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The capitalist economic system and the socialist economic system are two different political and social systems that some countries around the world mix with, and Sweden is often considered a strong example of a socialist state while the United States is considered a prime example of a capitalist state, but in practice Sweden is not purely socialist and the United States is not purely capitalist. Countries have mixed economies with the main economic elements that distinguish capitalism and socialism, and as a result, there is a growing interest in understanding what distinguishes each system from the other and what the true differences between them are.This article will present an explanation of the differences between the capitalist economic system and the socialist economic system.
Capitalist economic system vs socialist economic system
The terms Capitalist economic system and Socialist economic system are used to describe economic and political systems that express specific schools of economic thought, and the idea of the extent of government intervention within the economy in the state is one of the most fundamental differences between these two systems. The capitalist economic system relies on a free market environment to create wealth for individuals, The production of goods and services also depends on supply and demand in the public market, and therefore the economic structure that follows the capitalist system may be called the market economy. In the socialist economic system, the production of goods and services is partially or completely organized by the government through central planning. The socialist economic system is called the planned economy or the command economy.
What is the difference between the capitalist economic system and the socialist economic system?
The capitalist economic system differs greatly from the socialist economic system, and each system has a different school of thought, principles, and goals that distinguish each from the other. Here is an explanation of the most prominent differences between the capitalist economic system and the socialist economic system in terms of:
Definition
The capitalist economic system is a social organization system based on free markets and privatization, where ownership is attributed to individuals and voluntary joint ownership is allowed, while the socialist economic system is a social organization system based on the principle of joint possession of most property by the state.
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Quality
The capitalist economic system believes that inequality is necessary to encourage innovation and economic development, just as the determination of income in the capitalist economy is by free market forces, so there is no equality of income in the capitalist system. On the contrary, the socialist economic system is concerned with the redistribution of resources from the rich to the poor to ensure that everyone has equal opportunities or even equal results, so income in a socialist economy is distributed equally among all.
Ownership
Under the capitalist economic system, ownership of businesses and companies is private, either by individuals or private companies, in addition to private ownership of the means of production in society. Under the socialist economic system, the state will own and control the main means of production, and in some types of socialism, ownership will not be by the government only but also for workers’ co-operatives.
Efficiency
The capitalist economic system seeks to provide incentives for profit to encourage individuals and companies to work efficiently with the aim of reducing costs and creating new products that people want, and whoever fails to achieve efficiency and innovation in the capitalist system will be excluded from the market and competition, causing resources to flow into new, more efficient areas of the economy while under the system. In the socialist economy, efficiency is not achieved due to the state’s ownership of the factors of production. Since workers and officials in a socialist system lack any real incentive to cut costs, there is no real incentive for innovation and efficiency in a socialist system, especially in state-owned enterprises.
Unemployment
In capitalist economic systems, jobs are not directly provided by the state; in times of economic stagnation, unemployment can rise in capitalist economic systems to very high levels, such as the great unemployment that occurred due to the Great Depression, but in socialist economic systems, employment is often done by the state, so the state can provide full employment even if workers do not do anything particularly necessary.
Price controls
In the capitalist economic system and because of the freedom of markets, prices are determined by the forces of supply and demand in the market, so companies with great monopoly power may be able to exploit their positions and impose prices much higher than they deserve, but in the socialist economic system, the government is the one who sets prices, which may lead to the occurrence of a shortage or surplus in the market.
Countries
Many countries, such as the United States, Japan, Germany, and Hong Kong, follow some form of capitalist system, while some countries, such as North Korea, Mexico, Sudan, and Venezuela, follow some form of socialist system.
Free Choice
Under the capitalist economic system, all individuals make their own decisions, which falls under their making the best decisions, being the ones who will bear the consequences and results of their choices, and therefore the freedom of choice for individuals allows them to lead the economy. But in the socialist economic system, matters such as religion and marriage are left to the choice of individuals, and education is compulsory in this system, just as individuals have the right to obtain levels of health and education in a manner that is free and equal for all, through a tax-financed social system, and production decisions are linked to government decisions more than to consumer demand and choices.
Political System
Countries that follow the capitalist economic system can coexist with a variety of political systems, including dictatorships, democratic republics, and direct democracy. However, most capitalists call for the establishment of a democratic republic. On the other hand, the socialist economic system can coexist with different political systems as well, but most socialists advocate participatory and parliamentary democracy.
Social Structure
Under the capitalist economic system, social classes exist based on their relationship to capital and wealth, and social differences and gaps appear in the classes of society. In the socialist economic system, social class differences diminish, and social status is formed from political differences and not from class differences.
Religion
The capitalist economic system and the socialist economic system both provide freedom of religion to individuals, but the socialist system often promotes secularism.
Ways of Change
The degree of change and response under the capitalist economic system is rapid in theory, and despite this, the government can sometimes change the rules of behavior or business practices through regulation or facilitating regulations. But in the socialist economic system, the workers in the system are the nominal agents of change, so that the change is made by the state on behalf of the workers, and this change may be fast or slow depending on the change in ideology.
View of the world
Capitalists look at the societies and states that follow the capitalist economic system and are based on the freedom of markets with a look of pride as beacons of freedom, and they are also proud of allowing social and economic freedoms that were not witnessed by communism and fascism that followed socialism, just as this system focuses on individualism versus nationalism. The socialist economic system strives for a common democratic goal for society by considering socialism as a movement for both workers and the middle class.
Ideas
One of the most famous ideas advocated by the capitalist economic system is “let him work, let him be.” Therefore, the capitalist system opposes government intervention in the economy due to the belief that government intervention leads to inefficiency, meaning that the government should not choose winners and losers and make markets free in order to produce the best economic result for society. On the other hand, the idea called for by the socialist economic system is the idea that all individuals in society should have access to basic materials for consumption and public goods, because they believe that this will allow self-realization, and the socialist system believes that large industries It is a collective effort and therefore the returns of these industries should benefit the society as a whole.
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