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Socialism and Capitalism

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Published: Jan 31, 2024

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Table of contents

1. economic systems, 2. ownership of resources, 3. impact on society, 4. criticisms and counterarguments, 5. conclusion, definition and characteristics of socialism, definition and characteristics of capitalism, comparison of economic systems, private ownership in capitalism, public ownership in socialism, social equality and mobility in socialism, economic growth and entrepreneurial spirit in capitalism, critiques of socialism.

• Lack of incentive and innovation
• Centralized control and bureaucracy
• Economic inefficiency and resource misallocation

Critiques of capitalism

• Widening income inequality
• Market failures and externalities
• Exploitation of labor
• https://www.britannica.com/topic/socialism
• https://www.investopedia.com/terms/c/capitalism.asp
• https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6172670/

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Socialism vs. Capitalism: What Is the Difference?

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• U.S. Economy
• Supply & Demand
• Archaeology
• B.S., Texas A&M University

Socialism and capitalism are the two main economic systems used in most countries today. The main difference between capitalism and socialism is the extent to which the government controls the economy.

Key Takeaways: Socialism vs. Capitalism

• Socialism is an economic and political system under which the means of production are publicly owned. Production and consumer prices are controlled by the government to best meet the needs of the people.
• Capitalism is an economic system under which the means of production are privately owned. Production and consumer prices are based on a free-market system of “supply and demand.”
• Socialism is most often criticized for its provision of social services programs requiring high taxes that may decelerate economic growth.
• Capitalism is most often criticized for its tendency to allow income inequality and stratification of socio-economic classes.

Socialist governments strive to eliminate economic inequality by tightly controlling businesses and distributing wealth through programs that benefit the poor, such as free education and healthcare. Capitalism, on the other hand, holds that private enterprise utilizes economic resources more efficiently than the government and that society benefits when the distribution of wealth is determined by a freely-operating market.

The United States is generally considered to be a capitalist country, while many Scandinavian and Western European countries are considered socialist democracies. In reality, however, most medium- and high-income countries—including the U.S.—employ a mixture of socialist and capitalist programs.

Capitalism Definition

Capitalism is an economic system under which private individuals own and control businesses, property, and capital—the “means of production.” The volume of goods and services produced is based on a system of “ supply and demand ,” which encourages businesses to manufacture quality products as efficiently and inexpensively as possible.

In the purest form of capitalism— free market or laissez-faire capitalism—individuals are unrestrained in participating in the economy. They decide where to invest their money, as well as what to produce and sell at what prices. True laissez-faire capitalism operates without government controls. In reality, however, most capitalist countries employ some degree of government regulation of business and private investment.

Capitalist systems make little or no effort to prevent income inequality . Theoretically, financial inequality encourages competition and innovation, which drive economic growth. Under capitalism, the government does not employ the general workforce. As a result, unemployment can increase during economic downturns . Under capitalism, individuals contribute to the economy based on the needs of the market and are rewarded by the economy based on their personal wealth.

Socialism Definition 

Socialism describes a variety of economic systems under which the means of production are owned equally by everyone in society. In some socialist economies, the democratically elected government owns and controls major businesses and industries. In other socialist economies, production is controlled by worker cooperatives. In a few others, individual ownership of enterprise and property is allowed, but with high taxes and government control. 

The mantra of socialism is, “From each according to his ability, to each according to his needs.” This means that each person in society gets a share of the economy’s collective production—goods and wealth—based on how much they need. Workers are paid their share of production after a percentage has been deducted to help pay for social programs that serve “the common good.” 

In contrast to capitalism, the main concern of socialism is the elimination of “rich” and “poor” socio-economic classes by ensuring an equal distribution of wealth among the people. To accomplish this, the socialist government controls the labor market, sometimes to the extent of being the primary employer. This allows the government to ensure full employment even during economic downturns. 

The Socialism vs. Capitalism Debate  

The key arguments in the socialism vs. capitalism debate focus on socio-economic equality and the extent to which the government controls wealth and production.

Ownership and Income Equality 

Capitalists argue that private ownership of property (land, businesses, goods, and wealth) is essential to ensuring the natural right of people to control their own affairs. Capitalists believe that because private-sector enterprise uses resources more efficiently than government, society is better off when the free market decides who profits and who does not. In addition, private ownership of property makes it possible for people to borrow and invest money, thus growing the economy. 

Socialists, on the other hand, believe that property should be owned by everyone. They argue that capitalism’s private ownership allows a relatively few wealthy people to acquire most of the property. The resulting income inequality leaves those less well off at the mercy of the rich. Socialists believe that since income inequality hurts the entire society, the government should reduce it through programs that benefit the poor such as free education and healthcare and higher taxes on the wealthy. 

Consumer Prices

Under capitalism, consumer prices are determined by free market forces. Socialists argue that this can enable businesses that have become monopolies to exploit their power by charging excessively higher prices than warranted by their production costs. 

In socialist economies, consumer prices are usually controlled by the government. Capitalists say this can lead to shortages and surpluses of essential products. Venezuela is often cited as an example. According to UNHCR, “inflation...as well as shortages of food, medicine and essential services have forced millions to seek refuge...” Hyperinflation and deteriorating health conditions under the socialist economic policies of President Nicolás Maduro have driven an estimated 7.7 million people to leave the country as food became a political weapon. 

Efficiency and Innovation 

The profit incentive of capitalism’s private ownership encourages businesses to be more efficient and innovative, enabling them to manufacture better products at lower costs. While businesses often fail under capitalism, these failures give rise to new, more efficient businesses through a process known as “creative destruction.” 

Socialists say that state ownership prevents business failures, prevents monopolies, and allows the government to control production to best meet the needs of the people. However, say capitalists, state ownership breeds inefficiency and indifference as labor and management have no personal profit incentive. 

Healthcare and Taxation 

Socialists argue that governments have a moral responsibility to provide essential social services. They believe that universally needed services like healthcare, as a natural right, should be provided free to everyone by the government. To this end, hospitals and clinics in socialist countries are often owned and controlled by the government. 

Capitalists contend that state, rather than private control, leads to inefficiency and lengthy delays in providing healthcare services. In addition, the costs of providing healthcare and other social services force socialist governments to impose high progressive taxes while increasing government spending, both of which have a strong effect on the economy. However, in some capitalist countries such as the U.S., healthcare is unbearably expensive for the consumer.

Capitalist and Socialist Countries Today 

Today, there are few if any medium- and high- countries that are 100% capitalist or socialist. Indeed, the economies of most countries combine elements of socialism and capitalism.

In Norway, Sweden, and Denmark—generally considered socialist—the government provides healthcare, education, and pensions. However, private ownership of property creates a degree of income inequality. An average of 65% of each nation’s wealth is held by only 10% of the people—a characteristic of capitalism.

The economies of Cuba, China, Vietnam, Russia, and North Korea incorporate characteristics of both socialism and communism .

While countries such as the United Kingdom, France, and Ireland have strong socialist parties, and their governments provide many social support programs, most businesses are privately owned, making them essentially capitalist.

Though long considered the prototype of capitalism, the United States employs certain socialist-like social safety net programs such as Social Security, Medicare, food stamps , and housing assistance. This is set in the Preamble of the U.S. Constitution , with one of the nation’s goals being to “promote the general welfare.”

Contrary to popular belief, socialism did not evolve from Marxism . Societies that were to varying degrees “socialist” have existed or have been imagined since ancient times. Examples of actual socialist societies that predated or were uninfluenced by German philosopher and economic critic Karl Marx were Christian monastic enclaves during and after the Roman Empire and the 19th-century utopian social experiments proposed by Welsh philanthropist Robert Owen. Premodern or non-Marxist literature that envisioned ideal socialist societies include The Republic by Plato , Utopia by Sir Thomas More, and Social Destiny of Man by Charles Fourier. 

Socialism vs. Communism

Unlike socialism, communism is both an ideology and a form of government. As an ideology, it predicts the establishment of a dictatorship controlled by the working-class proletariat established through violent revolution and the eventual disappearance of social and economic class and state. As a form of government, communism is equivalent in principle to the dictatorship of the proletariat and in practice to a dictatorship of communists. In contrast, socialism is not tied to any specific ideology. It presupposes the existence of the state and is compatible with democracy and allows for peaceful political change.

Capitalism 

While no single person can be said to have invented capitalism, capitalist-like systems existed as far back as ancient times. The ideology of modern capitalism is usually attributed to Scottish political economist Adam Smith in his classic 1776 economic treatise "The Wealth of Nations". The origins of capitalism as a functional economic system can be traced to 16th to 18th century England, where the early Industrial Revolution gave rise to mass enterprises, such as the textile industry, iron, and steam power . These industrial advancements led to a system in which accumulated profit was invested to increase productivity—the essence of capitalism.

Despite its modern status as the world’s predominant economic system, capitalism has been criticized for several reasons throughout history. These include the unpredictable and unstable nature of capitalist growth, social harms, such as pollution and abusive treatment of workers, and forms of economic disparity, such as income inequality . Some historians connect profit-driven economic models such as capitalism to the rise of oppressive institutions such as human enslavement , colonialism , and imperialism .

Sources and Further Reference

• “Back to Basics: What is Capitalism?” International Monetary Fund , June 2015, https://www.imf.org/external/pubs/ft/fandd/2015/06/basics.htm.
• Fulcher, James. “Capitalism A Very Short Introduction.” Oxford, 2004, ISBN 978-0-19-280218-7.
• de Soto, Hernando. The Mystery of Capital.” International Monetary Fund , March, 2001, https://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm.
• Busky, Donald F. “Democratic Socialism: A Global Survey.” Praeger, 2000, ISBN 978-0-275-96886-1.
• Nove, Alec. “The Economics of Feasible Socialism Revisited.” Routledge, 1992, ISBN-10: 0044460155.
• Newport, Frank. “The Meaning of ‘Socialism’ to Americans Today.” Gallup , October 2018), https://news.gallup.com/opinion/polling-matters/243362/meaning-socialism-americans-today.aspx.
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Events, news & press, capitalism vs. socialism.

Over the last century countries have experimented with variations on both capitalism and socialsm. So how do socialism, capitalism, and their many variants compare?

From economic shutdowns to trillions of dollars in new government spending, the 2020 COVID-19 pandemic led to a dramatic increase in government action. While much of the increase was temporary, there is now a growing desire to further expand government. We see calls for single-payer health care systems, expanded child-care subsidies, and trillions of dollars in federal infrastructure investments.

Arguments about what government should and should not do are not new. We regularly see them in the debates over the merits of socialism versus free market capitalism. While these debates are often in the abstract, over the last century countries have experimented with variations on both economic systems. The  Hoover Institution’s Human Prosperity Project  critically examined many of these experiments to see which economic system is best for human flourishing. The video below describes the project’s objectives:

So how do socialism, capitalism, and their many variants compare?

Part 2: How do socialism and capitalism affect income and opportunities?

Delivering broad-based prosperity should be the primary goal of all economic systems, but not all systems deliver the same results. Supporters of capitalism argue that free markets give people—entrepreneurs, investors, and workers—the right incentives to create goods and services that people value. The result is higher standards of living. Those sympathetic to socialism, however, respond that capitalism may produce wealth for some, but without government involvement in the economy many are left behind.

In his Human Prosperity Project essay  Socialism, Capitalism, and Income  economist Edward Lazear analyzed decades of income trends across 162 countries. He studied how incomes for low and high earners changed as countries shifted from government-controlled economies to more market-oriented economies. His conclusion?

