Capitalism and Socialism are Complementary not Interchangeable.

 

Difference Between Capitalism and Socialism 

Both capitalism and socialism are part of the economic system, which are helpful in distributing goods and services across the geographic region. It is the government intervention that creates the difference between capitalism and socialism.

In capitalistic economy the private individuals own resources and factors of production. They take all the decisions without government interference.

In socialism all the resources remain under the ownership of the government. Government allocates and organizes the factors of production according to the economic requirement.

Capitalism

Capitalistic economy or economic system is also referred to as a free-market economy. It is an economic system in which the private sector is encouraged to own, organize and control the factors of production. This system is dependent on two major market forces as demand and supply. When consumers demand goods the producer will increase supply by producing more and vice versa. Demand and supply help the producer to determine the price of the products.

All the decisions are taken by private individuals or businesses without government interference. This system purely operates for-profit motive, due to which it focuses to maintain efficiency by cutting cost and innovating new products. Government is not responsible to provide jobs in capitalism, so job creation is affected by the fluctuations in the business cycle, for example at the time of recession the unemployment rate will rise in the economy.

 

Socialism

Socialism is often referred to as a command economic system, planned economy, or communist system. This is supposed to be a centralized economic structure, where the majority of the resources and factors of production are owned by the government. Major economic decisions such as what to produce and how to produce are taken by the government. The government is responsible for determining and price of products and services, rather than leaving the prices at market forces such as demand and supply.

The prime objective of this system is not to earn profit but to work for the welfare of the public. It ensures that the resources flow from rich to poor. In this system, there is a lack of efficiency due to state ownership and intervention, hence the managers do not plan or work to cut the cost. Nepotism is highly encouraged in such a system due to government influence, which leads to suppress entrepreneurship. Employment opportunities are created by the state even though at what level the economy is performing such as peak or recession. This system is not capable that much to respond to economic change or fluctuations in economic activities due to the centralized power.

 

Conclusion

Importance of both capitalism and socialism cannot be denied. But capitalism seems a better way to run and operate an economy. Capitalism is a system where individuals are motivated because they make decisions by themselves. It leads to create employment opportunities, the invention of innovative products, and improve the standard of living of people. Capitalism provides a competitive environment where a common man has choices to make cost-effective buying decisions. An important point to note that competency and merit are nurtured under capitalism on the other hand inefficiency and nepotism foster under socialism.