The Difference Between Capitalism and Socialism
What is capitalism? Simply put, capitalism is a political socioeconomic system in which the ownership of productive assets is vested in the hands of private citizens through capitalism’s trusts and associations. In addition, capitalism also incorporates free enterprise, technological advancement, the division of labor and economic responsibility. Central characteristics of capitalism incorporate a market system, aggressive competition, high levels of investment, the distribution of property as private property, free association and private property rights.
In contrast to the limited and tending socialism, the free enterprise system is characterized by a number of unique characteristics. Firstly, the capitalist economy facilitates mobility of capital between and within nations and internationally, facilitating the internal expansion of business and facilitating the movement of goods. Secondly, the capitalist economy encourages and promotes scientific progress leading to an increase in the standard of living and, thirdly, capitalism provides a number of important social services, ensuring protection of life and work and promoting social interaction and community responsibility.
One feature that all modern economies have in common is laissez faire. This term, according to the French Dictionary, means “to allow the free market to function.” It is used to describe an economy in which there is no interference by government authorities or by organizations for economic activity. Capital in the market is allowed to flow freely into and out of a country, with no restrictions or requirements for repayment. Individual ownership and control of economic property are allowed, though at times ownership may be exercised in partnership with others through trusts or companies.
The primary feature of capitalism that distinguish it from feudalism is laissez faire ownership. Unlike feudalism, ownership in modern times is not controlled by birth order, wealth, or heritage. A person, regardless of social position in the hierarchy of society, may buy, sell, and own property. In fact, capital is defined as the accumulated value of a person’s goods or services. Property ownership, therefore, represents freedom and equity in the possession and control of resources.
Unlike ancient societies with limited access to resources, modern capitalism allows vast wealth and opportunity to those who are willing to take risks and use their intelligence. Developing nations in the early era of capitalism were not able to compete in developed markets due to heavy government taxation and other heavy tolls that limited their ability to accumulate and invest capital. Capital flight was common in these societies, and the resulting loss of competitiveness deterred capital investment and technological development. Capital, therefore, was a constraint on economic systems.
With the coming of the industrial revolution, capitalism changed radically and began to attract private individuals and small business owners rather than large government entities and corporations. Huge fortunes were made by relatively small numbers of entrepreneurs and new business institutions. However, big business still had an overall effect on the economy. Private individuals and business owners exert huge influences on economic policies and social behavior. This fact, in combination with increasing knowledge about how markets operate and new ideas about how the economy can operate better, led to the evolution of modern capitalism.
Modern capitalism is characterized by economic policies that allow a maximum level of private investment and technological innovation. Capital is invested in research and development, making the economy more efficient and effective, and allowing a better distribution of wealth. Economic growth is promoted by expanding industry, creating jobs and increasing productivity, and allowing consumers to have greater access to products and services that have been previously only available to the very wealthy.
Socialism, on the other hand, is based on notions of nationalization and heavy state intervention to solve problems. In reality, socialism never really succeeded in establishing and maintaining a stable economy. The real tragedy of socialism is that it has led to increased distrust of big government and its intervention in industries, and the decline of private enterprise. Many socialist economies collapsed after heavy-handed government intervention and high taxes. Free-market capitalism, on the other hand, has allowed for the development of new industries and the rise of entrepreneurial capital, making the economy much more efficient.
