Capitalism vs. Socialism

July 7, 2019 by B.N. Patel

The age old phenomena of economic inequality – Capitalism vs. Socialism – is a much widely discussed subject by economists throughout the world. The governments play a vital role.

Capitalists believe that the government always falls short of using economic resources efficiently whereas the private enterprises manage it better and promote free market which determines winners and losers. Socialists believe that inequality is bad for society. Thus, they seek free education, healthcare, social security and higher taxes on rich. There are many socialist democracies in Scandinavia and Western Europe whereas the USA is considered a stronghold of capitalism.

However, all developed countries have some socialist programmes, whereas some countries exercise communism, the extreme of socialism. Some of the doctrines in the debate on capitalism vs. socialism in the economics are primarily the role of the government.

Capitalism advocates competitive and free markets whereas socialists advocate greater government involvement. There is always a continuing debate on the management of these systems, regulations and fairness.

Criticisms of Capitalism

“Capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.”

French economist Thomas Piketty in Capital in the Twenty-First Century

Capitalism is criticised for encouraging exploitative practices and inequality between social classes. Many critics argue that capitalism inevitably leads to monopolies and oligarchies, and that the system’s use of resources is not sustainable. It centres profits and wealth in the hands of the few who use the labour of others to gain wealth. The concentration of money gives rise to antitrust laws, trade unions and legislation to protect workers. The laws are designed to eliminate economic instability.

Criticisms of Socialism

Some believe socialism to be severely indulging on the right to live freely, which needs a political police to establish it. The criticism focuses on the loss of individual freedom, the inefficiency of planned economies, and the inability to establish the idealistic theories of the principles of socialism.

Based on long-term growth and prosperity, socialism has fared poorly. Austrian economist, Ludvig von Mises argued that rational pricing is not possible when an economy has only one owner of goods (the state), as this leads to imbalances in production and distribution. Because socialism favors the community over the individual, the loss of freedoms and rights is deemed undemocratic at best and totalitarian at worst.

Regimes have failed to deliver adequate results in terms of economic prosperity and growth. Examples cited range from the former USSR, China, North Korea, Cuba and Tanzania most of which were or are more on the communist end of the spectrum.

Based on historical evidence from communist governments, to date, extensive famine, severe poverty, and collapse are the end result of trying to control an economy based on 5-year plans and assigning people to jobs and tasks as if the country were a machine rather than a society. A common observation about particularly restrictive socialist or communist economies is that they eventually develop classes with government officials as the rich, a fringe-like middle class and a large lower class who were mainly the workers, which capitalists consider as exploitative.

Capitalism vs. Socialism Timeline:

The timeline on these two systems spreads over 250 years beginning early 17th century to date. To summarise, the highlights are:

The 1789 French Revolution espoused equality for all, and building upon the tenets also included the US Declaration of Independence and the Constitution.

In 1866, the US National Labor Union was founded.

In 1869, the Social Democratic Worker’s Party forms in Germany. Socialism increasingly links to trade unions in the 1870s, particularly in many countries in Europe including France and Austria.

In 1899, the Australian Labor Party becomes the first elected socialist party.

In 1902, the British Labor Party wins its first seats in the House of Commons and in 1924 forms its first government. Then in 1945, the British Labor Party assumes power, ousting Prime Minister Winston Churchill.

In 1911, Rockefeller’s Standard Oil is broken up under antitrust laws. After that Rockefeller’s wealth rises until he becomes the world’s first billionaire.

In 1917, the Russian Revolution overthrows the Tsarist regime and imposes a Communist government, led by Vladimir Lenin. Europe and the USA react to the takeover with concerns that communism will sweep away democracy.

From 1926 to 1928, Joseph Stalin consolidates power in Russia, emerging as the leading force for communism around the world.

It shall be noted that in 1929, the Great Depression begins, plunging the world into an unprecedented economic slowdown. Capitalism is blamed for its excesses, and socialist parties of varying ideological stances emerge, primarily in Europe.