The historical record provides evidence on how countries have fared under the two extreme systems as well as under intermediate cases, where countries adopt primarily private ownership and economic freedom but couple that with a large government sector and transfers. The general evidence suggests that both across countries and over time within a country, providing more economic freedom improves the incomes of all groups, including the lowest group.

Lazear points to several specific examples. First, China: in the 1980s, the Chinese Communist government began to adopt market-based reforms. Lazear finds that the market reforms, as skeptics of capitalism would predict, did increase income inequality. But, more importantly, the market reforms lifted millions of people out of poverty. Lazear notes:

Today, the poorest Chinese earn five times as much as they did just two decades earlier. Throughout the 1980s and before, a large fraction of the Chinese population lived in abject poverty. Today’s poor in China remain poor by developed-country standards, but there is no denying that they are far better off than they were even two decades ago. Indeed, the rapid lifting of so many out of the worst state of poverty is likely the greatest change in human welfare in world history.

As the video below highlights, market reforms led to similar economic miracles in India, Chile, and South Korea:

Part 3: What about mixed economies?

Of course, most modern-day critics of capitalism are not advocating for complete government control over the economy. They don’t want the economic policies of the Soviet Union or early Communist China; instead, they point to nations with mixed economies to emulate, such as those featuring social democracy. So how do these policies affect incomes and opportunities?

Economist Lee Ohanian compares the labor market policies of Europe and the United States in his essay The Effect of Economic Freedom on Labor Market Efficiency and Performance . Compared to the United States, European nations have higher minimum wages, stricter rules that prevent the firing of workers, and high rates of unionization. These rules are intended to protect workers, but Ohanian finds that they discourage employment and result in lower compensation rates. His analysis indicates:

These findings have important implications for economic policy making. They indicate that policies that enhance the free and efficient operation of the labor market significantly expand opportunities and increase prosperity. Moreover, they suggest that economic policy reforms can substantially improve economic performance in countries with heavily regulated labor markets and high tax rates.

The video below highlights some of Ohanian’s key findings:

What about the effects of income redistribution and the taxes that pay for it? Supporters argue that these programs keep people out of poverty. Critics, however, argue that financing these systems comes with high costs both to taxpayers and to recipients.

In their essay Taxation, Individual Actions, and Economic Prosperity: A Review , Joshua Rauh and Gregory Kearney consider the effects of raising tax rates on high-income Americans to finance new government spending. They examine the effects of income and wealth taxes in Europe. They find that wealth taxes and high income tax rates discourage high-income filers from investing in a country, which ultimately reduces economic growth. Thus, calls in the United States to increase income and wealth taxes “come despite a body of evidence showing that the country is already one of the more progressive tax regimes in the world, that wealth confiscation results in worse outcomes for the broader economy.”

The long-term consequences of redistribution don’t fall just on taxpayers. Such transfer systems also create incentives for individuals to leave or stay out of the work force. In their contribution to the Human Prosperity Project , economist John Cogan and Daniel Heil consider the effects of Universal Basic Income (UBI) programs, which would provide a “no-strings-attached” cash benefit to families. They find that modern UBI proposals in the United States would either prove costly—requiring tax rates that would reduce incentives to work and invest—or would require steep phase-out provisions that punish recipients who try to re-enter the workforce. In either case, the result is that UBI programs are likely to reduce employment rates, ultimately depriving recipients of long-term economic opportunities.

Part 4: What about other aspects of human flourishing?

Human flourishing is more than material prosperity. For example, it requires a clean environment and access to good health care.

It might seem that socialist economies—where government controls the means of production—would have better environmental track records. Yet the evidence suggests the opposite. In his essay Environmental Markets vs. Environmental Socialism: Capturing Prosperity and Environmental Quality Economist , Terry Anderson summarizes the literature on economic systems’ effects on the environment. He points to research showing that countries with more economic freedom tend to have better environmental outcomes:

Seth Norton calculated the statistical relationship between various freedom indexes and environmental improvements. His results show that institutions—especially property rights and the rule of law—are key to human well-being and environmental quality. Dividing a sample of countries into groups with low, medium, and high economic freedom and similar categories for the rule of law, Norton showed that in all cases except water pollution, countries with low economic freedom are worse off than those in countries with moderate economic freedom, while in all cases those in countries with high economic freedom are better off than those in countries with medium economic freedom. A similar pattern is evident for the rule-of-law measures.

Anderson explains this surprising result with the adage that “no one washes a rental car.” In free-market societies, property rights give individuals incentive to protect and preserve the resources they own. In countries without these property rights provisions, no one has the right incentives, much like no one has the incentive to wash a rental car (except the rental car companies). The video below further explains why free markets and cleaner environments go hand and hand.

What about health care? Many developed nations that have generally free economies have still opted for government-run health care. The programs vary by country. Even in the United States, the government plays a large role in health care. Large government programs such as Medicare and Medicaid provide health care to low-income families, the disabled, and seniors. Nevertheless, relative to most developed nations, the United States relies far more heavily on the private sector and markets.

In his essay  The Costs of Regulation and Centralization in Health Care  Dr. Scott Atlas compares health care in the United States with that in other developed nations. The United States consistently ranks high across a variety of quality metrics. The system offers shorter wait times and faster access to life-saving drugs and medical equipment. The result is that the US system tends to deliver better medical outcomes than other developed nations. Watch this video to learn more:

Part 5: Conclusion

We’ve seen that whether we look at income statistics or environmental outcomes, economies with freer markets tend to have better outcomes. Nevertheless, there still may be unseen dimensions of economic systems that these statistics don’t address. Is there another way to determine which system is best for human flourishing?

Perhaps the best method is to observe where people choose to live when offered the choice. In his essay  Leaving Socialism Behind: A Lesson from German History ,  Russell Berman catalogues widespread immigration from East Germany to West Germany during the Cold War. Watch this video to learn its causes:

Citations and Additional Reading

• Why did liberal democracies succeed while communist nations failed in the twentieth century? Hoover Institution senior fellow Peter Berkowitz provides an answer in his essay  Capitalism, Socialism, and Freedom .
• In his essay  Socialism vs. The American Constitutional Structure: The Advantages of Decentralization and Federalism , John Yoo highlights the constitutional provisions that would make it difficult for the United States to adopt widescale socialist policies.
• Explore the other Human Prosperity Project essays  here .

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The 9 Key Capitalism vs Socialism Differences, Explained

General Education

Capitalism vs socialism is often framed as the major political face-off of our time. People often think of capitalism vs socialism as two totally opposite political ideologies. But are they really completely different systems? And should we compare capitalism and socialism at all? 

Here’s the facts: it does make sense to compare capitalism and socialism because they’re the main economic systems used in developed countries today. But to truly understand the differences between capitalism and socialism, we have to look to unbiased sources . These terms refer to complex philosophies that can’t be summed up by a meme, stereotype, or hot take! 

Capitalism vs socialism can be a complex topic, which is why we’re here to help you gain an objective understanding of capitalism vs socialism. In this article, we’ll provide a full guide to capitalism vs socialism that includes the following: 

• A deep dive into socialism, and a deep dive into capitalism
• A guide to the differences between democratic socialism vs capitalism
• A socialism vs capitalism chart with side-by-side comparisons
• A brief comparison of these concepts and other political theories, particularly capitalism vs socialism vs communism

Let’s get started!

Featured Image: Expert364/ Wikimedia

Capitalism vs Socialism: What’s the Difference?

Capitalism is an economic system in which the means of production are under private ownership, rather than government control. The means of production generally refers to entrepreneurship, capital goods, natural resources, and labor. Capitalism depends on a free market economy driven by supply and demand. 

In simplest terms, socialism is an umbrella term for types of economic systems that aim to eradicate inequality through shared ownership. To socialists, wealth should belong to the  workers who make the products, rather than groups of private owners. In practice, this means that the means of production are run and controlled by the government, which represents the will of the people.

As such, socialism is ultimately designed to increase social justice and equality regardless of class, race, or other socioeconomic factors . 

As models for economic systems, the primary difference between capitalism and socialism is the extent to which the government controls the economy. Capitalists believe that private enterprise, or privately owned business, is better at using economic resources. Asa result, capitalism argues that private business is what facilitates equitable distribution of wealth through a free market. In contrast, socialists believe that income inequality is most effectively managed through tight control of businesses and redistribution of wealth through social programs that are run by the government, such as free healthcare, education, and housing.

At first glance, capitalism and socialism might seem entirely incompatible. The truth is, most developed countries today implement some combination of capitalist and socialist practices in their economic structure and domestic policy. To help you understand how capitalism and socialism can be integrated in practice, we’ll do a deep dive into both socialism and capitalism, starting with socialism, next. 

What Is Socialism?

We’ve covered the core differences between capitalism vs socialism, so let’s take a closer look at socialism next. Below, we’ll give you a more comprehensive definition of socialism, go over the history of the term, explain democratic socialism vs capitalism, and provide some examples of socialist governments today . 

Because socialism and communism are often easily confused, we’ll also touch on capitalism vs socialism vs communism.

Socialism: Overview and Definition

Socialism is a social, economic, and political doctrine that calls for collective ownership of a society’s means of production. The main goal of socialism is to eliminate socioeconomic classes by ensuring equal distribution of wealth among the people. To accomplish this, a socialist government--which is elected by the people--has control over the country’s economy, including major businesses and industries and the labor market. At its core, socialism is designed to eliminate inequality through government regulation.

The word “socialism” comes from the Latin sociare, which means to combine or to share. But the modern term “socialism” didn’t appear until the 19th century. French philosopher and revolutionary Henri de Saint-Simon coined the term in his writings about the  abuses of the capitalist system and the  Industrial Revolution. 

The thing to keep in mind about socialism is that it’s a blanket term that covers a wide variety of socialist ideas, practices, and theories. In his 1924 encyclopedia of socialism, historian Angelo Rappoport identified forty different definitions of socialism. This is why it’s tough to pin down a universal definition of socialism today. 

As an economic system and political theory, socialism has been applied in many different countries in many different ways . For example, communism is at its heart a form of socialism because it argues that everything in a society should be collectively owned and distributed to each according to their needs. But democratic socialism--which can combine capitalist and socialist ideologies--is also a type of socialism! 

Having said that, socialism is almost always employed as a critique of some aspect of capitalism . In some cases, socialism is also employed to replace capitalism. In most cases, though, socialism and capitalism are used together so that each ideology can make up for the other’s shortcomings. 

History of Socialism

Socialism was first used to criticize capitalist systems at the height of the Industrial Revolution in the 19th century. Henri de Saint-Simon and other prominent French philosophers were the first to critique the poverty and inequality of industrialized capitalism, and socialist thinkers advocated the transformation of society into small communities without private property. 

Socialism gained international recognition at the end of the 19th century. It was during this time that the movement became more oriented toward revolutionary thinking . This strain of socialist thought is largely attributed to the work of German philosophers Karl Marx and Friedrich Engels . In 1848, Marx and Engels wrote and dispersed a pamphlet called The Communist Manifesto detailing their ideas about socialism . 

According to the Communist Manifesto, socialism must eventually evolve into a more advanced system: communism . In the communist form of socialism as described by Marx and Engels (called Marxism), there would be no state, no money, and no social classes. Essentially, communism argues that private enterprise shouldn’t exist, and that the public (through the government) should own all the means of production in a society. 

