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Difference between capitalism and socialism

The main differences between capitalism and socialism revolve around the government role and the equality of economy.

Here are the main differences:

capitalism socialism
definition A theory or system of social organization based on the free market and privatization, where ownership is attributed to individuals.
The capitalist system defends the economic freedomconsumer choice and economic growth.
A theory or system of social organization based on the exploration of the majority of goods in common, with ownership attributed to workers.
to socialism, the state controls the economyand is responsible for reducing social inequality, through programs that benefit the poor.
philosophy The means of production are privately owned, and are operated and traded to generate profit for private owners or shareholders.
It emphasizes individual profit and not workers or society as a whole.
Idea of ​​transforming society through the balanced distribution of property and wealth, reducing the difference between rich and poor.
Earnings are distributed among society to supplement wages.
ideas Capitalism opposes government intervention in the economy, because capitalists believe it introduces inefficiencies.
A free market produces the best economic result for society.
All individuals must have access to basic consumer goods and public goods.
Large-scale industries are collective goods and therefore the return of these industries must benefit society as a whole.
Main defenders Richard Cantillon, Adam Smith. Karl Marx, Friedrich Engels, Lenin.
political system It can coexist with a variety of political systems, including dictatorship, democratic republic, anarchism, and direct democracy.
Most capitalists advocate one democratic republic.
It can coexist with different political systems.
The majority of socialists defend the participatory democracy.
Economic system Market-based economy with private or corporate ownership of the means of production.
Goods and services are produced for profit and this profit is reinvested in the economy to fuel economic growth.
The means of production are owned by public or cooperative enterprises, and individuals are compensated based on the principle of individual contribution.
Production can be coordinated through economic or market planning.
Social structure Classes exist according to their relationship to capital: capitalists own the means of production and derive their income from it, while the working class depends on wages. Class differences diminish. Status derives from political distinctions, rather than class distinctions.
religion Freedom of religion. Freedom of religion.
Private property Private ownership of capital and other goods is the dominant form of ownership.
Public ownership and state ownership play a secondary role, and there may also be some collective ownership in the economy.
There are two types of property: personal property (houses, clothes, etc.) and public property, which includes factories and means of production owned by the state, but under the control of workers.
Free choice All individuals make decisions for themselves and must live with the consequences of their actions.
Freedom of choice allows consumers to drive the economy.
Religion, work and marriage depend on the individual. Education is compulsory.
Economic coordination The market determines investment, production and distribution decisions.
Markets can be free markets, regulated markets or can be combined with a degree of state-led economic planning within private enterprises.
Socialism depends on planning to determine investment and production decisions.
Planning can be centralized or decentralized.
examples The modern world economy operates very much according to the principles of capitalism.
The United States is widely considered the bastion of capitalism, however, every developed country has some programs that are socialist.

Socialist countries are those whose constitutions include statements about the protection of the working class, such as Cuba, North Korea, China, Laos, and Vietnam

Ownership structure The means of production are privately owned and operate for private profit. This encourages producers to get involved in economic activities.
Companies can be owned by individuals, cooperatives of workers or shareholders.
The means of production are socially owned with the profit produced for society as a whole (in public ownership models) or for all official members of the company (in cooperative ownership models).
Political movements Classical liberalism, social liberalism, libertarianism, neoliberalism, modern social democracy and anarchism. Democratic socialism, communism, libertarian socialism, social anarchism and trade unionism.
Variations Free market capitalism (also known as capitalism laissez faire), State capitalism (also known as neo-mercantilism). Market socialism, communism, state socialism, social anarchism.
First exponents The ideas of trade, buying and selling have existed since the beginning of civilization.
Free market capitalism or laissez faire it was brought to the world during the 18th century by John Locke and Adam Smith, looking for an alternative to feudalism.
In 1516, Thomas More wrote a Utopia on a society based on the common ownership of goods.
In 1776, Adam Smith defended the labor theory of value, ignoring Kant’s view that prices are derived from supply and demand.
Worldview Capitalists see market-based societies as symbols of freedom, taking pride in allowing social and economic freedoms not experienced in the realm of communism and fascism.
The approach is individualism as opposed to nationalism.
Socialism is a movement of the worker and the middle class, all for a common democratic goal.

Comparative infographic


Main characteristics of capitalism

  • It is a market-based economy, composed of buyers (people) and sellers (private or corporate companies);
  • The goods and services produced are destined to profit, and this profit is reinvested in the economy;
  • The government must not interfere in free market economies, that is, the market determines investments, production, distribution and decisions;
  • Government interference is permitted only in making and enforcing rules or policies governing the conduct of business;
  • There is one need for production and purchase continuous for a capitalist economy to function efficiently;
  • Capitalists believe that government does not use economic resources as efficiently as private enterprise.

See also Modernity and postmodernity: characteristics and differences.

Main characteristics of socialism

  • The means of production are owned by public or cooperative enterprises and individuals are compensated on the basis of the principle of individual contribution;
  • There is equal opportunity for all;
  • Large-scale industries are cooperative endeavors and therefore the returns from these industries must be returned and benefit society as a whole;
  • Economic activity and production are planned by the central planning authority and based on human consumption needs and not on economic demands;
  • Socialists believe that economic inequality is bad for society and the government is responsible for its reduction through programs that benefit the poor.

Advantages of capitalism

1. Consumer choice

Individuals choose what to consume, and this choice leads to more competition and better products and services.

2. Efficiency of the economy

Goods and services produced on demand create incentives to reduce costs and avoid waste.

3. Economic growth and expansion

This process increases the gross national product (GDP) and raises living standards.

Advantages of socialism

1. It decreases inequality

In socialism, no individual can have much more than another, and businesses are owned by the government. Money is not a controlling factor in a socialist society.

2. Needs are met

Everyone’s needs must be met. This means that health care is universal, education is free, food is provided, as well as clothing and other essentials for living.

3. Mobilization of goods

Disasters of all kinds can happen at any time, and when they do, an immense amount of services and goods are needed to ensure that everyone is safe and cared for.

In socialism, the government has full control of these goods and can easily mobilize them to the areas that need them most.

4. It has widely used ideas

The idea of ​​socialism is used in almost every country in some way. It is the only way to ensure that some of the most basic and necessary things are provided to everyone.

Examples are the public education system in the United States and universal health care in Canada.

Disadvantages of capitalism

1. Monopolies of power

Firms with monopoly power (when a specific person or firm is the only supplier of a particular commodity) can abuse their position by charging higher prices.

2. Inequality

A capitalist society is based on the right to pass wealth to future generations.
If a small group of people retains all the wealth and this wealth continues to be passed on to the same groups of people, inequality and social division occur.

3. Recession and unemployment

An economy based on consumer and producer markets can have many variations, such as cutbacks and unemployment.

Disadvantages of socialism

1. The historic decision

Around the world, various countries tried the idea of ​​socialism, and all of them failed.

This is one of the biggest problems with socialism, the fact that it has been proven not to work, no matter how many different tweaks the government tries to implement.

2. Nothing is yours

Private property is prohibited in a socialist society. This leaves you with nothing, as the goods belong to “everyone” or the government.

3. Less innovation and growth

With socialism, you have your basic needs taken care of, then you don’t have to worry about your meals or if you have a house.

This may sound good, but it can make people complacent, and so innovation, creativity, motivation, and other forms of societal advancement diminish.

4. It is expensive

It costs a lot of money to provide all the things they need, and that money has to come from somewhere.

Then all the money that is earned by the citizens is taxed at huge percentages to cover all the costs.

See also:

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