LAZARO, GRACE ANNE D.

BSBA FinMan 2B

Capitalism

Capitalism is an economic system characterized by private ownership of the means of

production, especially in the industrial sector.

Capitalism depends on the enforcement of private property rights, which provide incentives for
investment in and productive use of productive capital.

Capitalism developed historically out of previous systems of feudalism and mercantilism in

Europe, and dramatically expanded industrialization and the large-scale availability of mass-
market consumer goods.

Pure capitalism can be contrasted with pure socialism (where all means of production are
collective or state-owned) and mixed economies (which lie on a continuum between pure
capitalism and pure socialism).

The real-world practice of capitalism typically involves some degree of so-called “crony
capitalism” due to demands from business for favorable government intervention and
governments’ incentive to intervene in the economy.

The purest form of capitalism is free market or laissez-faire capitalism. Here, private individuals
are unrestrained. They may determine where to invest, what to produce or sell, and at which
prices to exchange goods and services. The laissez-faire marketplace operates without checks
or controls.

Capitalism isn't necessarily the best economic system, but it is better than the alternatives of
socialism, fascism and communism. Most countries have adopted modified versions of
capitalism that require limited participation by governments. The challenge is to make sure
that the government doesn't acquire too much power and become its own monopoly.

Advantages of Capitalism

Private property: Everyone is entitled to own assets. People have the right to own their
houses, cars and television sets. They can even own stocks and bonds.

Self-interest: People are free to pursue their own good. They can do whatever they want
without regard to pressure from politicians or consideration for what their neighbors think of
their actions. The idea is that people's actions will help society as a whole. People are the
most productive when they can earn money that gives them financial and political freedom.
Competition: Since people have the right to own assets, companies will see this demand and
start making products to satisfy consumers. As demand grows, more businesses will jump in
the market and start competing with each other for the consumers' money. This should be a
good thing; more competitors mean better quality products and lower prices. At the same
time, these companies will have to hire more workers and pay them better wages.

Freedom of Choice: Now, the consumer can choose among an offering of different products
from several companies. No one can tell them that they have to buy a specific product from a
specific company. Workers have the freedom to work for whichever company they choose.
They can demand higher wages and better benefits.

Innovation: Among the many capitalism advantages is the idea that capitalism encourages
efficiency in the marketplace. Companies must find profitable ways to produce high-quality
products that consumers want to buy.

Efficient allocation of resources: Companies produce goods per the demands of consumers.
Businesses do not make products that no one wants to buy. Firms have incentives to be
productive; inefficient firms will go out of business.

Limited government intervention: In a capitalistic society, the government has a smaller role.
Taxes are lower, and there is less government intervention in the free market. The role of
government is to protect the rights of private individuals, not to intrude on their personal
liberties.

Disadvantages of Capitalism

Focus on profit: The obsessive focus on profits leads to social and economic inequality. The
population that controls the means of production tends to accumulate more wealth than the
workers who helped to create those riches for the wealthy. Since rich families can pass on
their wealth to their heirs, the rich get richer and the workers stay poor.

Financial instability: Financial markets go through periods of irrational exuberance, causing

boom and bust cycles. During a long recession, people can lose their jobs, have their houses
foreclosed and suffer a decline in their living standards.

Monopoly power: Because capitalism is a free market, it is possible for a single firm to

become all-powerful and dominate a market. When this happens, a company can charge
whatever price they want, and consumers have no choice but to pay higher prices.

Workforce limitations: In theory, the factors of production should be able to move from an
unprofitable use to a profitable business. But this doesn't work for the labor force. A farmer
who just lost his job cannot hop on a plane and fly to a big city to take a job as a waiter.
Neglect of social benefits: Private companies don't really care to provide social benefits such
as health care, public transportation and education. None of these areas make a profit. So,
the government has to step in to provide these services.

Communism

Communism is an economic ideology that advocates for a classless society in which all property
and wealth is communally-owned, instead of by individuals.

The communist ideology was developed by Karl Marx and is the opposite of a capitalist one,
which relies on democracy and production of capital to form a society.

Prominent examples of communism were Soviet Union and China. While the former collapsed
in 1991, the latter has drastically revised its economic system to include elements of capitalism.

"Communism" is an umbrella term that encompasses a range of ideologies. The term's modern
usage originated with Victor d'Hupay, an 18th-century French aristocrat who advocated living in
"communes" in which all property would be shared and "all may benefit from everybody's
work." The idea was hardly new even at that time, however: the Book of Acts describes first-
century Christian communities holding property in common according to a system known
as koinonia, which inspired later religious groups such as the 17th-century English "Diggers" to
reject private ownership. 

Advantages of Communism

It embodies equality: In a communist society, everybody is equal and no one is left alone. That
is, no social class is better than the other because there is no social class system at all. All the
resources of a country like property are under the control of the state and governed by a group
that represents the masses. As such, citizens have the peace of mind that all the people are
equal. This is the opposite of capitalism where there are businesses are owned by capitalists
and employees who need to work in order to survive.

It makes health care, education and employment accessible to citizens: What is seen as a
significant advantage of communism is the access it gives to people when it comes to attending
school and given medical attention. This is because in this type of ideology, even the poorest
people can attend schools and provided with health care. It also minimizes unemployment
because everybody gets equal opportunities.