This means that when socialism evolves into communism, it is fundamentally incompatible with capitalism . That’s because communism argues everything should be owned by the people and managed by government, whereas capitalism believes that economies should be run on private enterprise, which is controlled by individuals and not the government.This is why capitalism vs socialism vs communism can often be confusing. Just remember: the key difference between socialism and communism is that communism seeks to eliminate capitalism. But communism is just one type of socialism, and many other forms of socialism can be integrated into a capitalist economy. 

Marx and Engels helped popularize socialism, and in the 20th century, the first socialist governments appeared . The first mass party in Latin America, the Socialist Party of Argentina, was established in the 1890s, and in 1902, the British Labour Party won its first seats in Parliament. These elections of socialist politicians ushered in a new era of political legitimacy for the socialist movement. 

More radical forms of socialism emerged following World War I . In 1917, the Bolshevik Revolution occurred in Russia, led by philosopher Vladimir Lenin . Lenin and the Bolshevik faction of socialists overthrew the Russian monarchy and installed the first ever constitutionally socialist state, known as the Russian Socialist Federative Soviet Republic. Socialists who embrace Lenin’s methods today are most often referred to as communists.

By the 1920s, socialism in various forms had become the dominant secular movement on a global scale. That’s not to say that most governments were “socialist,” but they had definitely begun incorporating socialist ideas into their political policies. As socialism became more accepted, new forms of socialism continued to emerge, including the most common forms of socialism today: social democracy and democratic socialism. 

Bernie Sanders is the most well-known proponent of democratic socialism in the United States. (Secret-Name101/WikiMedia) 

Democratic Socialism vs Capitalism

Democratic socialism brings three core concepts together: democracy , socialism, and capitalism. Generally speaking, democratic socialism co mbines the safety net of a socialist economy with the wealth creation of capitalism within a democratic system of government. 

Here’s what that means. First things first: the organizational structure of the government is a democracy. Every citizen of a country can vote in a free and fair election to elect officials to represent them in government. These officials then represent the will of the people that elected them. You can learn more about democracies (vs republics and other types of government) in this article. 

Democratic socialism also combines aspects of socialism and capitalism in terms of its political ideologies and economic systems. Under democratic socialism , the elements of society that provide for basic human needs--like healthcare, labor protections, and childcare--are owned collectively and run by the government. 

However, democratic socialism also embraces aspects of capitalism--usually in terms of economic structure. Democratic socialism recognizes the importance of private enterprise, especially in terms of building national wealth. When the two are combined, though, capitalism is more tightly regulated by the government. 

Examples of Socialist Governments Today

There are many different ways that a country can implement socialism today . Socialism is a broad category that encompasses multiple types of economic systems. It’s also compatible with various government systems. 

While there aren’t any purely socialist countries in the world today, there are nations that are categorized as communist by virtue of how much power the government has over social and economic systems. Those countries are: 

• China, or the People’s Republic of China
• Cuba, or Republic of Cuba
• Laos, or Lao People’s Democratic Republic
• Vietnam, or Socialist Republic of Vietnam
• North Korea, or Democratic People’s Republic of Korea

Most countries implement aspects of socialism that are compatible with their form of government and economy in order to create equality for all people. These countries tend to have prominent socialist or democratic socialist political parties. Having a socialist political party does not necessarily mean that a country “is socialist.” Most of the time, it just means that some aspects of a country’s domestic agenda are influenced by socialism. 

Some of the countries with very influential socialist parties include the following: 

• Denmark 
• Poland 
• South Korea
• United Kingdom
• Venezuela 

Because democratic socialism is such a popular topic today, let’s look more closely at one country that implements democratic socialism: Sweden.

Sweden adheres to the Nordic Model , which refers to the economic and social policies common to the Nordic countries of Denmark, Finland, Iceland, Norway, and Sweden. The Nordic Model in Sweden fits the description of democratic socialism for two main reasons: it supports a universalist welfare state to promote social mobility, but it remains committed  to a market-based economy that’s partially fueled by private enterprise.

Sweden’s democratic government provides free health care, education, and lifetime retirement income. As a result, their Swedish citizens pay some of the highest taxes in the world. A high percentage of Sweden’s workers belong to a labor union, and the country is ranked high for protection of workers’ rights because of its strong social partnership between employers, trade unions, and the government.

At the same time, Sweden has a mixed-market capitalist economic system and high degrees of private ownership. To regulate its capitalist economy, Sweden allows free trade combined with collective risk sharing. These measures provide a form of protection against the risks associated with economic openness.

In other words: the country combines socialism and capitalism! in order to ’s political ideology is socialist, but its economy is capitalist. 

Because the government meets most of their needs, the Swedish people aren’t very concerned with accumulating wealth. As of 2020, Sweden also ranks high on the Global Peace Index and is ranked in the top 10 on the World Happiness Report.

Many people associate capitalism with making money. That's because capitalism believes that privately owned businesses should be the bedrock of a national economy.

What Is Capitalism?

Now that we’ve covered socialism, let’s tackle capitalism next . Below, we’ll give you a comprehensive definition and history of capitalism, and we’ll provide some examples of capitalist governments today . 

Capitalism: Overview and Definition

Capitalism is an economic system in which the private sector owns most of the means of production . In a capitalist economy, the government plays a lesser role. The main goal of capitalism is to employ the means of production to make a profit and generate capital. To accomplish this, capitalism usually has a free market economy , which is based on supply and demand and limited government control. At its core, capitalism is designed to enable private entities, which are often corporations, to make a profit . 

The term capitalism is derived from the word “capital,” which evolved from the late Latin word capitale . Capitale is based on the Latin word caput , which means "head" and connotes something of value, such as money, property, or livestock. Capitale emerged in the 12th to 13th centuries to refer to funds, stocks of merchandise, sum of money, or money carrying interest. By 1283, it was used to describe the capital assets of a trading firm . By this time, capital was often used interchangeably with other words, including wealth, money, funds, goods, assets, and property.

In English language usage, the term “capitalism” first appears in author William Makepeace Thackeray’s 1854 novel, The Newcomes. In Thackeray’s novel, “capitalism” refers to “having ownership of capital.” Other initial usage of capitalism in the modern period employs the term to describe a new type of economy. In this economy, capital, or the source of income, doesn’t belong to the workers who generate it through labor. Instead, it belongs to the people who own the businesses and companies that pay for the labor. 

Also keep in mind that just like socialism, capitalism exists on a spectrum . But whereas types of socialism are often categorized by how much power a centralized government has, types of capitalism are usually defined by how free and unregulated the economy is. 

History of Capitalism

Capitalism developed out of systems of feudalism and mercantilism in Europe during the Renaissance. In these systems, capital existed in the form of simple commodity exchange and production. 

At the end of the 16th century, the economic foundations of the agricultural feudal system began to break down in England. Land and resources became concentrated in the hands of a few private owners, and the labor market became more competitive. The expanding system put pressure on owners and workers to increase productivity to make greater profits. By the early 17th century, feudalism was effectively replaced by a new centralized state and economic market in England.

Between the 16th and 18th centuries in England, an economic doctrine of mercantilism prevailed. Merchant traders explored foreign lands and engaged in trade for profit. Under the rule of Queen Elizabeth I, merchants were granted state support. Through subsidies and other economic incentives, merchants expanded commerce and trade and made profits by buying and selling goods. 

The continued growth of capitalism required specific technologies for mass production, which early feudalist societies and individual merchants didn’t have. These technologies became widely available during the Industrial Revolution, and those who owned them were called industrialists. Industrialists facilitated the development of factory systems and manufacturing . These systems required a complex division of labor and established the modern concept of the capitalist mode of production. 

The Industrial Revolution established the dominance of capitalism as an economic system in the western world. By the 19th century, capitalism had spread globally . And by the end of the 19th century, goods and information were able to circulate around the world at a whole new pace. This was due to technologies such as the telegraph, the steamship, and railway. But this growth also hinged on a large--and cheap--labor force. 

When the Great Depression had a global impact in the 1930s, socialist practices first entered into the capitalist economies of the world. By the end of World War II, governments began  regulating these open, capitalist markets. Welfare states emerged in capitalist countries during this time as well. Since then, there hasn’t been a purely capitalist system in the world. Today, most capitalist economies incorporate some form of socialist practice. 

Many countries embrace capitalism...even if they also implement socialist policies. One good example of this is the United Kingdom, which has strong social programs but still allows for a robust private sector.

Examples of Capitalism Governments Today

There are many types of capitalism in existence today. Different countries’ implementation of capitalism may feature different economic policies and institutional structures. However, at their core, all capitalist countries share a common element: they are primarily based on private ownership of the means of production, generating profit through production, market-based control of resources, and accumulation of capital. 

Today, there are over 100 countries that have a capitalist economy . Here are a few examples of countries have some form of a capitalist economy:

• Austria 
• Chile 
• Ireland 
• Japan 
• Mauritius 
• Netherlands 
• United States of America

It’s important to recognize that none of these countries implement pure capitalism . Instead, they implement a form of capitalism that may be combined with other types of economic markets or political ideologies, including socialism. Let’s look at an example of a capitalist economy to understand what capitalism looks like in practice next.

The United States has a democratic capitalist political-economic system . The U.S. economy is also referred to as a mixed market economy. This means that it has characteristics of both capitalism and socialism that are combined with a democratic system of government. 

In the form of capitalism implemented by the U.S., the means of production are based on private ownership and for-profit business. In other words: most businesses and services are privately owned, and those companies’ primary goal is to make money. But because the economy has regulations, taxation, and some subsidization, the U.S. can’t be considered a purely capitalist economy. 

Prior to World War II, the U.S. more closely resembled a truly free market . However, the government has always had some role in controlling the U.S. economy. Today, the U.S. government has partial control over education, physical infrastructure, healthcare, and postal deliveries. The government also provides subsidies to oil and financial companies and agricultural producers. While private businesses have a high degree of autonomy in the U.S., they are required to register with government agencies.

Some critics argue that the U.S. capitalist system serves the interests of a small percentage of the population, known as the one percent. Because of income inequality and intensifying class divisions in the U.S., many critics of capitalism advocate for the adoption of more socialist policies as a means to bridge that class divide . Two well-known advocates of increasing socialist policy in the U.S. are senator Bernie Sanders of Vermont and Alexandria Ocasio-Cortez of New York. 

Socialism vs Capitalism: Chart Comparison

We’ve covered a lot of info concerning capitalism vs socialism, so let’s condense things down to the core differences between capitalism and socialism next. 

Keep reading for a side by side comparison of capitalism and socialism in our chart below.

Fascism, Communism, and Marxism: A Quick Comparison 

Now that we’ve covered the differences between capitalism and socialism, let’s explain how they compare to other systems that they’re sometimes confused with. We’ll briefly clarify the differences between the socialist and capitalist systems and communism and fascism. 

Fascism vs Capitalism and Socialism

Fascism is a political ideology that supports authoritarianism and ultra-nationalism. Fascist states are ruled under dictatorships. They also suppress opposition by force and tightly control society and the economy. 

But how does fascism compare to socialism and capitalism? Socialism is generally considered incompatible with fascism. Socialism is liberally-minded and progressive, and it’s a relatively flexible ideology, whereas fascism is none of these things. In fact, because it is a far-right ideology, fascism opposes socialism. 

The relationship between capitalism and fascism is a little more complicated. Historically, fascism has sought to do away with capitalism because of its emphasis on autonomy and limited state control. However, fascism supports private ownership, wealth accumulation among private individuals, and a market economy. This means that fascism can support a very specific kind of capitalism, but capitalist economies are rarely fascist.

