Capitalism is an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state whereas socialism is a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole. (Shaw, William H. (2014). Business ethics (8th ed.). Boston, MA: Wadsworth, Cengage Learning). In this assignment, you will define the roles capitalism and socialism play along with the pros and cons of each.
Briefly define, in your own words, the concepts of capitalism and socialism. Then list three pros and cons of each.
Personal Definition of Capitalism and Socialism
Many political and economic systems are employed by various countries and governments in the world. Capitalism and socialism are the two most prominent of these systems. Capitalism is a political and economic system that is characterized by private ownership of property. As such, the private sector owns and controls the majority of the means of production. Some of the features that define capitalism are presence of vibrant and competitive markets, private ownership of businesses for profit, voluntary exchange of commodities or money, wage labor, and capital accumulation, among others. Most Western countries such as the United States and the United Kingdom have vibrant economic and political policies that significantly promote capitalism.
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Socialism, on the other hand, is a socio-political and economic system that is based on the ownership and control of property by the public sector. In socialism, the means of production are controlled by social entities such as the state, cooperatives, or collectives of private individuals. However, there are many types of socialism, with the common denominator being the social ownership of factors of production. There are two main types of socialism; market and non-market systems. Integrated economic planning helps to substitute many factors such as money and factor markets in non-market socialist system. Market socialism, on the other hand, uses many aspects of capitalism, but the accruing profits are divided to all members in form of dividends.
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Capitalism Advantages and Disadvantages
There are a number of advantages and disadvantages associated with capitalism. One of the advantages of socialism is the fact that there is a significant consumer choice. As such, buyers can choose the products that they want in the market. This property leads to increased competition from producers and suppliers, which leads to increased quality of products and services. In capitalism, there is also there is efficiency in the economics. This is based on the fact that goods and services are produced based on demand which encourages producers to avoid waste and cut unnecessary costs. The third advantage is the fact that it leads to better living standards due to fair pricing of commodities. One of the main disadvantages of capitalism is that sellers may engage in negative practices such as unnecessary hiking of prices in order to increase profits (Shaw, 2014).
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Capitalism also has a tendency of creating a significant gap between the rich and the poor because there is significant reliance on the factors of demand and supply in the market economy. The third disadvantage is the fact that huge firms can gain monopoly power and dominate the market to disadvantage of consumers. However, from these descriptions, it is clear that the advantages are more significant than the advantage.
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Socialism Advantages and Disadvantages
Socialism also has its advantages and disadvantages. One of the main advantages is that socialism improves the social welfare of the whole population. This is because it ensures that basic social services can reach even those who cannot contribute in the economy (Shaw, 2014). Another advantage is that resources can be put into better use by the government for the benefit of every member of the society. Thirdly, socialism has the capacity to significantly reduce wealth disparity. Some of the disadvantages associated with socialism are: reduced entrepreneurial competition and opportunity, slow growth of the economy, and lesser rewards for workers which may lead to reduced motivation in the workplace.
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