The major differences between capitalism and socialism are established around the role of the government and equality of economics. Capitalism affords economic freedom, consumer choice, and economic growth. Socialism, which is an economy controlled by the central state, provides for a greater social welfare and decreases business fluctuations.
Explanation:
The advantages of capitalism are:
Consumer choice - Individuals choose what to consume, and this choice leads to more competition and better products and services.
Efficiency of economics - Goods and services produced based on demand create incentives to cut costs and avoid waste.
Economic growth and expansion, which is possible in the capitalist economy system, this increases the gross national product and leads to improved living standards.
The disadvantages of capitalism include:
A chance of a monopoly of companies with monopoly power (when a specific person or enterprise is the only supplier of a particular commodity) can abuse their position by charging higher prices.
Inequality - A capitalist society is based on the right to pass wealth down to future generations. If a small group of people hold all the wealth and that wealth continues to be passed down to the same groups of people, inequality and social division take place.
Recession and unemployment - An economy based on the market of consumers and producers is invariably going to experience growth and losses.
Socialism is characterized by:
The means of production are owned by public enterprises or cooperatives (the state), and individuals are compensated based on the principle of individual contribution.
There is equal opportunity for all. Large-scale industries are cooperative efforts, and thus, the returns from these industries must be returned to and benefit society as a whole.
Economic activity and production are planned by the central planning authority and based on human consumption needs and economic demands.
Socialists believe economic inequality is very bad for society, and the central government is responsible for reducing it implementing programs which benefit the most need ones.
If we want to forecast the effects of the true version of either system, it still makes sense to start with the closest existing approximations, then analyze the probable effects of bringing their policies into harmony with the ideals. When we do so, we see that capitalism is a wonderful ideal that's likely to work wonderfully in practice, and socialism is a terrible ideal that's likely to work terribly in practice.