Communism vs Capitalism and Socialism

Let’s talk now about capitalism and socialism in relation to communism. Communism proposes a socioeconomic structure and political system that completely replaces a capitalist system with public ownership and communal control of the means of production. In communism, everything is collectively owned and private enterprise is eliminated. Because it seeks to eliminate money and social classes, communism is ultimately incompatible with capitalism.

However, socialism and communism are more closely related. In simplest terms, communism is a more revolutionary form of socialism , based on the ideology of Karl Marx. Socialism and communism share a core goal of placing power over the means of production in the hands of workers. Unlike communism, though, socialism is widely compatible with other forms of government. Forms of socialism can also be integrated into other economic systems, such as capitalism. 

Marxism vs Capitalism And Socialism 

You may also be wondering how Marxism relates to socialism and capitalism . Marxism is the political and economic theory proposed by Karl Marx and Friedrich Engels. Marxist theory was adapted by followers of Marx and Engels to articulate a specific approach to communism. This means that Marxism is a type of communism that incorporates socialist principles. Ultimately, socialism is a much broader concept than Marxism.

Marxism also addresses capitalism, though. In his book, Das Kapital, Karl Marx describes a capitalist mode of production. He is often credited as defining the modern concept of capitalism through his harsh critiques of it . He ultimately believed that capitalism would eventually stagnate, and socialism would take its place. 

What’s Next? 

If you want to learn more about how different governments work , check out our article on democracies versus republics.

The U.S. government is set up in three parts where no one section of the government has more power than the other . We’ll teach you everything you need to know about this checks and balances system.

If all of these topics are fascinating to you, then you might be interested in majoring in political science. Our experts will teach you everything you need to know about a political science degree , including what types of careers are available for poli-sci grads.

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Socialism is a rich tradition of political thought and practice, the history of which contains a vast number of views and theories, often differing in many of their conceptual, empirical, and normative commitments. Going back a century, Angelo Rappoport in his 1924 Dictionary of Socialism canvassed no fewer than forty definitions of socialism, telling his readers in the book’s preface that “there are many mansions in the House of Socialism” (Rappoport 1924: v, 34–41). To take even a relatively restricted subset of socialist thought, Leszek Kołakowski could fill over 1,300 pages in his magisterial survey of Main Currents of Marxism (Kołakowski 1978 [2008]). Our aim is of necessity more modest. In what follows, we are concerned to present the main features of socialism, both as a critique of capitalism, and as a proposal for its replacement. Our focus is predominantly on literature written within a philosophical idiom, focusing in particular on philosophical writing on socialism produced during the past forty-or-so years. Furthermore, our discussion concentrates on the normative contrast between socialism and capitalism as economic systems. Both socialism and capitalism grant workers legal control of their labor power, but socialism, unlike capitalism, requires that the bulk of the means of production workers use to yield goods and services be under the effective control of workers themselves, rather than in the hands of the members of a different, capitalist class under whose direction they must toil. As we will explain below, this contrast has been articulated further in different ways, and socialists have not only made distinctive claims regarding economic organization but also regarding the processes of transformation fulfilling them and the principles and ideals orienting their justification (including, as we will see, certain understandings of freedom, equality, solidarity, and democracy). [ 1 ]

1. Socialism and Capitalism

2. three dimensions of socialist views, 3.1 socialist principles, 3.2.1 exploitation, 3.2.2 interference and domination, 3.2.3 alienation, 3.2.4 inefficiency, 3.2.5 liberal egalitarianism and inequality in capitalism, 4.1 central and participatory planning, 4.2 market socialism, 4.3 less comprehensive, piecemeal reforms, 5. socialist transformation (dimension diii), other internet resources, related entries.

Socialism is best defined in contrast with capitalism, as socialism has arisen both as a critical challenge to capitalism, and as a proposal for overcoming and replacing it. In the classical, Marxist definition (G.A. Cohen 2000a: ch. 3; Fraser 2014: 57–9), capitalism involves certain relations of production . These comprise certain forms of control over the productive forces —the labor power that workers deploy in production and the means of production such as natural resources, tools, and spaces they employ to yield goods and services—and certain social patterns of economic interaction that typically correlate with that control. Capitalism displays the following constitutive features:

(i) The bulk of the means of production is privately owned and controlled . (ii) People legally own their labor power. (Here capitalism differs from slavery and feudalism, under which systems some individuals are entitled to control, whether completely or partially, the labor power of others). (iii) Markets are the main mechanism allocating inputs and outputs of production and determining how societies’ productive surplus is used, including whether and how it is consumed or invested.

An additional feature that is typically present wherever (i)–(iii) hold, is that:

(iv) There is a class division between capitalists and workers, involving specific relations (e.g., whether of bargaining, conflict, or subordination) between those classes, and shaping the labor market, the firm, and the broader political process.

The existence of wage labor is often seen by socialists as a necessary condition for a society to be counted as capitalist (Schweickart 2002 [2011: 23]). Typically, workers (unlike capitalists) must sell their labor power to make a living. They sell it to capitalists, who (unlike the workers) control the means of production. Capitalists typically subordinate workers in the production process, as capitalists have asymmetric decision-making power over what gets produced and how it gets produced. Capitalists also own the output of production and sell it in the market, and they control the predominant bulk of the flow of investment within the economy. The relation between capitalists and workers can involve cooperation, but also relations of conflict (e.g., regarding wages and working conditions). This more-or-less antagonistic power relationship between capitalists and workers plays out in a number of areas, within production itself, and in the broader political process, as in both the economic and political domains decisions are made about who does what, and who gets what.

There are possible economic systems that would present exceptions, in which (iv) does not hold even if (i), (ii) and (iii) all obtain. Examples here are a society of independent commodity producers or a property-owning democracy (in which individuals or groups of workers own firms). There is debate, however, as to how feasible—accessible and stable—these are in a modern economic environment (O’Neill 2012).

Another feature that is also typically seen as arising where (i)–(iii) hold is this:

(v) Production is primarily oriented to capital accumulation (i.e., economic production is primarily oriented to profit rather than to the satisfaction of human needs). (G.A. Cohen 2000a; Roemer 2017).

In contrast to capitalism, socialism can be defined as a type of society in which, at a minimum, (i) is turned into (i*):

(i*) The bulk of the means of production is under social, democratic control.

Changes with regard to features (ii), (iii), and (v) are hotly debated amongst socialists. Regarding (ii), socialists retain the view that workers should control their labor power, but many do not affirm the kind of absolute, libertarian property rights in labor power that would, e.g., prevent taxation or other forms of mandatory contribution to cater for the basic needs of others (G.A. Cohen 1995). Regarding (iii), there is a recent burgeoning literature on “market socialism”, which we discuss below, where proposals are advanced to create an economy that is socialist but nevertheless features extensive markets. Finally, regarding (v), although most socialists agree that, due to competitive pressures, capitalists are bound to seek profit maximization, some puzzle over whether when they do this, it is “greed and fear” and not the generation of resources to make others besides themselves better-off that is the dominant, more basic drive and hence the degree to which profit-maximization should be seen as a normatively troubling phenomenon. (See Steiner 2014, in contrast with G.A. Cohen 2009, discussing the case of capitalists amassing capital to give it away through charity.) Furthermore, some socialists argue that the search for profits in a market socialist economy is not inherently suspicious (Schweickart 2002 [2011]). Most socialists, however, tend to find the profit motive problematic.

An important point about this definition of socialism is that socialism is not equivalent to, and is arguably in conflict with, statism. (i*) involves expansion of social power—power based on the capacity to mobilize voluntary cooperation and collective action—as distinct from state power—power based on the control of rule-making and rule enforcing over a territory—as well of economic power—power based on the control of material resources (Wright 2010). If a state controls the economy but is not in turn democratically controlled by the individuals engaged in economic life, what we have is some form of statism, not socialism (see also Arnold in Other Internet Resources (OIR) , 2022; Dardot & Laval 2014).

When characterizing socialist views, it is useful to distinguish between three dimensions of a conception of a social justice (Gilabert 2017a; Gilabert 2023a: ch. 4). We identify these three dimensions as:

(DI) the core ideals and principles animating that conception of justice; (DII) the social institutions and practices implementing the ideals specified at DI; (DIII) the processes of transformation leading agents and their society from where they are currently, to the social outcome specified in DII.

The characterization of capitalism and socialism in the previous section focuses on the social institutions and practices constituting each form of society (i.e., on DII). We step back from this institutional dimension in section 3, below, to consider the central normative commitments of socialism (DI) and to survey their deployment in the socialist critique of capitalism. We then, in section 4 , engage in a more detailed discussion of accounts of the institutional shape of socialism (DII), exploring the various proposed implementations of socialist ideals and principles outlined under DI. We turn to accounts of the transition to socialism (DIII) in section 5 .

3. Socialist Critiques of Capitalism and their Grounds (Dimension DI)

Socialists have condemned capitalism by alleging that it typically features exploitation, domination, alienation, and inefficiency. Before surveying these criticisms, it is important to note that they rely on various ideals and principles at DI. We first mention these grounds briefly, and then elaborate on them as we discuss their engagement in socialists’ critical arguments. We set aside the debate, conducted mostly during the 1980s and largely centered on the interpretation of Marx’s writings, as to whether the condemnation of capitalism and the advocacy for socialism relies (or should rely), on moral grounds (Geras 1985; Lukes 1985; Peffer 1990). Whereas some Marxist socialists take the view that criticism of capitalism can be conducted without making use—either explicitly or implicitly—of arguments with a moral foundation, our focus is on arguments that do rely on such grounds.

Socialists have deployed ideals and principles of equality, democracy, individual freedom, self-realization, and community or solidarity. Regarding equality , they have proposed strong versions of the principle of equality of opportunity according to which everyone should have “broadly equal access to the necessary material and social means to live flourishing lives” (Wright 2010: 12; Roemer 1994a: 11–4; Nielsen 1985). Some, but by no means all, socialists construe equality of opportunity in a luck-egalitarian way, as requiring the neutralization of inequalities of access to advantage that result from people’s circumstances rather than their choices (G.A. Cohen 2009: 17–9). Socialists also embrace the ideal of democracy , requiring that people have “broadly equal access to the necessary means to participate meaningfully in decisions” affecting their lives (Wright 2010: 12; Arnold n.d. [OIR] : sect. 4; Love 2020). Many socialists say that democratic participation should be available not only at the level of governmental institutions, but also in various economic arenas (such as within the firm). Third, socialists are committed to the importance of individual freedom . This commitment includes versions of the standard ideas of negative liberty and non-domination (requiring security from inappropriate interference by others). But it also typically includes a more demanding, positive form of self-determination, as the “real freedom” of being able to develop one’s own projects and bring them to fruition (Elster 1985: 205; Gould 1988: ch. 1; Van Parijs 1995: ch. 1; Castoriadis 1979). An ideal of self-realization through autonomously chosen activities featuring people’s development and exercise of their creative and productive capacities in cooperation with others sometimes informs socialists’ positive views of freedom and equality—as in the view that there should be a requirement of access to the conditions of self-realization at work (Elster 1986: ch. 3; Gilabert 2023a: ch. 3; Kandiyali 2020). Finally, and relatedly, socialists often affirm an idea of community or solidarity , according to which people should organize their economic life so that they treat the freedom and well-being of others as intrinsically significant. People should recognize positive duties to support other people, or, as Einstein (1949) put it, a “sense of responsibility for [their] fellow men”. Or, as Cohen put it, people should “care about, and, where necessary and possible, care for, one another, and, too, care that they care about one another” (G.A. Cohen 2009: 34–5; see also Arnold 2020). Community is sometimes presented as a moral ideal which is not itself a demand of justice but can be used to temper problematic results permitted by some demands of justice (such as the inequalities of outcome permitted by a luck-egalitarian principle of equality of opportunity (G.A. Cohen 2009)). However, community is sometimes presented within socialist views as a demand of justice itself (Gilabert 2012). Some socialists also take solidarity as partly shaping a desirable form of “social freedom” in which people are able not only to advance their own good but also to act with and for others (Honneth 2015 [2017: ch. I]).

