Advantages and Disadvantages of Capitalism and Socialism - Research Paper Example

Advantages and Disadvantages of Capitalism and Socialism Since man began the quest for civilization and as population grew, there arose a need for organization and structural composition. This led to rise of different forms of government and economic systems over time. The different forms of economic systems can be put under two major groups which are collectivism and individualism. Collectivism is where mankind is considered as raw material for the development of the society, systems under this group differ in ways there designs are arrived at, but they all have one thing in common, the belief that someone or some people should rule over the rest be it a king, dictator or majority; socialism falls under this group. With individualism there always seem to be no formal system as individual rights are upheld. Some even believe that all government systems are evil as some stand on the basis of individual freedom. Under this systems such as capitalism fall (James par. 1). Capitalism and socialism are always considered as opposite sides of the economic spectrum, the pivotal argument being upon equality and role of government. Those for socialism claim inequality has shortfalls and the government should be responsible to bring parity by creating programs that will benefit the poor, while capitalists argue that resources are better placed in the hands of the private sector and not the government as the society is well placed with a free market capable of having winners and losers (Diffen par. 1). Over the centuries, capitalism has slowly emerged to what it has become today, to an extent that it is the most common system of government especially in United States and Europe. Factor that characterize capitalism can be put under four groups of behavioral and institutional structures that are; goods production that is market oriented; production means that is privately owned; a great population that is non existent unless it sells its power to labor in the market; an economic system that displays individualism and need to acquire by most people (Hunt p5). Every economic system has its strengths and weaknesses and capitalism is not an exception. Some of the pros of capitalism include economic freedom that spill over to become political freedom, when the means of production and price determination is in the governments hand, it gives the government a lot of power that leads to bureaucracy that may be evident in other parts of life as well. Capitalism experiences efficiency as firms are motivated to be efficient in producing goods according to demand. Such incentives encourage cost cutting and reduced wastage (Pettinger par. 5). State firms have a tendency of being inefficient as they lack the motivation for instance to reduce the surplus work force and venture into innovative methods of production. As individuals and companies encounter motivation to work hard, this leads to innovation and expansion of the economy, consequently this aids in increased actual growth of the GDP and improved standards of living. As wealth increases the standards of living also improve, theoretically, everybody seems to benefit from the wealth increase base on the trickle down effect, from the “have” to the “have not” (Pettinger par. 5). The flip side of capitalism is equally worth considering, with the most outstanding one being monopoly power. Privately owned companies tend to gain power to monopolize labor and product markets. This might lead to these firms misusing these powers to charge higher prices at will. With these powers firms can opt to pay low wages to the workforce and as commonly seen, there always seems to be great imparity between those who own capital and those working for these firms. Capital base economy tends to ignore social benefits. Negative factors such as pollution are likely to be ignored by private owned firms hence undermining living standards. On the other hand they can ignore positive factors such as health when producing their goods, education and public transportation, and this is likely to lead to resource allocation that is not efficient. Capitalism offers the right to own wealth privately and pass it on as inheritance, this leads to inequality in terms of wealth (Pettinger par. 6). As argued by capitalists, wealth is gained through hard work but mostly people become rich because theywere born in privileged familiesorthrough inheritance of what they never worked for. Hence the system of capitalism fails not only to create equality interms of outcome but also interms of opportunities. With inequality, come social class resentments and separations. The system also leads to a diminished wealth intermsof marginal utility. Capitalists encourage the fact that it is good for people to earn more, this leads to income inequality. A millionaire earning another million does not see much impact of it in economic goodness. If the same million is used to provide necessary health services there is a huge impact felt. Lastly economies based on such principles tend to go through the boom and bust cycles that lead to inflation and unemployment (Pettinger par.). Socialism is defined based on its collective ownership of the production systems as noted by Lamb and Docherty (24). It is based on the fact that co-operate management and means of production is owned socially, as it also considers political principles