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Capitalism vs Socialism

  • Muskan
  • Jun 12, 2021
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In political theory, we undermine a lot of approaches and perspectives to come to a conclusion analyzing almost all the angles of the society. 


Capitalism and socialism, despite being contradictory ideologies and bringing forward their own stories of origin, advantages and disadvantages have a common ground that they are both the functioning of the economic and ownership authority of individual over state and state over the individual. 

Broadly, both the terms capitalism and socialism are expressions of ideology with reference to the ownership of the means of production.  


Economics forms a very important branch in politics and it cannot be studied without its impact. The financial stock and ownership of land, labor, and capitalism form the basis and the opinions and choices that determine the economic system of the country.  


What is an Economic System?

The Economic System can be understood as a form of the organization through which the goods and services are produced, distributed, and exchanged in an economy. 


Capitalism and Socialism are the ideologies of the same economic system which seek to justify the system of allocation and ownership of the means of production and distribution of the goods by and to other people in the economy. 

Capitalism seeks to highlight the notion of self-interest and individual growth, it further goes on to talk of private property, no state intervention, free market, and ‘perform or perish’ nature of competitiveness.  


Socialism on the other hand speaks of collectivism and central planning and criticizes the ideas of no state intervention in the market.  


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What is Capitalism

Capitalism believes in self-interest if the individual with a competitive dimension attached to it, it is a system of liberal ideology. This belief in the self-regulated market moving by the forces of demand and supply. This justifies the ideas of wealth accumulation, private property. 

In a society dominated by capitalist ideologies, there are wealth accumulations by the dominant classes to be able to make more profits with that wealth continuing to generate more wealth. They seek to control the crucial modes of production for their individual self-interest. 


History of Capitalism


With the decline of feudalism in the 13th-century trading became consolidated and mercantilism started. Modern-day industrial capitalism has taken place in countries like Britain and France in the latter half of the 18th century. 


England has been considered as the birthplace of industrialization as a part of which capitalism spread its roots. 


It was in England with the broad usage of stream power and machines like flying shuttle, spinning jenny, water frame, power loom, etc that the products which used to be handmade started being produced in the bulk qualities which were sufficient to fulfill the demands of cloth both in the nation and in the several colonies at that point of time. 


In addition to textiles, Britain's iron industry also gained mechanization and this was of great benefit to Britain during the Napoleonic wars and railroad expansion. 

Such factories and industries attracted the workers into the rural areas and even though industrialization created an avenue for the rich and middle classes the poorer people continued to struggle as labourers. Working the factories was extremely tedious for the low wages they used to get. 

Understanding capital as the money spent generates more money the industrial revolution was done with the same idea in mind. When industrialization began the entrepreneurs invested their money in the factories and mines with the core agents of gaining profit from it. 


These ideas were influenced by the wealth of nations written by Adam Smith explaining how it's crucial for the states to let the individuals exercise the best of their capacities and capabilities with the laissez faire and competition. 


Ideas of Capitalism 


Capital and Profit 

Capitalism advocated the idea that capital is invested in the industries by an individual only when he is guided by the principle of self-interest and profit which will, in turn, make him generate more profit and the entire economic system is driven by the same connection. 


It works by investing the surplus money to be invested to produce for the market rather than self-sustaining needs and gain more and more wealth accumulation. 


A major portion of this comes in the picture from exploiting the laborers and providing them with a bare minimum share of the profit pertaining to the high inequitable income distribution. 


Economic Competition 

This is the main concept of capitalism, in economic competition, the idea of laissez-faire or the free market is deemed to be present where there is no government intervention and the profit loss is there to be maintained by the forces of demand and supply. 


To beat the competition the capitalists can go to any extent and those who fail to compete or lose are ousted from the system as they get bankrupt. 

Modern-day MNCs are even able to challenge the sovereignty of the states as they are capable of influencing the decisions in their favor and gain the maximum economic benefit, clearly stating the economic scenario dominates the competition. 



Capitalism is liberal ideology in action. It will not be wrong to say that capitalism grants the person the freedom to maximize individual action without any state interference lawfully. 


Here the capitalist wants to be free of the ties of the community-based collectivism and let individual benefits dominate him against the ones who are in a weaker market position than him. 


Examples of Capitalism 

The innovation triggered by companies like Apple, Microsoft, Tesla, Google, and Facebook are not state and are turning out to set people free to maximize as much profit as they can. 

Inefficient ways and obsolete ways have no place in the capitalist system; they are naturally outserved, with the emergence of touchscreen phones at cheaper rates and higher network availability.


For instance, Nokia was out of the hardware market for quite some time due to sticking to the old ways of competition, whereas other companies dominated the market and kept on introducing new features. 

Globalization is an important feature of capitalism after the Indian economy has imbibed a lot of foreign direct investment which incorporates the competition into the system and branches like HCL, Infosys have global corporations. 