Given the diversity of fundamental principles to which socialists commonly appeal, it is perhaps unsurprising that few attempts have been made to link these principles under a unified framework. A suggested strategy has been to articulate some aspects of them as requirements flowing from what we might call the Abilities / Needs Principle , following Marx’s famous dictum, in The Critique of the Gotha Program , that a communist society should be organized so as to realize the goals of producing and distributing “From each according to [their] abilities, to each according to [their] needs”. This principle, presented with brevity and in the absence of much elaboration by Marx (Marx 1875 [1978b: 531]) has been interpreted in different ways. One, descriptive interpretation simply takes it to be a prediction of how people will feel motivated to act in a socialist society. Another, straightforwardly normative interpretation construes the Marxian dictum as stating duties to contribute to, and claims to benefit from, the social product—addressing the allocation of both the burdens and benefits of social cooperation. Its fulfillment would, in an egalitarian and solidaristic fashion, empower people to live flourishing lives (Carens 2003, Gilabert 2015, 2023a: ch. 3). The normative principle itself has also been interpreted as an articulation of the broader, and more basic, idea of human dignity. Aiming at solidaristic empowerment , this idea could be understood as requiring that we support people in the pursuit of a flourishing life by not blocking, and by enabling, the development and exercise of their valuable capacities, which are at the basis of their moral status as agents with dignity (Gilabert 2017b; Gilabert 2023a: chs. 1 and 3).

3.2 Socialist Charges against Capitalism

The first typical charge leveled by socialists is that capitalism features the exploitation of wage workers by their capitalist employers. Exploitation has been characterized in two ways. First, in the so-called “technical” Marxist characterization, workers are exploited by capitalists when the value embodied in the goods they can purchase with their wages is inferior to the value embodied in the goods they produce—with the capitalists appropriating the difference. To maximize the profit resulting from the sale of what the workers produce, capitalists have an incentive to keep wages low. This descriptive characterization, which focuses on the flow of surplus labor from workers to capitalists, differs from another common, normative characterization of exploitation, according to which exploitation involves taking unfair, wrongful, or unjust advantage of the productive efforts of others. An obvious question is when, if ever, incidents of exploitation in the technical sense involve exploitation in the normative sense. When is the transfer of surplus labor from workers to capitalists such that it involves wrongful advantage taking of the former by the latter? Socialists have provided at least four answers to this question. (For critical surveys see Arnsperger and Van Parijs 2003: ch. III; Vrousalis 2018; Wolff 1999).

The first answer is offered by the unequal exchange account , according to which A exploits B if and only if in their exchange A gets more than B does. This account effectively collapses the normative sense of exploitation into the technical one. But critics have argued that this account fails to provide sufficient conditions for exploitation in the normative sense. Not every unequal exchange is wrongful: it would not be wrong to transfer resources from workers to people who (perhaps through no choice or fault of their own) are unable to work.

A second proposal is to say that A exploits B if and only if A gets surplus labor from B in a way that is coerced or forced. This labor entitlement account (Holmstrom 1977; Reiman 1987) relies on the view that workers are entitled to the product of their labor, and that capitalists wrongly deprive them of it. In a capitalist economy, workers are compelled to transfer surplus labor to capitalists on pain of severe poverty. This is a result of the coercively enforced system of private property rights in the means of production. Since they do not control means of production to secure their own subsistence, workers have no reasonable alternative to selling their labor power to capitalists and to toil on the terms favored by the latter. Critics of this approach have argued that it, like the previous account, fails to provide sufficient conditions for wrongful exploitation because it would (counterintuitively) have to condemn transfers from workers to destitute people unable to work. Furthermore, it has been argued that the account fails to provide necessary conditions for the occurrence of exploitation. Problematic transfers of surplus labor can occur without coercion. For example, A may have sophisticated means of production, not obtained from others through coercion, and hire B to work on them at a perhaps unfairly low wage, which B voluntarily accepts despite having acceptable, although less advantageous, alternatives (Roemer 1994b: ch. 4).

The third, unfair distribution of productive endowments account suggests that the core problem with capitalist exploitation (and with other forms of exploitation in class-divided social systems) is that it proceeds against a background distribution of initial access to productive assets that is inegalitarian. A is an exploiter, and B is exploited, if and only if A gains from B ’s labor and A would be worse off, and B better off, in an alternative hypothetical economic environment in which the initial distribution of assets was equal (with everything else remaining constant) (Roemer 1994b: 110). This account relies on a luck-egalitarian principle of equality of opportunity. (According to luck-egalitarianism, no one should be made worse-off than others due to circumstances beyond their control.) Critics have argued that, because of that, it fails to provide necessary conditions for wrongful exploitation. If A finds B stuck in a pit, it would be wrong for A to offer B rescue only if B signs a sweatshop contract with A —even if B happened to have fallen into the pit after voluntarily taking the risk to go hiking in an area well known to be dotted with such perilous obstacles (Vrousalis 2013, 2018). Other critics worry that this account neglects the centrality of relations of power or dominance between exploiters and exploited (Veneziani 2013).

A fourth approach directly focuses on the fact that exploitation typically arises when there is a significant power asymmetry between the parties involved. The more powerful instrumentalize and take advantage of the vulnerability of the less powerful to benefit from this asymmetry in positions (Goodin 1987). A specific version of this view, the domination for self-enrichment account (Vrousalis 2013, 2018, 2022), says that A exploits B if A benefits from a transaction in which A dominates B . (On this account, domination involves a disrespectful use of A ’s power over B .) Capitalist property rights, with the resulting unequal access to the means of production, put propertyless workers at the mercy of capitalists, who use their superior power over them to extract surplus labor. A worry about this approach is that it does not explain when the more powerful party is taking too much from the less powerful party. For example, take a situation where A and B start with equal assets, but A chooses to work hard while B chooses to spend more time at leisure, so that at a later time A controls the means of production, while B has only their own labor power. We imagine that A offers B employment, and then ask, in light of their ex ante equal position, at what level of wage for B and profit for A would the transaction involve wrongful exploitation? To come to a settled view on this question, it might be necessary to combine reliance on a principle of freedom as non-domination with appeal to additional socialist principles addressing just distribution—such as some version of the principles of equality and solidarity mentioned above in section 3.1 (Gilabert 2023a: ch. 5).

Capitalism is often defended by saying that it maximally extends people’s freedom, understood as the absence of interference. Socialism would allegedly depress that freedom by prohibiting or limiting capitalist activities such as setting up a private firm, hiring wage workers, and keeping, investing, or spending profits. Socialists generally acknowledge that a socialist economy would severely constrain some such freedoms. But they point out that capitalist property rights also involve interference. They remind us that “private property by one person presupposes non-ownership on the part of other persons” (Marx 1991: 812) and warn that often, although

liberals and libertarians see the freedom which is intrinsic to capitalism, they overlook the unfreedom which necessarily accompanies capitalist freedom. (G.A. Cohen 2011: 150)

Workers could and would be coercively interfered with if they tried to use means of production possessed by capitalists, to walk away with the products of their labor in capitalist firms, or to access consumption goods they do not have enough money to buy. In fact, every economic system opens some zones of non-interference while closing others. Hence the appropriate question is not whether capitalism or socialism involve interference—they both do—but whether either of them involves more net interference, or more troubling forms of interference, than the other. And the answer to that question is far from obvious. It could very well be that most agents in a socialist society face less (troublesome) interference as they pursue their projects of production and consumption than agents in a capitalist society (G.A. Cohen 2011: chs. 7–8).

Capitalist economic relations are often defended by saying that they are the result of free choices by consenting adults. Wage workers are not slaves or serfs—they have the legal right to refuse to work for capitalists. But socialists reply that the relationship between capitalists and workers actually involves domination. Workers are inappropriately subject to the will of capitalists in the shaping of the terms on which they work (both in the spheres of exchange and production, and within the broader political process). Workers’ consent to their exploitation is given in circumstances of deep vulnerability and asymmetry of power. According to Marx, two conditions help explain workers’ apparently free choice to enter into a nevertheless exploitative contract: (1) in capitalism (unlike in feudalism or slave societies) workers own their labor power, but (2) they do not own means of production. Because of their deprivation (2), workers have no reasonable alternative to using their entitlement (1) to sell their labor power to the capitalists—who do own the means of production (Marx 1867 [1990: 272–3]). Through labor-saving technical innovations spurred by competition, capitalism also constantly produces unemployment, which weakens the bargaining power of individual workers further. Thus, Marx says that although workers voluntarily enter into exploitative contracts, they are “compelled [to do so] by social conditions”.

The silent compulsion of economic relations sets the seal on the domination of the capitalist over the worker…. [The worker’s] dependence on capital … springs from the conditions of production themselves, and is guaranteed in perpetuity by them. (Marx 1867 [1990: 382, 899])

Because of the deep background inequality of power resulting from their structural position within a capitalist economy, workers accept a pattern of economic transaction in which they submit to the direction of capitalists during the activities of production, and surrender to those same capitalists a disproportional share of the fruits of their labor. Although some individual workers might be able to escape their vulnerable condition by saving and starting a firm of their own, most would find this extremely difficult, and they could not all do it simultaneously within capitalism (Elster 1985: 208–16; G.A. Cohen 1988: ch. 13).

Socialists sometimes say that capitalism flouts an ideal of non-domination as freedom from being subject to rules one has systematically less power to shape than others (Gourevitch 2013; Arnold 2017; O’Shea 2020; Cicerchia 2022; Gilabert 2017b: 566–7—on which this and the previous paragraph draw). Capitalist relations of production involve domination and the dependence of workers on the discretion of capitalists’ choices at three critical junctures. The first, mentioned above, concerns the labor contract. Due to their lack of control of the means of production, workers must largely submit, on pain of starvation or severe poverty, to the terms capitalists offer them. The second concerns interactions in the workplace. Capitalists and their managers rule the activities of workers by unilaterally deciding what and how the latter produce. Although in the sphere of circulation workers and capitalists might look (misleadingly, given the first point) like equally free contractors striking fair deals, once we enter the “hidden abode” of production it is clear to all sides that what exists is relationships of intense subjection of some to the will of others (Marx 1867 [1990: 279–80]). Workers effectively spend many of their waking hours doing what others dictate them to do. Third, and finally, capitalists have a disproportionate impact on the legal and political process shaping the institutional structure of the society in which they exploit workers, with capitalist interests dominating the political processes which in turn set the contours of property and labor law. Even if workers manage to obtain the legal right to vote and create their own trade unions and parties (which labor movements achieved in some countries after much struggle), capitalists exert disproportionate influence via greater access to mass media, the funding of political parties, the threat of disinvestment and capital flight if governments reduce their profit margin, and the past and prospective recruitment of state officials in lucrative jobs in their firms and lobbying agencies (Wright 2010: 81–4). At the spheres of exchange, production, and in the broader political process, workers and capitalist have asymmetric structural power. Consequently, the former are significantly subject to the will of the latter in the shaping of the terms on which they work (see further Wright 2000 [2015]). This inequality of structural power, some socialists claim, is an affront to workers’ dignity as self-determining, self-mastering agents (Gilabert 2023a: ch. 7).