It does not allow business monopolies: Since the government owns and controls the business
as well as allots the money to be spent for production costs, there is no business competition
and no manufacturer is better than the other. This means manufacturers can only produce
limited number of goods and are unable to demand for higher prices for their commodities and
monopolize the market.

Disadvantages of Communism

It hampers personal growth: One of the setbacks of communism is its being too controlling on
the lives of the people. Since it is a classless society, everyone is equal in social status and no
one is above the other. This can also be a disadvantage since people will feel they are at the
end of the road because there is no room for personal improvement. In Cuba, for example, all
medical professionals, medicines and hospitals are controlled by the government. The fees of
these professionals are regulated by the government and they cannot demand for higher fees.

It dictates on the people: In a communist society, the government has the power to dictate and
run the lives of people. Although its goal is one of equality, there is basically less or no personal
freedom at all to criticize the government or demand for changes. Moreover, there is no
freedom of speech and whoever goes against the government can be subjected to
punishments.

It does not give financial freedom: Another setback of communism is the fact that
entrepreneurs cannot expect to make more money than the others. As opposed to a free
market economy, the command economy which is practiced by most communist countries ties
the hands of business people. Consequently, it is hard to get rich in these countries.

Socialism

Socialism is a populist economic and political system based on public ownership (also known as
collective or common ownership) of the means of production. Those means include the
machinery, tools, and factories used to produce goods that aim to directly satisfy human
needs. Communism and socialism are umbrella terms referring to two left-wing schools of
economic thought; both oppose capitalism, but socialism predates the "Communist Manifesto,"
an 1848 pamphlet by Karl Marx and Friedrich Engels, by a few decades.

In a purely socialist system, all legal production and distribution decisions are made by the
government, and individuals rely on the state for everything from food to healthcare. The
government determines the output and pricing levels of these goods and services.

Socialists contend that shared ownership of resources and central planning provide a more
equal distribution of goods and services and a more equitable society.
Advantages of Socialism

Greater Efficiency: Economic efficiency under socialism is greater than under capitalism, the

means of production are not left in the market forces rather they are controlled and regulated
by the central planning authority towards chosen end. The central planning authority makes an
exhaustive survey of resources and utilizes them in the most efficient manner.

Greater Welfare: In a social economy, there is less inequality of income as compared to

capitalist economy because of the absence of private ownership of means of production. In
socialist economic system every one works hard and paid as per his skills & ability.

Absence of monopolistic practices: One of the benefits of socialism is that it is free from
monopolistic practices to be found in a capitalist society. Since under socialism all means of
production are owned by the state, the exploitations by the monopolist are absent. Instead of
private monopoly, there is state monopoly over the productive system but this is operated for
the welfare of the people.

Absence of business fluctuations: A socialist economy is also superior to a capitalist economy

that is free from business fluctuation. Generally planned economy co-ordinates the action of
various producing units, prevents discrimination between saving and investment and make full
use of available resources. It is able to control over production and avoid general deflationary
trend.

Economic Growth: I will consider economic growth as an important advantage of socialism

because it adopts economic planning as a means of promoting rapid economic growth. A
planned socialist economy functions right according to the plan in a systematic and orderly
manners and marches rapidly on the road to economic progress.

Disadvantages of Socialism

Elimination of Individualism: There are many disadvantages of socialism but first come in my
mind is the lack of economic freedom. In socialist economic system everything is controlled by a
centralized body. Individuals are not allowed to own any assets, everything belongs to the
state. Workers are assigned specific jobs and are not allowed to change them without consent
from the planning authority.

Red-Tapism and Inefficiency: In socialism there is a lot of involvement of bureaucracy and are
the drivers of all economic machinery. The work civil servants are not comparable with the
private entrepreneurs. Civil servants merely do the jobs because it is their duty and they will get
paid whatever the consequences. Thus inefficiency arises and in the long run the economy
suffers.
An Artificial System: As a socialist economy is a planned economy, every aspect of the
economy is to be determined by the government. Forces of demand and supply do not apply
which is one of the disadvantages of socialism. Thus in the long run the economy becomes state
rather than wasted, whereas these make an economy prosper.

Consumers Suffer: In the final analysis it is the consumer who loses out. Sovereignty of
consumer does not apply in a socialist economy. Consumers do not enjoy the status of a
consumer as in a capitalist economy. Choices of goods and services are able to maximize their
total satisfaction.

Economic Equality: Socialists claim more equal distribution of wealth but practically it is proven
that complete economic equality is virtually impossible. There is a distinction between the rich
and poor. Moreover since it is a planned economy the poor suffer even more.

Non-existence of economic and political freedom: Freedom of enterprise, freedom in choice of

occupation and many other essential freedoms for an economy to prosper are out-rooted from
society. The true spirit of democracy dies away. The basic needs Although it has been agreed
that the six basic needs in life are met within a socialist economy but all this is obtained at the
expense of economic and political freedom.

Non-existence of Competition: It is due to competition that an economy becomes prosperous.

The competition between producers and consumers leads to the production of a good quality
product which may even be relatively cheap here it is one the disadvantages of socialism. Thus
talents and initiatives of mankind develop and in the ultimate analysis the country incurs rapid
growth.