In 1944, the Canadian province of Saskatchewan forms the first socialist government in North America.

The trend continues and in 1947 China is taken over by a communist regime led by Mao Zedong.

In 1959, Fidel Castro overthrows the Batista regime in Cuba, and announces alliance with Communist USSR.

A very interesting phase develops in 1960s and 1970s the Nordic countries, such as Norway, Denmark, Sweden and Finland, increasingly blend socialism and capitalism to develop higher standards of living, with particular progress in education, health care and employment.

In 1991, the USSR collapsed and the former Soviet republics attempted to throw off their communist past to explore democratic and capitalist systems, with limited success.

In 1995, China begins capitalist practices under the Communist Party’s auspices, launching the fastest-growing economy in history.

In 1998, Hugo Chavez was the elected President of Venezuela and embarks on a nationalisation programme, leading a social democratic movement in Latin America led by Bolivia, Brazil, Argentina and others.

In the 2000s, corporate profits set record highs nearly every year, while real wages stagnate or decline from 1980 levels in real dollars per French economist Thomas Piketty.


If one is to look at the stark differences between Capitalism and Socialism, it can very briefly be summarized as follows:

Capitalism Socialism
Philosophy Individuals or corporations control capital and profits Profit distribution to society to compliment wages
Ideas Works on the basis of non-government interference Individuals have access to basic items of consumption
Key Elements Competition for ownership of capital drives economic activity & creates a price system Cooperative common ownership, Equal opportunity, Free association, Industrial democracy,
Political System Blends in with a number of political systems Socialists advocate parliament democracy
Definition Strictly advocates free market and private enterprises ownership Believes in common ownership with workers
Social Structure The social class is based on their holding of capital whereas workers rely on wages Status is based on political distinctions
Religion Freedom of religion Religious freedom exists but promotes secularism
Free Choice Makes own decisions and live with consequences Have the choice of religion, job and marriage but seeks equal access to education, healthcare, etc. funded through taxation
Private Property Owns private property and do not prefer public and state property which is secondary Owns house and personal belongings, rest is owned by State
Economic System Controls corporate ownership and makes profit and fulfill a portion for economic growth All means of fulfills are controlled by State and individuals gets compensated
Discrimination Relies on government capitalist policies without discrimination over workers Relies on anti-discrimination laws for protection
Economic Coordination Market driven economic environment Relies on government allocation of capital for projects based on socialist policies
Political Movements Adheres to capitalistic ideology against socialism Communism style democratic socialism
Examples The UK, US and some countries in Europe are mostly capitalist. Singapore is an example of state capitalism USSR
Ownership Structure Firms can be owned by individuals, worker co-ops, or shareholders Either all of society (in public-ownership models) or to all the employee-members of the enterprise (in cooperative-ownership models)
Variations Free-market capitalism Market socialism, communism, state socialism
Way of Change Fast change within the system. In theory, consumer demand is what drives production choices. Government can change the rules of conduct Change by the State on behalf of workers can be swift or slow, depending on change in ideology or even whim
Means of Control Production decisions are driven by consumer demand and resource allocation is driven by a price system arising from competition for profit Usage of a government
View of the World Capitalists see capitalistic and market-based societies as beacons of freedom. The focus is on individualism as opposed to nationalism Socialism is a movement of both the worker and middle-class, all for a common democratic goal


To summarise both systems are routinely exploited to fulfil the urges and lusts of the psychopaths. In reality capitalism shall atomically drift into stable socialism by the actions of the people involved once the influences of psychopaths have been removed. In today’s world many developed countries have partially both capitalism and socialism because the politicians who are in power have to consider the people’s interest and to show that they are managing to ensure that the basic necessities are available and affordable. Secondly many corporations have programs whereby, to a smaller or larger degree they have policies for the welfare of their employees. The government legislation in this respect also aims to provide the basic needs of the people. This blend ideally provides freedom to their citizens and works for both the ideologies – Capitalism and Socialism.

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