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What is Socialism?

Contradictory to the ideology of capitalism, socialism came up to be the representative of the working force instead of the owners. This economic idea  is more inclined towards the tenets of collectivism and welfare state. 


In socialism the means of production are controlled by the state and contradictory to capitalism here the production undertaken is for the welfare and keeping in consideration the common strata of the society who can be benefitted by this setup. 


History of Socialism


Socialism emerged as a reaction to industrial capitalism in order to safeguard the rights and lives of the labourers who worked in the factories at bare minimum wages. 


Laissez Faire Capitalism was causing a huge income gap between the labourers and the owners who exploited them mainly. Socialism developed as a response to how capitalism was detrimental to some and its failures.


Capitalism paved the way for a lot of issues for the laborer's unsanitary and dangerous working conditions, long working hours without adequate income. 


Not just this a lot of laborers were displaced as the machines were introduced and yet those sustained were exploited. 


Socialism is an economic system emerged by the people seeking a remedy from the ills of capitalism and seeking the state intervention in the market to decrease the income imbalances to create an equitable distribution of resources and prevent the rights of the workers.


Ideas of Socialism




The core of socialism lies in the fact that it is considerate about the community, it believes that humans are social beings who are related to the existence of the common humanity. 


This economic belief also focuses on social equality, as they take into consideration the individual needs and the community needs. This equality has to stand in the terms of basic needs such as health, food shelter, personal security, and even in the exercise of legal and political rights. 


Social Class 

Traditionally the society has been divided into haves and has not as there has remained a clear and unfathomable divide between these two classes. 


Socialism seeks to eradicate the accumulation of wealth and has come up as the representatives of the oppressed and exploited working class and seek to establish social justice in the system and correct the class division through gradual reforms.


A socialist society is an egalitarian society where the good of the larger population prevails.


State-Owned Resources 

Unlike a capitalist system where the means of production are owned by the individuals and private owners, in a socialist system, the means of production are owned and controlled by the state, where the state decides everything from the initial production quantities to the price of the products. 


Citizens rely on the states for everything from food to healthcare infrastructure. This helps in preventing competition and induces cooperation in a society where there is the welfare and equitable distribution of wealth instead of wealth accumulation. 



Examples of Socialism 


However there are no such countries that pertain to any ideology wholly, there are no 100% Socialist countries. Some of the countries like the Republic of India, the Portuguese Republic, the Cooperative Republic of Guyana, etc have defined themselves as Sicicalsit through their constitutions. 


There are also countries where the state has managed to own a large percentage of the economy and spends a lot on education, healthcare, and infrastructure of the population. Countries like Norway, Sweden, and Finland have a highly socialist structured system. 



Capitalism and Socialism


Image showing the difference between Capitalism and Socialism.

Difference between Capitalism and Socialism


Socialism and capitalism are ideologies that are completely different when they begin to operate. 


One of these ideologies, capitalism has caused industrialization as a huge profit motive was hidden while investing surplus money in these industries whereas when their profit motives surpassed the levels of collectivism and exploitation was at its peak. 


The socialist tendencies began to take doors and people called for state intervention and participation.  


In capitalism, the means of production are owned by the private individuals and the firms but in a socialist setup, the state solely has the authority to decide what to produce, how to arouse, and how to distribute. 


In the case of distribution and sales, the socialist economic system has pre-decided the value and the prices of the products in the case of a capitalist system, the market forces are responsible for determining these values and this calls for the state to not intervene in this matter and ticks to the perform or perish notion of the competition. 

Capitalism seeks to benefit the wealthy whereas socialism came into the picture to safeguard the rights and conditions of the oppressed post-industrial revolution and tries to bridge the gap in income and health. 


Socialism seeks to have a community-oriented approach and ignores the individual merit whereas in capitalism individual meter can serve as the basis of implementing that and making the best out of it without any restriction. 


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Understanding Mixed Economy


A Mixed economy is an economy that combines both the aspects of capitalism and socialism. It follows the tenets of individualism and welfare. It allows private property and does not intervene in the distribution of the same and free-market but intervenes with the regulatory laws price regulation wherever needed. 

Here, the government plays a large role in the military, international trade, and national transportation. 


There is also a focus on welfare, healthcare from the start’s end. Despite this, the state manages to provide ample opportunities for private businesses and industries to grow and operate in maximum domains with the profit motive. 

Examples of countries operating systems are the Republic of India, Federative Republic of Brazil, Republic of South Africa.



The world over the times has accepted the positives of truth if these ideologies and neglected the negatives. Now, none of the economies in the world chooses to strictly pertain to any one of these ideologies. 


Welfare is the common and undeniable concern of all even if they keep in mind to keep making way for the individual metric and promote innovation and proper accumulation. 


Further, compassionate capitalism, corporate social responsibility are new norms combining these two extremely opposite ideologies for smooth and secure implementation of the economy for the population. 

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