The third point about domination mentioned above is also deployed by socialists to say that capitalism conflicts with democracy (Wright 2010: 81–4; Arnold n.d. [OIR] : sect. 4; Bowles and Gintis 1986; Meiksins Wood 1995). Democracy requires that people have roughly equal power to affect the political process that structures their social life—or at least that inequalities do not reflect morally irrelevant features such as race, gender, and class. Socialists have made three points regarding the conflict between capitalism and democracy. The first concerns political democracy of the kind that is familiar today. Even in the presence of multi-party electoral systems, members of the capitalist class—despite being a minority of the population—have significantly more influence than members of the working class. Governments have a tendency to adapt their agendas to the wishes of capitalists because they depend on their investment decisions to raise the taxes to fund public policies, as well as for the variety of other reasons outlined above. Even if socialist parties win elections, as long as they do not change the fundamentals of the economic system, they must be congenial to the wishes of capitalists. Thus, socialists have argued that deep changes in the economic structure of society are needed to make electoral democracy fulfill its promise. Political power cannot be insulated from economic power. They also, secondly, think that such changes may be directly significant. Indeed, as radical democrats, socialists have argued that reducing inequality of decision-making power within the economic sphere itself is not only instrumentally significant (to reduce inequality within the governmental sphere), but also intrinsically significant to increase people’s self-determination in their daily lives as economic agents. Therefore, most democratic socialists call for a solution to the problem of the conflict between democracy and capitalism by extending democratic principles into the economy (Fleurbaey 2006). Exploring the parallel between the political and economic systems, socialists have argued that democratic principles should apply in the economic arena as they do in the political domain, as economic decisions, like political decisions, have dramatic consequences for the freedom and well-being of people. Returning to the issue of the relations between the two arenas, socialists have also argued that fostering workers’ self-determination in the economy (notably in the workplace) enhances democratic participation at the political level (Coutrot 2018: ch. 9; Arnold 2012; see survey on workplace democracy in Frega et al. 2019). A third strand of argument, finally, has explored the importance of socialist reforms for fulfilling the ideal of a deliberative democracy in which people participate as free and equal reasoners seeking to make decisions that actually cater for the common good of all (J. Cohen 1989).

As mentioned above, socialists have included, in their affirmation of individual freedom, a specific concern with real or effective freedom to lead flourishing lives. This freedom is often linked with a positive ideal of self-realization , which in turn motivates a critique of capitalism as generating alienation. This perspective informs Marx’s views on the strong contrast between productive activity under socialism and under capitalism (Marx 1844 [1978a]; 1844 [2000]; see also Kandiyali 2000; Brixel, forthcoming). In socialism, the “realm of necessity” and the correspondingly necessary, but typically unsavory, labor required to secure basic subsistence would be reduced so that people also gain increasing access to a “realm of freedom” in which a desirable form of work involving creativity, cultivation of talents, and meaningful cooperation with others is available. This realm of freedom would unleash “the development of human energy which is an end in itself” (Marx 1991: 957–9). This work, allowing for and facilitating individuals’ self-realization, would enable the “all-round development of the individual”, and would in fact become a “prime want” (Marx 1875 [1978b: 531]). The socialist society would feature “the development of the rich individuality which is all-sided in its production as in its consumption” (Marx 1857–8 [1973: 325]); it would constitute a “higher form of society in which the full and free development of every individual forms the ruling principle” (Marx 1867 [1990: 739]). By contrast, capitalism denies the majority of the population access to self-realization at work. Workers typically toil in tasks which are uninteresting and even stunting. They do not control how production unfolds or what is done with the outputs of production. And their relations with others are often not ones of fellowship, but rather of domination (under their bosses) and of competition (against their fellow workers). When alienated,

labor is external to the worker, i.e., it does not belong to his essential being; … in his work, therefore, he does not affirm himself but denies himself, does not feel content but unhappy, does not develop freely his physical and mental energy but mortifies his body and ruins his mind. … It is therefore not the satisfaction of a need; it is merely a means to satisfy needs external to it. (Marx 1844 [1978a: 74])

Recent scholarship has developed these ideas further. Elster has provided the most detailed discussion and development of the Marxian ideal of self-realization. The idea is defined as “the full and free actualization and externalization of the powers and the abilities of the individual” (Elster 1986: 43; 1989: 131). Self-actualization involves a two-step process in which individuals develop their powers (e.g., learn the principles and techniques of civil engineering) and then actualize those powers (e.g., design and participate in the construction of a bridge). Self-externalization, in turn, features a process in which individuals’ powers become visible to others with the potential beneficial outcome of social recognition and the accompanying boost in self-respect and self-esteem. However, Elster says that this Marxian ideal must be reformulated to make it more realistic. No one can develop all their powers fully, and no feasible economy would enable everyone always to get exactly their first-choice jobs and conduct them only in the ways they would most like. Furthermore, self-realization for and with others (and thus also the combination of self-realization with community) may not always work smoothly, as producers entangled in large and complex societies may not feel strongly moved by the needs of distant others, and significant forms of division of labor will likely persist. Still, Elster thinks the socialist ideal of self-realization remains worth pursuing, for example through the generation of opportunities to produce in worker cooperatives.

Others have construed the demand for real options to produce in ways that involve self-realization and solidarity as significant for the implementation of the Abilities / Needs Principle (Gilabert 2015: 207–12; Gilabert 2023a: 105-15), and defended a right to opportunities for meaningful work against the charges that political views oriented by an ideal of self-realization violate a liberal constraint of neutrality about conceptions of the good, rest on problematic assumptions about human nature, or are prone to supporting paternalistic impositions (Gilabert 2023a: 51–3, 92–5, 103–5, 224–37)

Kandiyali meanwhile has defended a reciprocal social interpretation of the Marxian ideas of self-realisation and non-alienation according to which unalienated production would involve workers’ achieving self-realisation precisely through helping to provide each other with the goods and services that those others need for their self-realisation (Kandiyali 2020). On this view, there is an internal relationship between the preconditions for one’s own self-development and the requirement that one stand in a relationship of mutual care and support with others. In other recent work on alienation, Maguire has advanced the view that efficient markets are unavoidably sources of alienation, insofar as they inhibit the ability of market participants to manifest relations of care with their fellow market participants; hence on this view market efficiency always carries an opportunity cost in terms of its undermining the manifestation of mutual care, and thereby alienates individual agents from valuable opportunities to realise a broader range of important values in the course of their productive activity (Maguire 2022).

Further scholarship explores recent changes in the organization of production. Boltanski and Chiapello argue that since the 1980s capitalism has partly absorbed (what they dub) the “artistic critique” against de-skilled and heteronomous work by generating schemes of economic activity in which workers operate in teams and have significant decision-making powers. However, these new forms of work, although common especially in certain knowledge-intensive sectors, are not available to all workers, and they still operate under the ultimate control of capital owners and their profit maximizing strategies. They also operate in tandem with the elimination of the social security policies typical of the (increasingly eroded) welfare state. Thus, the “artistic” strand in the socialist critique of capitalism as hampering people’s authenticity, creativity, and autonomy has not been fully absorbed and should be renewed. It should also be combined with the other, “social critique” strand which challenges inequality, insecurity, and selfishness (Boltanski and Chiapello 2018: Introduction, sect. 2). Other authors find in these new forms of work the seeds of future forms of economic organization—arguing that they provide evidence that workers can plan and control sophisticated processes of production on their own and that capitalists and their managers are largely redundant (Negri 2008).

The critique of alienation has also been recently developed further by Forst (2017) by exploring the relation between alienation and domination. On this account, the central problem with alienation is that it involves the denial of people’s autonomy—their ability and right to shape their social life on terms they could justify to themselves and to each other as free and equal co-legislators. (For further discussion on alienation and self-realization, see Jaeggi 2014: ch. 10. See also the general analysis of the concept of alienation in Leopold 2022a.)

A traditional criticism of capitalism (especially amongst Marxists) is that it is inefficient. Capitalism is prone to cyclic crises in which wealth and human potential is destroyed and squandered. For example, to cut costs and maximize profits, firms choose work-saving technologies and lay off workers. But at the aggregate level, this erodes the demand for their products, which forces firms to cut costs further (by laying off even more workers or halting production). Socialism would, it has been argued, not be so prone to crises, as the rationale for production would not be profit maximization but need satisfaction. Although important, this line of criticism is less widespread amongst contemporary socialists. Historically, capitalism has proved quite resilient, resurrecting itself after crises and expanding its productivity dramatically over time. It might very well be that capitalism is the best feasible regime if the only standard of assessment were productivity.

Still, socialists point out that capitalism involves some significant inefficiencies. Examples are the underproduction of public goods (such as public transportation and education), the underpricing and overconsumption of natural resources (such as fossil fuels and fishing stocks), negative externalities (such as pollution), the costs of monitoring and enforcing market contracts and private property (given that the exploited may not be so keen to work as hard as their profit-maximizing bosses require, and that the marginalized may be moved by desperation to steal), and certain defects of intellectual property rights (such as blocking the diffusion of innovation, and alienating those who engage in creative activities because of their intrinsic appeal and because of the will to serve the public rather than maximize monetary reward) (Wright 2010: 55–65). Really existing capitalist societies have introduced regulations to counter some of these problems, at least to some extent. Examples are taxes and constraints to limit economic activities with negative externalities, and public funding and subsidies to sustain activities with positive externalities which are not sufficiently supported by the market. But, socialists insist, such mechanisms are external to capitalism, as they limit property rights and the scope for profit maximization as the primary orientation in the organization of the economy. The regulations involve the hybridization of the economic system by introducing some non-capitalist, and even socialist elements.

There is also an important issue of whether efficiency should only be understood in terms of maximizing production of material consumption goods. If the metric, or the utility space, that is taken into account when engaging in maximization assessments includes more than these goods, then capitalism can also be criticized as inefficient on account of its tendency to depress the availability of leisure time (as well as to distribute it quite unequally). This carries limitation of people’s access to the various goods that leisure enables—such as the cultivation of friendships, family, and community or political participation. Technological innovations create the opportunity to choose between retaining the previous level of production while using fewer inputs (such as labor time) or maintaining the level of inputs while producing more. John Maynard Keynes famously held that it would be reasonable to tend towards the prior option, and expected societies to take this path as the technological frontier advanced (Keynes 1930/31 [2010]; Pecchi and Piga 2010). Nevertheless, in large part because of the profit maximization motive, capitalism displays an inherent bias in favor of the second, arguably inferior, option. Capitalism thereby narrows the realistic options of its constituent economic agents—both firms and individuals. Firms would lose their competitive edge and risk bankruptcy if they did not pursue profits ahead of the broader interests of their workers (as their products would likely be more expensive). And it is typically hard for workers to find jobs that pay reasonable salaries for fewer hours of work. Socialists concerned with expanding leisure time—and also with environmental risks—find this bias quite alarming (see, e.g., G.A. Cohen 2000a: ch. XI). If a conflict between further increase in the production of material objects for consumption and the expansion of leisure time (and environmental protection) is unavoidable, then it is not clear, all things considered, that the former should be prioritized, especially when an economy has already reached a high level of material productivity.

