Currently, most economies in the world are in chaos, especially in the United States. As a consequence, the arguments about the advantages and disadvantages of socialism and capitalism as competing systems of the economy have been increasing. Socialism is an economic system where the government controls or owns the means of production and goods’ distribution (Andreucci and Engel-Di Mauro 177).
The economic theory is common among people or countries that are financially unstable. The countries that exhibit this kind of system are mainly located in Africa. Capitalism, on the other hand, is an economic system in which investment in and ownership of means of production, exchange, and distribution of wealth occur. In such circumstances, private corporations and individuals mainly control these processes (Andreucci and Engel-Di Mauro 177). For the longest time, the nations which are successful in terms of economic achievements, such as Australia, Japan, and the United States, have been adhering to capitalism. Therefore, capitalism is better than socialism because it allows for efficient resource allocation, economic growth rate, increased personal freedom, and helps dependent and small market economies.
Capitalism enables the efficient allocation of resources; it is a form of free markets, and therefore, firms do not receive rewards without distributing goods and services. Such system is moral because, in order for individuals to succeed, they must meet the wants and needs of others. Furthermore, entrepreneurs attempt to recognize needs people do not know they want until the product is available in the market. An excellent example is the case of iPads and iPhones discovered by Steve Jobs. Capitalism works in such a way that entrepreneurs have to persuade consumers to buy what they are offering without any coercion. Organizations that successfully practice this form of economic system perform better than those that do not practice capitalism.
Secondly, capitalism is essential because it enables the growth of a given economy. Countries that have flexible tax laws have a higher growth compared to those with more strict ones. Taxes are a burden and limit the growth of an economy (Forbes). Nations that try to lighten the tax burden experience more economic growth than those with higher taxes. According to Forbes, after Britain recovered from World War II, it had better growth rates; however, they increased the income tax and VATs.
As a result, the rate of growth of the country’s economy has been minimal (Forbes). Additionally, every time the United States reduces its taxation, the economy blossoms. For instance, during President Obama’s term, the rate of growth of the economy reduced and only increased when the government implemented tax deregulation and reduction.
The third reason why capitalism is better than socialism is that it leads to personal freedom. According to Krugman, since capitalism is a market system that involves a free market, the economic system leads to personal freedom. Because the economy is unregulated, it saves the ordinary person from the cruel nature of bureaucracies. Workers or employees in a free market do not need to please their employees (Krieg). They are free to move from one employer to the next if they feel the employer does not offer what they need. When these individuals find a place that can provide for their needs, they become more efficient.
The reason is that they have higher job satisfaction and, as a result, work more effectively, leading to quality output (Krieg). All these factors culminate into an increased economic growth rate. Furthermore, workers improve their personal skills based on how free the economy becomes. Since capitalism is associated with limited government interference, both employers and employees are able to operate in ways that benefit the economy.
Lastly, capitalism is vital in emerging markets; these are differentiated into small market economies (SMEs) and dependent market economies (DMEs). According to Krieg, dependent market economies obtain their advantages from semi-standardized industrial products such as automobiles (271). In this case, there is the retention of the central innovation processes at the company’s headquarters. Nevertheless, because of the lower wages, the company assembles its products in emerging markets. In this case, the companies prefer to be close to vital markets for the goods and the headquarters of the international company.
That explains the location of East-Central Europe, which produces automobiles and acts as the central point for the German automobile industry (Krieg 271). As a consequence, the multinational corporation benefits in terms of profit and reduced cost of transport. Due to limited government interference, there is increased motivation among workers, and therefore, the output becomes even higher for the multinational organization.
Conversely, small market economies differ in terms of their institutional advantage compared to dependent market economies. These economies take advantage of the mass markets in emerging and developing economies. For this reason, the advancement of products requires the producers to manufacture robust and affordable goods (Krieg 271). Despite developing economies having technologies, the emerging markets are still improving at a slow rate.
Therefore, the design of products is arranged in a way so as to meet the needs of those within the emerging economies; as a result, there is equitable resource distribution (Krieg 271). These corporations further benefit from providing needs that were nonexistent within emerging economies. Since these corporations target emerging economies, the result would be an increase in economic growth within these markets. Socialism is incapable of such development, and that is why capitalism is better.
However, some critiques argue that socialism also has its advantages. One of the arguments is that since the state controls most of the functions of the community, it can make better use of lands, labor, and resources. Yugoslavia was once a successful nation because of its socialist structure (Uvalić 4). Its economic planning was based on the principles of centralism, with the state owning enterprises, thereby bringing about state monopoly over the essential sectors of its economy (Uvalić 4).
During this time, the main aim of the state was to level out the existing market inequalities in national income distribution. The market economic system did work for some time before transitioning to capitalism. The reason for this is that since the government controlled most of the state resources, political leaders became greedy. These individuals were now accumulating wealth for themselves, and the system led to the widespread income inequalities. Furthermore, socialism was not market-oriented and led to the slow economic growth of the nation.
Notably, socialism is advantageous in that it reduces wealth disparity among different classes and locations. Individuals who are too old to find employment or are not fir for working can seek help from the government. In the United States, some elements of socialism, such as the health care act, are essential in helping individuals with pre-existing conditions (Andreucci and Engel-Di Mauro 177). However, since the funds were taken from the rich to help the poor, the outcome was a relatively slow economic growth rate.
Capitalism is better than socialism because it leads to faster economic growth and personal freedom. Despite having a better allocation of resources, the advantages of capitalism outweigh those of socialism. Capitalism is also helpful for emerging economies and those that want to change their economic systems thanks to its characteristics of improving the economy. The example of the developed economies such as those of the United States and Japan confirms this fact.
Works Cited
Andreucci, Diego, and Salvatore Engel-Di Mauro. “Capitalism, Socialism and the Challenge of Degrowth: Introduction to the Symposium.” Capitalism Nature Socialism, vol. 30, no. 2, 2019, pp. 176-188.
Forbes, Steve. “Capitalism Will Save Us — If Only We Let It”. Forbes. Web.
Krieg, Gregory. “Is Capitalism Losing or Socialism Gaining? Yes.” CNN. Web.
Krugman, Paul. “Capitalism, Socialism, and Unfreedom.” The New York Times – Breaking News, US News, World News and Videos. Web.
Nölke, Andreas. “Dependent Versus State-permeated Capitalism: Two Basic Options for Emerging Markets.” International Journal of Management and Economics, vol. 54, no. 4, 2018, pp. 269-282.
Uvalić, Milica. “The Rise and Fall of Market Socialism in Yugoslavia.” DOC Research Institute. Web.