Essay: Socialism and capitalism – disadvantages and advantages

Countries and governments world over have been battling on the best economic system to adapt that results in the most optimal benefits to its people. There are multiple financial systems, but there are the two main ones that have the most contentions, i.e., socialism and capitalism. Socialism is where the government or state owns and controls all the goods and their factors of production with the aim of equally sharing work and profits among the members in their societies. In this system, everything produced is considered to be a social product, where people contribute towards meeting the services and goods’ production costs and where the resultant benefits are shared in proportion to one’s contribution. Alternately, capitalism is the private and unrestricted ownership of products, services and their factors of production, with the aim of making profits that result in wealth. The citizens in the country are at will to invest capital, i.e., property and money in any business venture to produce services and goods that are sold to consumers in the market. It is therefore within these definitions that the paper and most economic analysts believe that capitalism is the best of both options as it provides the enabling environment for the factors associated with economic growth such as efficiency and competition to thrive as discussed below.
Socialism is the grouping of various social and economic systems that are characterized by the self-management of workers, the social ownership of the multiple means of producing services and goods and the various associate political theories. Social ownership can either be cooperative, public, collective or the citizens’ control or equity. Socialist systems are classified into two, i.e., market and non-market forms. The non-market forms of socialism involve the exchange of money and the factor markets with technical criteria and engineering that is based on the calculations that are performed in such kind that result in the production of economic mechanisms that function within some financial statues that are different from those that govern capitalism. Non-market socialism aims at circumventing the crisis and inefficiencies that are typically connected with profit systems and capital accumulation. Contrastingly, market socialism upholds the utilization of factor markets, monetary prices and profit motives in connection to the apportioning of capital goods and the functioning of socially-owned enterprises between them. Resultantly, the profits that are generated from these establishments are directly managed and controlled by the employees in each firm, or they may accrue to the society that habits the firms in the form of social dividends. It is also this form of economic system that has given birth to socialist political ideologies where they have been both nationalist and internationalist-orientated and organized within political parties rather than in party politics. Thus, they overlap with trade unions and also critical and independent of unions in developing and industrialized nations. Thus, the socialist political ideologies have resulted in a social democracy that embraces a mixed economy. The resultant markets are characteristic of strong state interventions through welfare states, income redistribution and regulations.
It is without a doubt that socialism is a present reality, with some real-life examples to show. Realistically, there are divergent views on the scope to which an economy is subject to control. There is an extreme group that believes that services and goods, with the exception to the personal ones, should be controlled while others think that only the essential provision of public services and goods such as education, utilities, i.e., sewerage, electricity, telecommunications, and healthcare require direct control; with small shops, businesses, and farms being privately owned but also under government control. This contention has openly been exhibited in communist countries such as the former USSR, Vietnam, North Korea, and China where the national governments have centrally exerted control over their economies. They dictate what business should produce, how much of it and what price to sell. These policies are against those of other socialists who believe that the controls exerted by a government should be decentralized so that they can be exercised by those who work within the industries that are most affected. An example is a city where its businesses are collectively managed and owned by the residents who depend on them for their upkeep. Organized socialism is also another example which is practiced in the United States, even though it has never become that powerful. It is because it has become less appealing when labor unions and the government have become successful in securing the rights of most workers in the country workforce and thereby enjoy high living standards.
Therefore, socialism has some disadvantages and advantages. The advantages that are connected to most socialist economic systems include: – (a) it is the surest and fastest way to achieve commonwealth and its benefits. (b) Governments that adopt the socialist systems control almost all societal facets and its functions, thereby ensuring the better utilization of labors, lands, and resources. (c) Workers in a socialist system are no longer subject to exploitation since they are the owners of the country’s factors of production. The profits are equitably spread among the country’s citizens as per their contribution to the ventures. Monopolistic tendencies that are the hallmarks of capitalism are avoided. (d) The system reduces the disparities in wealth that are quite common in capitalistic systems that create societal classes and ranks. The citizens that may be suffering from old age or illnesses and thereby are too old to be productive are valued and taken care of by the government, assuming that it is more compassionate than the individuals’ families. Thereby, each of the country’s citizens gets equal access to education and healthcare as none is discriminated and where everyone in a socialist system is engaged with what he/she is best at and enjoys doing while at it. Other advantages associated with socialists’ economic systems are that excesses or insufficient productions are avoided. Socialist economies are generally well-planned where the contributions of various production units are well-coordinated and thus prevent discrimination between investment and savings. Furthermore, due to these controls in production, deflationary trends are avoided since prices are controllable to a certain extent and therefore the systems considerably tackle unemployment.
The disadvantages of a socialist political and economic system include: – (i) Socialism is an infringement of liberties since it is the public ownership of production means, financial planning as cooperatives. Right libertarians and economic liberals regard the private control and ownership of production related factors and market exchanges as moral rights or natural entities. They are central to the conceptions of liberty and freedom and thus are absolute and immutable. (ii) Red-tapism and inefficiencies are also characteristics of socialist systems due to increased government interventions. The functions of the civil servants are incomparable with those of the citizens in private enterprises. The civil servants function in their specific jobs as duties that will eventually get paid despite non-performance and subsequently inefficiency set in and the economy suffers in the long term. (c) Socialism applies dispersed knowledge and therefore making it unfeasible since the information gathered cannot be collected and analyzed by a central body and effectively utilized to formulate a workable plan for any economy resulting in absent or distorted price signals. (d) The national economies of the countries with socialist systems develop relatively slower, and therefore they lack the structures to obtain the optimal profit from resource use such as land and labors. (e) Citizens within a socialist system lack the incentives and enthusiasm to study and work as the doing of more is not equally rewarded. (f) Areas in a country that has geographical advantages lose the chances to develop better and also the citizens who have wealth and intelligence lose the opportunities to expand their businesses to be more powerful. It is these disadvantages that give impetus to many countries to abandon socialism and uptake capitalism.