geared towards asserting the system. This economic system values equality as opposed to achievement as workers are reward according to their time and not the value they produce. It’s a system where citizens depend on the government for everything including food and healthcare. Socialism is based on central organization that is rather bureaucratic and ownership that is collective (Lamb & Docherty 54). Those proposing socialism claim it creates equality and a secure economy, while capitalism is based on exploiting majority at the benefit of the rich few. Examples of economies that run on the basis of socialism include China, Cuba, and Vietnam. Just like capitalism, socialism has its advantages and disadvantages. Some of the advantages of socialism include the fact that it more efficient as compared to capitalism. This is because means of production is with a planning authority that is central and not the market force that plans within a chosen end (Lamb & Docherty 65). Survey on resources is done exhaustively and their use is done more efficiently. The system is for a greater welfare as it has less chances of income inequality as the means of production is not privately owned. In the system everyone is meant to work hard. Socialism creates an economy that is monopoly free (Lamb & Docherty 102). This is due to the fact that the state owns the means of production. This creates state monopoly that is geared towards the benefit of the people. Business fluctuation is not experience in socialism as planning is done generally. This helps in coordination of different departments of production hence eliminating discrimination experiencedbetween investing and saving and puts the available resources to the best use. This gives it a grip on overproduction and prevents deflation trends. With a well planned social system, the economy operates in a right manner as it moves toward growth, because planning is adopted towards growth. The negative side of socialism seems to have more weight than the positive; this economic system is seen to eliminate economic freedom (Farooq par. 3). Everything is state controlled and individual ownership is not allowed as everything belongs to the government. People are assigned jobs specified by the planning authority and have no power to switch without consent. Red-tapism is a factor to consider as bureaucracy drives most of the economic machinery. The output of civil servants cannot be compared with what private entrepreneurs have to offer; civil servants consider their jobs as just duty after all they will still get paid, this gives rise to inefficiency hence economic crippling. Socialism is seen as an artificial system where everything is preplanned by the government, making the economy to lack forces of demand and supply (Farooq par. 3). The system is spelt out to make consumer suffer as consumer sovereignty does not feature in any way; they lack the freedom of choice tagged on the goods and services offered in capitalist economy. Socialist argue that there is a complete distribution of wealth that leads to total equality, this is not possible as there can never be complete equality. It still has some distinction between the rich and the poor, and the poor tend to suffer as it is a planned economy. Lack of freedom is a major set back of the socialist economic system, freedom of enterprise, freedom of choice of career among others have been eliminated from the system (Farooq par. 6). Though is said that the system is capable of meeting all the basic needs, this is done at the expense of freedoms such in areas of economy and politics. Finally lack of competition is also a disadvantage of socialism. Competition leads to innovation and creativity that makes the economy prosper, as consumers get quality goods and services, which in some sense may be cheap. This also leads to the development of talent and initiatives (Farooq par. 14). Every economic and government system differ from the other in one way or the other. While socialism is based on state ownership of production means, activities planned by a certain authority, absence of competition, lack of economic freedom and equality among all, capitalism has the direct opposite of that. Economic freedom is upheld; means of production is owned and controlled by private entities, and individualism. The advantage of one is seen as the disadvantage of the other for instance as socialism has equality among others as an advantage, inequality in capitalism becomes a disadvantage, like wise as capitalism accommodates economic freedom the disadvantage seen on socialism is the fact that it lacks economic freedom. Works Cited Diffen. Capitalism vs socialism. 2013. Web. http://www.diffen.com/difference/Capitalism_vs_Socialism Farooq U. What is socialism, advantages and disadvantages of socialism. 2011. Web. http://www.studylecturenotes.com/management-sciences/economics/243-what-is- socialism-mba-economics-notes Hunt E. K. History of economic thought: : A Critical Perspective. New York. M.E. Sharpe, 2002. Print. James C.J. Freedom in the UK, section 2: political systems. 2002. Web. http://dspace.dial.pipex.com/town/street/pl38/sect2.htm Lamb, Peter & Docherty, J. C. Historical dictionary of socialism. Lanham, Maryland, UK; Oxford, England, UK: Scarecrow Press, Inc, 2006. Print. Pettinger T. Pros and cons of capitalism. 2013. Web. http://www.economicshelp.org/blog/5002/economics/pros-and-cons-of-capitalism/ Read More