Differences between Capitalism and Socialism - Essay Example

?Differences Between Capitalism and Socialism Introduction Capitalism was introduced in the world as industrial revolution of the 18th century took place and capitalism became the part of the economic, social and political life of the people of Britain by the end of 18th century. The general public at that time saw capitalism as a means of an end to their continued hardships under the feudal lords as the system was aimed to channelize the advantages of the industrial revolution to underprivileged class of the society. The various industries setup by the capitalists used the services of this class which previously worked as peasants in farms labor force. Remarkable progress was achieved in the fields of infrastructure development and industrialization and the capitalist maximized their profits, but the state of affairs of the labor class of the society remained the same. As the standard of living of the elite class and the capitalists increased with the increased productivity, the disparity and discrepancy between different social classes went on to increase and the lower classes started to protest about their miserable status of living. This led to the development of another socioeconomic ideology which was later called socialism. Socialist thinkers such as Karl Marx and Friedrich Engels declared that state is responsible for safeguarding the basic rights of each and every individual of the society and the ultimate objective of the states should be to provide better services all the classes of the society, irrespective of their financial status (Balcerowicz, 1995). Capitalism Capitalism is a system of economics in which the production and the distribution is the ownership of individuals or corporations and the development is proportional to the accumulation and the reinvestment of the profits generated in a free market economy. In simple words the person or the group of persons who have invested its capital, and thus put their money on risk, are entitled to enjoy absolute authority over production and distribution and also the profits generated through the investment of capital. The industrial revolution compelled a considerable number of people living in rural areas to move to the cities in order to enjoy the advantages of industrial revolution. This led to the concept of buying the services of people in return of wages and thus a working class was created in the society, but in contrast to the aspirations of the common people, the working class could not improve their working conditions because they were considered as a means of maximizing profit by the capitalists and were exploited bitterly (Davis & Scase, 1987). The pioneers of capitalism advocate increase in productivity as the greatest advantage of this economic system which results in the economic growth of the society and thus the living standard of each and every individual is improved because resources are utilized to their fullest. Moreover the competition in a free market economy improves the quality of the product which is being produced. However, in the early days with the absence of labor laws and human rights protection agencies capitalism resulted in the exploitation of the labor class by the elite and the promises of better living conditions and improved quality could not be realized. The desire of the capitalists to maximize profits makes the economy money-oriented which promotes a materialistic approach of running the economy. This approach made capitalism very unpopular among the lower classes of the society in the 19th and 20th centuries and thus the new systems of economics like socialism and communism were adopted as new social ideologies. During the later part of the 20th century, labor laws were formulated and made strong and human rights charters were adopted which greatly improved the state of affairs of the working class in capitalism. The development of these laws and some other laws related to trade and free market economy has helped capitalism to emerge as the strongest and the most-practiced system of economy and a new modified form of capitalism has been created in which the capitalist still enjoy an enormous degree of freedom over all the decision, but the rights of the working class are also protected. The increased intervention of state in the economic system has also resulted in the resolution of issues which were created due the absence of law governing the economic system and resulted in the exploitation of working class as capitalism now incorporates a social security program which ensures the provision of basic services to all individuals of a state (Moore, 1987). Socialism Socialism is an economic and political system in which the society as a whole owns and controls the production and distribution of capital, land, services and products. In a socialist system of economy, the provision of services, the satisfaction of human needs and the fulfillment of economic demands are carried out through a planned organizational effort. This effort varies from one state to the other and thus various concepts have evolved out of the basic concept of socialism giving rise to planned economic system, self-manage economic system, state-directed economic system and market socialism. Socialism tends to stop the accumulation of capital and distributes the production judiciously among the individuals to eradicate the division of society into classes and to ensure the provision of basic needs to all. The distribution the production and profit among the individuals is based on the principle of individual’s contribution in terms of work and time, regardless of the amount of capital contributed. Socialism tends to give a greater degree of material well being to all the segments of society. The profits earned in a socialist economy are redirected towards the society for social well-being (Hunt & Lautzenheiser, 2011). Socialism came into being as a rejection of the capitalist system and was aimed at achieving social good for the proletariat as well as the bourgeoisie. Socialism has various forms, varying from the communism of the Soviet Union in which the state was entitled with the right of ownership of property and each and every individual in the state was an employee of the state. The state was responsible for providing all the human needs and the economic demands, such a system lacks competition and thus quality of goods cannot be ensured, moreover the absence of the right of ownership results in frustration among the society. The most modern form of socialism as being practiced in China is known as market socialism in which the state owns all the institutions of the country which are responsible for providing services and fulfilling the basic needs of the society such as health and education and no private ownership is allowed in these fields. The means of production in market socialism whether publicly or privately owned aim to earn profit and thus competition prevails in the economy which ensures quality. A fixed portion of the earned profit is directed towards the society for the provision of basic needs. Such a system effectively addresses the issues created by communism and thus it is successfully being practiced in various regions of the world (Vaizey, 1980). Differences between Capitalism and Socialism The fundamental difference between capitalism and socialism is the ultimate objective of the two systems of economy. The maximization of profit is the ultimate objective of capitalism, whereas Socialism believes in giving physical meaning to the profit earned on capital by improving the standard of living of people. Capitalism advocates that private ownership of capital and means of production is the right of each and every individual of the society and entitles the capital holder to utilize the profit earned on capital, on the other hand the followers of socialism believe that every individual has a right to live a normal life and thus the society as a whole is responsible for fulfilling the needs of the underprivileged. In the globalized world the concept of free market economy based on the capitalist theory has achieved more success. This is also evident from the fact that market socialism which is an amalgamation of the principles of free market economy and socialism is more successful than the traditional socialism. Other differences between socialism and capitalism include the way both types of economic systems are exercised. The principles of socialism complicate the running of the economy of a country and that is why communism, which in effect is socialism in the raw form, was never successful. Economic progress in a capitalist system is measured on the basis GDP and per capita income, whereas socialism measures the economic development in terms of HDI (Human Development Index) and Gini co-efficient (Schumpeter, 2007). Conclusion In the capitalists were not willing to make a compromise on profit and the followers of socialism wanted a share of profit to be directed towards social security services that is why differences prevailed between socialism and capitalism. However, in the current age of globalization the differences between socialism and capitalism have lessened to a great degree because of the formulation of market socialism and the capitalist willingness to provide social security. The current systems of economic being followed by the global community ensures healthy competition, grants the right of ownership and also ensure the fulfillment of basic human needs. References Balcerowicz, L. (1995). Socialism-Capitalism Transformation. Central European University Press. Davis, H., & Scase, R. (1987). Capitalism and Socialism: Comparative Perspectives. Blackwell Publishers. Hunt, E. K., & Lautzenheiser, M. (2011). History of Economic Thought: A Critical Perspective. M. E. Sharpe. Moore, B. (1987). Authority and inequality under capitalism and socialism. Clarendon Press. Schumpeter, J. (2010). Capitalism, Socialism and Democracy. Taylor and Francis. Vaizey, J. (1980). Capitalism and socialism: a history of industrial growth. Wiedenfeld and Nicolson. Read More