Capitalism: – it is a form of an economic model that is based on the private control and ownership of production factors as well as their profits. Capitalism is characterized by personal capital accumulation, private property, voluntary exchanges, competitive markets, and wage labors. In capitalist market economies, investment decisions are determined by the owners of the properties’ production abilities and their wealth in the capital and financial markets while the distribution of services and goods, as well as their prices, are determined by competitive forces in the services and goods’ markets. Investors are usually entitled to a share of profits derived from sales and after the extraction of the costs to distribute and produce. Subsequently, the profits are taken out of the businesses or enterprise for personal consumption, or they are re-invested to expand the enterprise operations or to get new ones. Political analysts, economists, historians or sociologists have adopted diverse perspectives in analyzing capitalism and have come up with its various forms. They include free market/laissez-faire, state and welfare capitalism. They differ to the extent of their free markets’ adoption, public ownership, the inherent obstacles to free-competition and the existence of state-sanctioned social policies. Furthermore, the levels of competition in their markets, the roles played by regulation, intervention and the levels of involvement of state ownership vary across the different capitalism modes. The freedoms experienced in different markets and also the rules outlining private property are a matter of policy and politics. Thus, most countries have adopted mixed economies whereby they combine the free markets elements, state intervention, and economic planning.
The real-life applications of capitalism are evident. For example, there is Sarah, Veronica, and Antonio who have each invested $250,000 in a startup enterprise that offers innovative business products. Should the company record $ 1,000,000 in profits, a share of it will be due to all three investors. Sarah may decide to reinvest her percentage to the company to construct a second production line, Veronica many choose to invest hers in another startup while Antonio may want to buy a new car. In observing capitalism at a macro point of view, the owners of capital hire workers to whom they wage after they have provided services and goods. The costs accrued to raw materials, the retail prices charged to their clients and the amount paid in wages are all determined by the supply and demand laws as well as competition. The exceeding of demand more than supply results in a rise in prices while the exceeding of supply more than demand results in their fall. In case multiple businesses market the same services and goods to clients, competition is created. At times, it is good for consumers since they enjoy lower prices and higher quality as the business owners try to attract people to buy from them as opposed to their competitors. The setting up of wages and its rates follow the same capitalistic principles whereby people with skills, education, training or talents that are in short supply in the job market but are in high demand are usually highly paid than those without comparable qualifications. Competition is also prevalent to the benefit of employers and especially where there is a considerable supply of skilled employees while the job opportunities are scarce. Job seekers tend to settle for less than what they can be paid should their skills be in high demand which results in the increasing of the employers’ profits due to a reduction in expenses.
Likewise, various disadvantages and advantages can be attributed to capitalism. The benefits include:- (a) there are minimal government interventions as one of the characteristics of capitalistic systems since the limitations that come with these interventions such as corruption, the poor circulation of market information and deficiencies in self-interest push forces are kept at the bare minimum. Therefore, the citizens in the country are highly motivated to work and invest so that they can attain maximum outputs. Furthermore, firms in a capitalistic system have more incentives to produce at higher efficiencies through cost reductions and limitations that result in the prevention of losses and especially in sectors where competition is high and therefore an overall improvement of the economy. (b) Consumers in capitalistic systems have a variety of choices on what is available for them to purchase which elicits competition among the many suppliers in the market and thus the clients have access to better service and products at reasonable prices. (c) Capitalistic systems ensure that the efficiencies in production are achieved since services and goods are produced on a demand basis, and thereby there are profit incentives to avoid wastage and to cut costs. (c) Economic expansion and growth are only possible in capitalistic financial systems through the increases in Gross-National Product and subsequent improvements of living standards. (d) Economic efficiency is where the economy of a nation-best allocates its resource to maximize the production of services and goods that are in line with its citizens’ welfare considerations. Capitalistic systems ensure this through high yielding GDPs that are as a result of innovations that come by as freedoms of choice are exercised by various individuals in an economy.
The disadvantages with capitalism include:- (i) Firms or individuals with monopoly power where they are the only entity that is supplying a particular product or service have the likelihood to abuse their position by charging unreasonable prices. (ii) It is only in capitalistic systems that massive social inequalities can be found. The system allows for the passing of wealth to future generations. Thus, if only a few people and their families hold most of the wealth in a country, it will circulate and continue to be passed down around the same people while those who don’t may continue to be poor and therefore increasing the levels of social divisions in a country. (c) Unemployment and recession: – capitalist economic systems are based on producers and consumers’ markets which periodically experience decline and growth. A recession is one of the economic cycles’ points where the economy of a country is at its worst, and when it occurs, some people find themselves to be unemployed due to massive layoffs by enterprises as they try to cut down their operational costs.