid any unsuitable social structures. Rampant corruption is accelerated in capitalism, as government control is minimal in business processes, and businesspersons enjoy excessive freedom to acquire huge profits. Moreover, it is noted by the experts that governments are harmed by the manipulation of limited companies, as tax payments and provision of dividends are avoided by them. (Friedman, pp. 66-68) Another major drawback of capitalism is the base of interest that has a number of inherent evils. Some of the other evils that are allowed in capitalism are lottery, gambling, nudity, etc. Until now, the paper had discussed and analyzed some of the significant aspects of an important economic system, Capitalism that is implemented in the United States. Now, the paper will examine and investigate some of the characteristics of another major economic system that is implemented in a number of countries, and referred as Socialism. In specific, collective ownership of different means of production and distribution is given importance in Socialism. Moreover, steps are taken to ensure public interest in the economy by interference of governmental bodies. In socialism, government ownership controls heavy industries, communicational institutions, utility services, and other means of production. Contrary to capitalism, people enjoy controllable prices due to management by the state of affairs. On the other hand, bureaucracy and corruption cannot be avoided in such economic system, as most of the powers are enjoyed by the government officers. Socialism is free of interest, which is an imperative advantage of this economic system, and contrast to capitalism that is based on interest. However, a rapid advancement is observed in the roots of interest due to demise of socialism after the disintegration of the U.S.S.R. Moreover, interest-free economy or socialism is being avoided gradually by other countries, such as China, Korea, and some of the European countries. (Marx, pp. 19-22) Thought of collectivism was created by the commencement of socialism. Under this system, government prohibits individuals to own different means of production and distribution, and thus, individualism is prohibited and discouraged in socialism, which decreases level of motivation in people of such countries. Furthermore, competition does not exist in socialistic countries, as government and communes own the means of production and distribution, and thus, only one producer controls the market economy, the government. Conversely, capitalism encourages severe competition due to innovations, abundant supply, and consumerism. On the other hand, socialism lacks all these attributes, as private sector does not exist in such economic system, which is a contrast of capitalism, as monopolistic market is encouraged in socialism. One of the characteristics of socialism is control of demand and supply, which is beneficial for consumers, as they are able to acquire products and services at a lower rate, as compared with goods in capitalism, which are provided to consumers at a higher rate. Additionally, notion of rich and poor is eliminated in socialistic economic system, as all the people enjoy quite similar lifestyle, and they are able to get consumer goods regardless of their economic background, which is once again contrasting with capitalism that deprives availability of consumer goods to everyone. Since heavy industries, communication systems, and utility services are owned by the government, the state has the full responsibility of its people. In socialism, government fixes the salaries, as well as, distributes it accordingly, which is the responsibility of private sector in capitalism. State-run organizations tend everyone to work as per their capabilities, and nobody is allowed to sit at home, which results in the elimination of unemployment. In specific, it becomes the responsibility of the government to take care of child, once he is born in the country. Another characteristic of socialism is that it does not require advertising of products due to monopolistic conditions in the market. (Newman, pp. 59-62) On the other hand, capitalistic society requires advertising as an essential business activity due to a number of suppliers and producers in the market. One of the other drawbacks of socialism is that absence of private sector results in low morale of government employees. Some of the common observations in socialistic economy are lack of motivation and absenteeism in government workers. In this regard, a gradual growth is observed in the economy of socialistic countries due to lack of motivation. Moreover, a rapid increment is observed in liabilities of the government due to controlling of ownerships in its hands. It is observed that corruption and inefficient management are some of the results of socialism due to excessive and lavish spending by government related officers. Conclusively, the paper has analyzed and discussed some of the significant aspects of the two economic systems, Capitalism and Socialism. It is observed that now a number of countries are gradually getting rid of socialism due to lack of motivation and slow economic growth, as well as, globalization that have brought all the countries under one economic platform. Both the economic systems are not perfect, and have some advantages, as well as, some drawbacks. It is hoped that the paper will be beneficial for students, teachers, and professionals in better understanding of the topic. Works Cited Arthur Seldon. Capitalism. Institute of Economic Affairs, 2007. George Reisman. Capitalism. LPC Group, 1998. Karl Marx. Socialism. Mondial, 2006. Michael Newman. Socialism. Oxford University Press, 2005. Milton Friedman. Capitalism and Freedom. University Of Chicago Press, 2002. Read More