What Are the Problems With Both Capitalism and Socialism?
Before we can talk of capitalism in its most essential form, it would be useful to have a basic understanding of what capitalism actually is. Basically, capitalism is an economic system under which the operation of business and the production of products for sale are dominated by the private ownership of capital goods and their distribution on the market. Unlike socialism, capitalism does not have any state apparatus involved. central features of capitalism include competitive markets, high capital investment, voluntary competition, private property and the right to own property, the production and exchange of commodities for sale and a competitive price system.
Contrary to what many socialist and left-leaning critics of capitalism claim, capitalism is not a “zero-sum” game wherein the individual who comes in last remains in the same financial position at the end of the day. Far from it, the system of capitalism provides ample opportunities to the diligent individual to excel, to rise above others and to achieve great wealth and status. The key to this lies in the fact that capitalism does not discriminate by wealth or income level but allows all qualified individuals to participate in the system. This is why there are no formal barriers to entry, as the principle of freedom of enterprise ensures access to the market by all willing participants.
Yet another criticism of capitalism is that it results in crony capitalism, in which certain firms prosper at the expense of other competing firms. In such a scenario, entrepreneurs will tend to form cooperative enterprises in order to benefit from the overall productive capacity of society. It follows that some firms may become monopolistic, resulting in a situation where there is a grave lack of commodities in the market, leading to increased prices and shortages. Such an instance could lead to social turmoil, and this is one of the reasons why governments tend not to take aggressive measures against capitalism.
capitalism is said to be a “total” economic system, whereas socialism is a “social” economic system. The difference between capitalism and socialism is that socialism encourages competition, whereas capitalism encourages monopoly. For example, in capitalism a firm will be less inclined to introduce monopoly, and will instead compete with other firms for customers. Thus, capitalism tends towards decentralization, while socialism encourages centralization.
A final objection to capitalism is that it results in too much government regulation. The protection needed by the free market is thought to be excessive, leading to a situation in which the state interferes in the normal workings of the economy. Proponents of capitalism counter this claim by pointing out that it is a capitalist economy which guarantees that government intervention does not occur. They argue that the free market is self-regulating, whereby the interests of the users of capital prevail over those of the state. As a result, they claim, the level of taxation required by a government determined through political decision is only a proportion of the resources invested.
Critics of capitalism also point out that there are inefficiencies in the economic system that are not solved by capitalism. For example, they point out that feudalism created a division of land between the landlords and peasants, which were not solved through economic action, such as that of capitalism. Another problem noted with the mercantilism advocated by some capitalists is that it tends to create artificial shortages, leading to the creation of a crisis economic system.
Critics of capitalism also point out that the concept of capitalism is extremely misleading as it suggests that the system works automatically, with no room for human creativity or risk. Indeed, one of its most celebrated philosophers, economists John Locke argued that capitalism is a “top-down” institution, whereby ownership and control of productive assets are controlled by a few at the top of a chain of command, with the rest of society acting below them in an attempt to reproduce the process through social interaction. Socialism, on the other hand, is thought of by some as a form of capitalism that tends to decentralize the control of resources and wealth and redistribute wealth more evenly. However, this is probably a result of a confusion between two fundamentally different concepts.
A genuine form of capitalism is probably something completely different to what most people think of in terms of economic systems. In fact, free enterprise has long been considered an antiquated and outmoded form of capitalism, which fails to account for the real world we live in today. In the modern age, there are no natural monopolies, and the property does not simply transfer from one generation to the next thanks to a carefully devised legal system. In short, both socialism and capitalism fail to account for many of the problems we face in today’s society, which is why they have been rejected by the vast majority of the population.
