Capitalism

and Socialism
What is a capitalism?

– Capitalism is a system in which all the

natural resources and means of production
are privately owned.
– It emphasizes profit maximization and
competition as main drivers of efficiency.
Capitalism

– This means that when one owns a business, he

needs to outperform his competitors if he is going
to succeed.
– The business owner is incentivized to be more
efficient by improving the quality of one’s product
and reducing it’s prices.
Adam Smith

– He is an economist.
– He called the capitalism “Invisible Hand” in the
1770’s.
– The idea is that if one leaves a capitalist
economy alone, consumers will regulate things
themselves by selecting goods and services that
provide the best value.
Market Failures

– Unregulated market ends up allocating

goods and services inefficiently.
Monopoly

– This is a kind of market failure.

– When a company has no competition
for customers, they can charge higher
prices without worrying about losing
customers.
Monopoly

– This mostly affects the consumers.

– In situations like this, the government might
step in and force the company to break up
to smaller companies to increase the
competition.
Pros and Cons of
Capitalism
Countries Under Capitalism

– Hong Kong
– Singapore
– New Zealand
– Switzerland
– Australia
– United Kingdom
– Canada
– United Arab Emirates
What is socialism?

– This is a system is where a government plays a

larger role.
– The means of production are under collective
ownership.
– This rejects the capitalism’s private property and
hands-off approaches.
Karl Marx

– He viewed socialism as a stepping stone

toward communism a political and
economic system in which all members of a
society are socially equal.
Socialism

– Properties are owned by the government and

allocated to all the citizens, not only those with
the money to afford it.
– This system emphasizes collective goals expecting
everyone to work for the common good and
placing a higher value of meeting’s basic needs
than on individual profit.
The Practice of the Socialism

– In practice, this has not played out in the

countries that have modelled their
economies on socialism, like Cuba, North
Korea, China, and the USSR.
 Why?

– Marx hoped that as economic differences vanished in

communist society, the government would simply wither
away and disappear.
– But this never happened, if anything the opposite did.
– Rather than freeing the workers– in Marxist term are the
proletariat– from inequality, the massive power of the
government in these states gave enormous wealth power
and privileged to political elites.
Pros and Cons of
Socialism
Capitalist and Socialist

– The capitalism countries outperformed the socialist

counterparts.
– This contributed to the unrest that eventually led to the
downfall of the Union of Soviet Socialist Republics (USSR).
– Before the fall of the Soviet Union, the average output of
capitalist countries was about $13,500 per person.
– This is almost 3 times than in the Soviet countries.
 These two models are not the end of the
story because we are living in the middle
of the economic revolution that
followed the industrial revolution.