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How is Capitalism and Socialism different?

What are the main differences between Capitalism and Socialism?

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One major difference between capitalism and socialism is the way the economic resources and goods are owned and distributed to the citizens. In capitalism, people own economic resources and industry. In socialism, it is the state that owns and controls the resources and industry and distributes the goods to the citizens. The focus of the system in a capitalist economy is the competition between capitalists for resources and how the competition will lead them to bring about more goods and wealth thereby improving their own life and develop personal success. On the other hand, in a socialist economy, the focus is on how the wealth and resources can be distributed equally to the people to meet their needs. In some countries, these two are combined.


Capitalism is more about individualism and competition. In this type of society the people are responsible in protecting their own interests and their welfare. The system also sees to it that each individual’s success is valued. The system encourage the people to enhance their potentials and maximize their abilities for their own growth and success.

Capitalism depends on a system of checks and balances which is the effect of competition. Individuals who knows how to market their goods effectively and whose goods are in demand are expected to succeed more than the others. businesses who treat their employees well will be able to get employees that work hard for the benefit of the business will help greatly in making the business grow and earn more.

In a capitalistic government, taxes are low including social service benefits are kept to a minimum. On the other hand, health care systems that are funded by private sectors require individuals to get their own health insurance or depend on their employers.

Type of Capitalism

Capitalism can be defined in different characteristics but in a manner I the system is used, a variety of types are as follows:
• Free-market capitalism: In this type, the society is controlled and managed by the market. The mere role of the government is to take care of the property and the lives of the citizens.
• Corporate capitalism: In a corporate capitalism, large and bureaucratic businesses rule the economy. These companies may have strong influence on the government giving them extra power. This influences the legislation that will eventually protect the interests of these large companies.
• Social-democratic or social market economy: this system aims to balance benefits of a free-market system with a strong social support structure. The government is concerned more on keeping the competition fair even if the companies are owned privately.
• State-led capitalism: in this system, the government controls the means of production with the profit in mind. The government protects the interests of the businesses.


In socialism, the government depends on planning and not on the market place in distributing resources. In a socialist economy, people can own and run their own businesses but they are taxed on a large scale on their profits. There are several social services available to people which are being funded by taxes. People are expected to work while the government’s role is to provide them with social services such as education, health care and public transportation for free or at a very affordable price. Social welfare systems are being provided for in other countries to those who are disabled, unemployed and elderly.

Business owners are required to pay higher taxes and follow very strict labor laws so that workers are protected and are not exploited. These labor laws protect the interests of the workers and make sure they get all the benefits they truly deserve such as sick leave, regular vacation, working hours among others.

Types of Socialism

Marxism and reformism are two socialist political philosophies. Karl Marx and Friedrich Engels are two people behind Marxism. This philosophy argues that socialism is a combination of communism and capitalism because production is controlled by the capitalist and guided by the state in behalf of the workers. Reformism on the other hand, aims to change capitalist societies through political process and government reform.
Below are the different economic theories of socialism.
• Market socialism is all about running cooperative companies within the free market. The government depends not on taxes but on the profits it gets and redistributes them as it funds public transportation, offers social services and paying employees.
• In a planned economy, the government controls everything from the means of production, what will be produced, how much will be produced and the price of the produce.
• Self-managed economies are managed by a specific group. For instance, a company owned by a group of workers decides on how to run the business.
• State socialism or state-directed economies, industries are owned cooperatively but it is planned and directed by the government.


Socialism is different from communism but many people confuse these two. In communism practically everything is owned by everyone. Everyone is expected to contribute to the society as much as he or she is able to and takes only what he or she needs from it. The decisions made are for the people as a whole and not individually.

Some countries that practice socialism have been called communists and these are run by a political party. In this society, the government decides how all the resources will be used.

Mixed Economies

These days very few societies are purely socialists or purely capitalists. The U.S. is considered a capitalist but the way Social Security System provides for those who are not working is socialistic. Sweden is both socialist and capitalist.


Criticism still surrounds socialism and capitalism. Some critics say that individuals need to be challenged by competition to grow while others think that people need to cooperate with each other for the common good.

Those who criticize capitalism say that the marketplace is not stable which will pose damage to those who are vulnerable. This leads to business owners to rule and control employment and profits to themselves. Critics also say that in a capitalist society, the needs of the majority are not met.

In socialism, what critics have to say is that business owners feel less motivated to work on innovation and excellence because they do not get to enjoy the rewards of their hard work. Critics also criticize the way the government address the needs of the citizens as they may lack the knowledge in deciding what is best for the country. This also may discourage people from working as they will be provided for anyway.

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