Capitalism has also been challenged on liberal egalitarian grounds, and in ways that lend themselves to support for socialism. (Rawls 2001; Barry 2005; Piketty 2014; O’Neill 2008a, 2012, 2017, 2020, 2021; Ronzoni 2018). While many of John Rawls’s readers long took him to be a proponent of an egalitarian form of a capitalist welfare state, or as one might put it “a slightly imaginary Sweden”, in fact Rawls rejected such institutional arrangements as inadequate to the task of realizing principles of political liberty or equality of opportunity, or of keeping material inequalities within sufficiently tight bounds. His own avowed view of the institutions that would be needed to realize liberal egalitarian principles of justice was officially neutral as between a form of “property-owning democracy”, which would combine private property in the means of production with its egalitarian distribution, and hence the abolition of the separate classes of capitalists and workers; and a form of liberal democratic socialism that would see public ownership of the preponderance of the means of production, with devolved control of particular firms (Rawls 2001: 135–40; O’Neill and Williamson 2012). While Rawls’s version of liberal democratic socialism was insufficiently developed in his own writings, he stands as an interesting case of a theorist whose defense of a form of democratic socialism is based on normative foundations that are not themselves distinctively socialist, but concerned with the core liberal democratic values of justice and equality (see also Edmundson 2017; Ypi 2018; O’Neill 2020).

In a similar vein to Rawls, another instance of a theorist who defends at least partially socialist institutional arrangements on liberal egalitarian grounds was the Nobel Prize winning economist James Meade. Giving a central place to decidedly liberal values of freedom, security and independence, Meade argued that the likely levels of socioeconomic inequality under capitalism were such that a capitalist economy would need to be extensively tempered by socialist elements, such as the development of a citizens’ sovereign wealth fund, if the economic system were to be justifiable to those living under it (Meade 1964; O’Neill 2015 [OIR] , 2017; O’Neill and White 2019). Looking back before Meade, J. S. Mill can also be seen as a theorist who traveled along what we might describe as “the liberal road to socialism”, with Mill in his Autobiography describing his own view as the acceptance of a “qualified socialism” (Mill 1873 [2018]), and arguing for a range of measures to create a more egalitarian economy, including making the case for a steady-state rather than a growth-oriented economy, arguing for workers’ collective ownership and self-management of firms in preference to the hierarchical structures characteristic of most firms under capitalism, and endorsing steep taxation of inheritance and unearned income (Mill 2008; see also Ten 1998; O’Neill 2008b, Pateman 1970). The recent scholarship of Helen McCabe has both provided a clearer picture of the depth and centrality of J. S. Mill’s socialist thinking, and provided a clearer account of the ways in which Mill’s position can be viewed as work jointly authored with Harriet Taylor Mill, whose influence seems to have radicalised Mill’s political thinking (McCabe 2021, 2023)

Within recent liberal egalitarian political philosophy, the argument has been advanced that as capitalist economies tend towards higher levels of inequality, and in particular with the rapid velocity at which the incomes and wealth of the very rich in society is increasing, many of those who had seen their normative commitments as requiring only the mild reform of capitalist economies might need to come to see the need to endorse more radical socialist institutional proposals (O’Neill 2020; Ronzoni 2018). Other philosophers have begun to put some pressure on mainstream liberal egalitarian assumptions about freedom of occupational choice. For example, the argument has been advanced that traditional liberal occupational freedoms, when viewed against the background of significant economic inequalities, can to the under-provision of vital public services to those in certain deprived areas. The absolute protection of freedom of occupational choice could also to an unjust distribution of effective freedom, whereby those with access to income from capital can live free of the demands of the labour market, while those from less privileged backgrounds find themselves forced to take whatever jobs the market pushes them towards. Lucas Stanczyk has argued that there are therefore compelling liberal grounds both for condemning existing ways of organising the division of labour (Stanczyk 2022) and for accepting some degree of “labour conscription” on grounds of social justice (Stanczyk 2012; see also Walzer 1984; Nielsen 1985; Gomberg 2007; Kandiyali 2023; by contrast, for the canonical liberal rejection of “the central direction of labour” see Rawls 1999, §42; see also Cohen 2008, p. 186, where he states that on this issue his own “inclinations are more liberal” in contrast to “Old-style Stalinistically inclined egalitarians” who would allow coercive imposition of occupational roles).

Meanwhile another significant strand in recent liberal egalitarian thinking has emphasised the degree to which mainstream liberal egalitarianism has unjustifably neglected the role of the value of community (or solidarity). Cohen’s emphasis in Why Not Socialism? (Cohen 2009) on the need to endorse parallel normative commitments to both equality and community can be seen as a response to the shortcomings of a trend in luck egalitarian and related views that had emphasised the first value too often at the expense of the latter (e.g. Arneson 1989; Dworkin 2000). More recent work on the place of community within liberal egalitarianism has explored the ways in which social and economic institutions may need to be reimagined and redesigned so as to avoid “pitting people against each other” (Hussain 2020; see also Gilabert 2023b). These concerns with the value of community align more closely with the traditional socialist value of solidarity, as compared to the rather different approach taken in earlier ‘communitarian’ critiques of mainstream liberal egalitarianism (for guides to those earlier debates, see Mulhall & Swift 1996; Kymlicka 2002, Ch 5).

Alongside this return to considerations of solidarity within liberal egalitarian thought (on which see also Kolers 2016; Sangiovanni 2023; Sangiovanni and Viehoff 2023, 2024) there has also been a move towards more careful consideration of the institutional preconditions for nurturing and developing citizens’ shared sense of commitment to the collective project of creating just institutions, seen as potentially necessitating support for a range of institutions designed either to bring collective deliberation into market processes or to give citizens spaces to encounter each other outside the market (Hussain 2012; O’Neill 2020). Hussain has also recently made the case that, in order for free market economies to be rendered consistent with the value of human freedom, there is a need to embed deliberative “intermediary institutions” within markets, as with Nordic or Rhenish forms of industrial codetermination. On Hussain’s view, even a freedom-based defence of free markets should, when pursued seriously, lead us towards a range of more collective economic institutions that have more often been associated with forms of social democracy or democratic socialism (Hussain 2023).

4. Socialist Institutional Designs (Dimension DII)

The foregoing discussion focused on socialist critiques of capitalism. These critiques make the case that capitalism fails to fulfill principles, or to realize values, to which socialists are committed. But what would an alternative economic system look like which would fulfill those principles, or realize those values—or at least honor them to a larger extent? This brings us to dimension DII of socialism. We will consider several proposed models. We will address here critical concerns about both the feasibility and the desirability of these models. Arguments comparing ideal socialist designs with actual capitalist societies are unsatisfactory; we must compare like with like (Nove 1991; Rawls 2001; Brennan 2014; Corneo 2017). Thus, we should compare ideal forms of socialism with ideal forms of capitalism, and actual versions of capitalism with actual versions of socialism. Most importantly, we should entertain comparisons between the best feasible incarnations of these systems (Gilabert 2023a: ch.8). This requires formulating feasible forms of socialism. Feasibility assessments can play out in two ways: they may regard the (degree of) workability and stability of a proposed socialist system once introduced, or they may regard its (degree of) accessibility from current conditions when it is not yet in place. We address the former concerns in this section, leaving the latter for section 5 when we turn to dimension DIII of socialism and the questions of socialist transition or transformation.

Would socialism do better than capitalism regarding the ideals of equality, democracy, individual freedom, self-realization, and solidarity? This depends on the availability of workable versions of socialism that fulfill these ideals (or do so at least to a greater extent than workable forms of capitalism). A first set of proposals envision an economic system that does away with both private property in the means of production and with markets. The first version of this model is central planning . This can be understood within a top-down, hierarchical model. A central authority gathers information about the technical potential in the economy and about consumers’ needs and formulates a set of production objectives which seek an optimal match between the former and the latter. These objectives are articulated into a plan that is passed down to intermediate agencies and eventually to local firms, which must produce according to the plan handed down. If it works, this proposal would secure the highest feasible levels of equal access to consumption goods for everyone. However, critics have argued that the model faces serious feasibility hurdles (Corneo 2017: ch. 5: Roemer 1994a: ch. 5). It is very hard for a central authority to gather the relevant information from producers and consumers. Second, even if it could gather enough information, the computation of an optimal plan would require enormously complex calculations which may be beyond the capacity of planners (even with access to the most sophisticated technological assistance). Finally, there may be significant incentive deficits. For example, firms might tend to exaggerate the resources they need to produce and mislead about how much they can produce. Without facing strong sticks and carrots (such as the prospects for either bankruptcy and profit offered by a competitive market), firms might well display low levels of innovation. As a result, a planned economy would likely lag behind surrounding capitalist economies, and their members would tend to lose faith in it. High levels of cooperation (and willingness to innovate) could still exist if sufficiently many individuals in this society possessed a strong sense of duty. But critics find this unlikely to materialize, warning that “a system that only works with exceptional individuals only works in exceptional cases” (Corneo 2017: 127).

Actual experiments in centrally planned economies have only partially approximated the best version of it. Thus, in addition to the problems mentioned above (which affect even that best version), they have displayed additional defects. For example, the system introduced in the Soviet Union featured intense concentration of political and economic power in the hands of an elite controlling a single party which, in turn, controlled a non-democratic state apparatus. Despite its successes in industrializing the country (making it capable of mobilizing in a war effort to defeat Nazi Germany), the model failed to generate sufficient technical innovation and intensive growth to deliver differentiated consumer goods of the kind available within advanced capitalist economies. Furthermore, it trampled upon civil and political liberties that many socialists would themselves hold dear.

Responding to such widespread disempowerment, a second model for socialist planning has recommended that planning be done in a different, more democratic way. Thus, the participatory planning (or participatory economy, “Parecon”) model proposes the following institutional features (Albert 2003, 2016 [OIR] ). First, the means of production would be socially owned. Second, production would take place in firms controlled by workers (thus fostering democracy within the workplace). Third, balanced “job complexes” are put in place in which workers can both engage in intellectual and manual labor (thus fostering and generalizing self-realization). Fourth, in a fair and solidaristic fashion, remuneration of workers would track their effort, sacrifice, and special needs (and not their relative power or output—which would likely reflect differences in native abilities for which they are not morally responsible). Finally, and crucially, economic coordination would be based on comprehensive participatory planning. This would involve a complex system of nested worker councils, consumer councils, and an Iteration Facilitation Board. Various rounds of deliberation within, and between, worker and consumer councils, facilitated by this board, would be undertaken until matches between supply and demands schedules are found—with recourse to voting procedures only when no full agreement exists but several promising arrangements arise. This would turn the economy into an arena of deliberative democracy.

This proposal seems to cater for the full palette of socialist values stated in section 4.1 . Importantly, it overcomes the deficits regarding freedom displayed by central planning. Critics have warned, however, that Parecon faces serious feasibility obstacles. In particular, the iterative planning constituting the fifth institutional dimension of the Parecon proposal would require immense information complexity (Wright 2010: 260–5). It is unlikely that participants in the operations of this board, even with the help of sophisticated computers, would manage it sufficiently well to generate a production plan that satisfactorily caters to the diversity of individuals’ needs. A defense of Parecon would retort that beyond initial stages, the process of economic decision-making would not be too cumbersome. Furthermore, it might turn out to involve no more paperwork and time devoted to planning and to assessment behind computer terminals than is found in existing capitalist societies (with their myriad individual and corporate budgeting exercises, and their various accounting and legal epicycles). And, in any case, even if it is more cumbersome and less efficient in terms of productivity, Parecon might still be preferable overall as an economic system, given its superior performance regarding the values of freedom, equality, self-realization, solidarity, and democracy (Arnold n.d. [OIR] : sect. 8.b).

