Background
The concept of capitalism described an economic system, or in Marx’s (1867) words, a “mode of production” that is based on the private ownership of means of production (p. 41). The main idea of capitalism is that the purpose of the means of production, i.e., property utilized to produce goods and services, is to bring profit to its owner. The role of capitalism in corporate decision-making is crucial. Since the goal of private companies lies in profit maximization, decisions are based on choosing a strategy that would lead to the rise of profits. Socialism could be regarded as an opposition to capitalism and its “critical challenge” (Gilabert and O’Neill, 2019, para. 2). This way, the philosophy of socialism is based on social ownership of means of production.
Differences and Similarities
Even though capitalism and socialism are controversial concepts, they still have some similarities. For example, from both perspectives, natural resources per se have no value, and only human labor adds value to oil, gas, woods, and water. Additionally, both concepts treat capital and labor as the major economic forces because no production is possible without them. Nevertheless, these two systems have more distinctions than similarities.
The first difference between capitalism and socialism that should be noted is that the former concept refers only to the economic system, whereas the idea of socialism applies to a political system as well. For example, the People’s Republic of China and the Socialist Republic of Vietnam are examples of modern socialist states. At this point, it should be noted that in the modern world, there are states that consider themselves as socialist and capitalist. However, in reality, these two philosophies are mixed. For instance, in the majority of countries, the government controls the production in the defense industry. At the same time, in China or Vietnam, the government does not control all markets.
By the way, by definition, political and economic dimensions in a socialist state are interconnected because social ownership of means of production is impossible without the control imposed by the government. In states with the capitalist economic system, governments do not intervene in business affairs, do not set prices, and do not tell how many goods to produce. Therefore, under capitalism, prices of goods and services are determined by supply and demand, whereas under socialism, prices are set by higher authorities. Another difference between socialism and capitalism lies in income equality. More precisely, income equality could be achieved by a socialist government that artificially distributes income. Apparently, under capitalism, the income of every individual depends only on himself.
Pros and Cons
The first advantage of capitalism is that it led to a dramatic increase in living standards and quality of life. Secondly, capitalism solves the problem of corruption at the government level because officials cannot influence the market, and, consequently, there is no reason for entrepreneurs to bribe them. Thirdly, capitalism is called an invisible hand of the market because it ensures efficient allocation of resources. More exactly, business people do not waste resources to produce goods or services that the consumers will not demand. However, capitalism has a wide range of problems. The capitalist system leads to inequality and income gaps, monopolization of the market, new companies’ inability to enter the market, and high environmental externalities.
One of the most significant strong sides of socialism lies in the free health care services. Additionally, employees have a guarantee that they will receive enough money to survive. In other words, the socialist system encourages the promotion of minimum wages. Finally, socialism solves capitalist’s problems of inequality and income gap. The primary weak side of socialism is that the historical experience shows that states that try to impose a purely socialist system, such as the USSR, fail. What is more, socialism gives too much power to politicians and deprives entrepreneurs of the ability to be initiative. Finally, excessive government regulations and lack of economic freedom deprive businesses of a chance to maximize profits and develop.
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References
Gilabert, P., & O’Neill, M. (2019). Socialism. Stanford encyclopedia of philosophy. Web.
Marx, K. Capital, Volume I. Translated by S. Moore and E. Aveling (2019). Dover Publications, Inc.