Some of the above-mentioned problems of central planning, regarding inefficiency and concentration of power, have motivated some socialists to explore alternative economic systems in which markets are given a central role. Markets generate problems of their own (especially when they involve monopolies, negative externalities, and asymmetric information). But if regulations are introduced to counter these “market failures”, markets can be the best feasible mechanism for generating matches between demand and supply in large, complex societies (as higher prices signal high demand, with supply rushing to cover it, while lower prices signal low demand, leading supply to concentrate on other products). Market socialism affirms the traditional socialist desideratum of preventing a division of society between a class of capitalists who do not need to work to make a living and a class of laborers having to work for them, but it retains from capitalism the utilization of markets to guide production. There has been a lively debate on this approach, with several specific systems being proposed.

One version is the economic democracy model (Schweickart 2002 [2011], 2016 [OIR] ). It has three basic features. First, production is undertaken in firms managed by workers. Worker self-managed enterprises would gain temporary control of some means of production (which would be leased out by the state). Workers determine what gets produced and how it is produced, and determine compensation schemes. Second, there is a market for goods and services. The profit motive persists and some inequalities within and between firms are possible, but likely much smaller than in capitalism (as there would be no separate capitalist class, and workers will not democratically select income schemes that involve significant inequality within their firms). Finally, investment flows are socially controlled through democratically accountable public investment banks, which determine funding for enterprises on the basis of socially relevant criteria (such as efficiency and environmental sustainability). The revenues for these banks come from a capital assets tax. This system would (through its second feature) mobilize the efficiency of markets while also (through its other features) attending to socialist ideals of self-determination, self-realization, and equal opportunity. To address some potential difficulties, the model has been extended to include further features, such as a commitment of the government as an employer of last resort, the creation of socialist savings and loans associations, the accommodation of an entrepreneurial-capitalist sector for particularly innovative small firms, and some forms of protectionism regarding foreign trade.

Self-management market socialism has been defended as feasible by pointing at the experience of cooperatives (such as the Mondragón Corporation in the Basque Country in Spain, often described as the world’s largest cooperative, which has (as of 2015) over 70,000 worker-owners participating in a network of cooperative businesses (see O’Neill and Etxeberria 2019 [OIR])). But it has also been criticized on five counts (Corneo 2017: ch. 6). First, it would generate unfair distributions, as workers doing the same work in different enterprises would end up with unequal income if the enterprises are not equally successful in the market. Second, workers would face high levels of financial risk, as their resources would be concentrated in their firm rather than spread more widely. Third, it could generate inefficient responses to market prices, as self-managed enterprises reduce hiring if prices for their products are high—so that members keep more of the profit—and hire more if the prices are low—to cover for fixed costs of production. Given the previous point, the system could also generate high unemployment. Having the government require firms to hire more would lead to lower productivity. However, the further features in the model discussed above might address this problem by allowing for small private enterprises to be formed, and by having in the background the government play a role as an employer of last resort (although this might also limit overall productivity). Finally, although some of the problems of efficiency could be handled through the banks controlling investment, it is not clear that the enormous power of such banks could be made sufficiently accountable to a democratic process so as to avoid the potential problem of cooptation by elites. (See, however, Malleson 2014 on democratic control of investment.)

Another market socialist model, proposed by Carens (1981, 2003), does not impose worker self-management. The Carensian model mirrors the current capitalist system in most respects while introducing two key innovative features. First, there would be direct governmental provision regarding certain individually differentiated needs (via a public health care system, for example). Second, to access other consumption goods, everyone working full time would get the same post tax income. Pre-tax salaries would vary, signaling levels of demand in the market. People would choose jobs not only on the basis of their self-regarding preferences, but also out of a sense of social duty to use their capacities to support others in society. Thus, honoring the Abilities / Needs Principle , they would apply for jobs (within their competencies) in which the pre-tax income is relatively high. If it worked, this model would recruit the efficiency of markets, but it would not involve the selfish motives and inegalitarian outcomes typically linked to them in capitalism.

One worry about the Carensian model is that it might be unrealistic to expect an economic system to work well when it relies so heavily on a sense of duty to motivate people to make cooperative contributions. This worry could be assuaged by presenting this model as the long-term target of a socialist transformation which would progressively develop a social ethos supporting it (Gilabert 2011, 2017a), by noting empirical findings about the significant traction of non-egoistic motives in economic behavior (Bowles and Gintis 2011) and the feasibility of “moral incentives” (Guevara 1977, Lizárraga 2011), and by exploring strategies to mobilize simultaneously various motivational mechanisms to sustain the proposed scheme. Two additional worries are the following (Gilabert 2023a: 117-22). First, the model makes no explicit provision regarding real opportunities for work that fosters self-realization and proceeds in self-managed firms. (Shoikhedbrod 2021 specifically criticizes the Carensian model for failing to give centrality to the socialist demand that firms be democratically run by workers.) To cater more fully for ideals of self-realization and self-determination, a requirement could be added that the government promote such opportunities for those willing to take them. Second, the model is not sufficiently sensitive to different individual preferences regarding leisure and consumption (requiring simply that everyone work full time and wind up with the same consumption and leisure bundles). More flexible schedules could be introduced so that people who want to consume more could work longer hours and have higher salaries, while people who want to enjoy more free time could work fewer hours and have lower salaries. Considerations of reciprocity and equality could still be honored by equalizing the incomes of those working the same number of hours.

Many forms of market socialism allow for some hierarchy at the point of production. These managerial forms are usually defended on grounds of greater efficiency. But they face the question of how to incentivize managers to behave in ways that foster innovation and productivity. One way to do this is to set up a stock market that would help to measure the performance of the firms they manage and to push them to make optimal decisions. An example of this approach (there are others—Corneo 2017: ch. 8) is coupon market socialism . In Roemer’s (1994a) version, this economic system operates with two kinds of money: dollars (euros, pesos, etc.) and coupons. Dollars are used to purchase commodities for consumption and production, and coupons are used in a stock market to purchase shares in corporations. The two kinds of money are not convertible (with an exception to be outlined below). Each person, when reaching adulthood, is provided with an equal set of coupons. They can use them in a state-regulated stock market (directly or through mutual investment funds) to purchase shares in corporations at market price. They receive the dividends from their investments in dollars, but they cannot cash the coupons themselves. When they die, people’s coupons and shares go back to the state for distribution to new generations—no inherited wealth is allowed—and coupons cannot be transferred as gifts. Thus, there is no separate class of capital owners in this economy. But there will be income inequality resulting from people’s different fortunes with their investments (dividends) as well as from the income they gain in the jobs they take through the labor market (in managerial and non-managerial positions). Coupons can however be converted into dollars by corporations; they can cash their shares to pay for capital investments. The exchange is regulated by a public central bank. Further, public banks or public investment funds, operating with relative independence from the government, would steer enterprises receiving coupons so that they maximize profit in the competitive markets for the goods and services they produce (so that they maximize the returns on the coupons invested). Part of that profit is also taxed for direct welfare provisions by the state.

This model caters for ideals of equality of opportunity (given equal distribution of coupons) and democracy (given the elimination of capitalist dynasties that have the ability to transform massive economic power into political influence). It also gives people freedom to choose how to use their resources and includes solidaristic schemes of public provision to meet needs regarding education and health care. Via the competitive markets in consumption goods and shares, it also promises high levels of innovation and productivity. (In some versions of the model this is enhanced by allowing limited forms of private ownership of firms to facilitate the input of highly innovative entrepreneurial individuals—Corneo 2017: 192–7). The model departs from traditional forms of socialism by not exactly instituting social property in means of production (but rather the equal dispersal of coupons across individuals in each generation). But defenders of this model say that socialists should not fetishize any property scheme; they should instead see such schemes instrumentally in terms of how well they fare in the implementation of core normative principles (such as equality of opportunity) (Roemer 1994a: 23–4, 124–5). Critics have worries, however, that the model does not go far enough in honoring socialist principles. For example, they have argued that a managerial (by contrast to a self-management) form of market socialism is deficient in terms of self-determination and self-realization at the workplace (Satz 1996), and that the levels of inequalities in income, and the competitive attitudes in the market that it would generate, violate ideals of community (G.A. Cohen 2009). In response, a defender of coupon market socialism can emphasize that the model is meant to be applied in the short-term, and that further institutional and cultural arrangements more fully in line with socialist principles can be introduced later on, as they become more feasible (Roemer 1994a: 25–7, 118). A worry, however, is that the model may entrench institutional and cultural configurations which may diminish rather than enhance the prospects for deeper changes in the future (Brighouse 1996; Gilabert 2011).

The models discussed above envision comprehensive “system change” in which the class division between capitalists and wage laborers disappears. Socialists have also explored piecemeal reforms that stop short of that structural change. An important historical example is the combination of a market economy and the welfare state . In this model, although property in the means of production remains private, and markets allocate most inputs and outputs of production, a robust governmental framework is put in place to limit the power of capitalists over workers and to improve the life-prospects of the latter. Thus, social insurance addresses the risks associated with illness, unemployment, disability, and old age. Tax-funded, state provision of many of those goods that markets typically fail to deliver for all is introduced (such as high-quality education, public transportation, and health care). And collective bargaining gives unions and other instruments of workers’ power some sway on the determination of their working conditions, as well as providing an important foundation for the political agency of the working class (O’Neill and White 2018).

This welfare state model was developed with great success during the three decades after World War II, especially in Northern Europe, but also, in weaker but significant forms, in other countries (including some in the Global South). However, since the 1980s, this model has been in significant retreat, or even in crisis. Wealth and income inequality have been increasing dramatically during this time (Piketty 2014; O’Neill 2017). The financial sector has become extremely powerful and able largely to escape governmental regulation as globalization allows capital to flow across borders. A “race to the bottom” features states competing with each other to attract investment by lowering tax rates and other regulations, thus undermining states’ ability to implement welfare policies (see, e.g., Dietsch 2015, 2018). Some socialists have seen this crisis as a reason to abandon the welfare state and pursue more comprehensive changes of the kind discussed above. Others, however, have argued that the model should be defended given that it has been proven to work quite well while the alternatives have uncertain prospects.

One example of the approach of extending or retrenching the mixed economy and welfare state proposes a combination of two moves (Corneo 2017: ch. 10, Epilogue, Appendix). The first move is to revamp the welfare state by introducing mechanisms of greater accountability of politicians to citizens (such as regulation of the dealings of politicians with private companies, and more instances of direct democracy in order to empower citizens), an improvement of the quality of public services delivered by the welfare state (introducing exacting audits and evaluations and fostering the training and recruitment of excellent civil servants), and international coordination of tax policies to prevent tax competition and tax evasion. The second move in this proposal is to run controlled experiments of market socialism to present it as a credible threat to the powerful actors seeking to undermine the welfare state. This threat would facilitate the stabilization of the welfare state in a way analogous to how the specter of expansion of the communist regimes in Eastern Europe after World War II encouraged countries in Western Europe to implement social reforms to the benefit of their citizens, which also brought political stability and did much to limit the political attraction of communism. Specifically, welfare states could create new institutions that would be relatively independent from governments and be run by highly competent and democratically accountable civil servants. “Sovereign Wealth Funds” would invest public money in well-functioning enterprises, to yield an equal “social dividend” for citizens (on Sovereign Wealth Funds, see also Cummine 2016, O’Neill and White 2019). The second institution, a “Federal Shareholder”, would go further by using some of these funds to buy 51% of the shares of selected enterprises and take the lead within their boards of directors or supervisory boards. The objective would be to show that these enterprises (which would include significant participation of workers in their management, and ethical guidelines regarding environmental impacts and other concerns) maximize profits and thus offer a desirable and feasible alternative to the standard capitalist enterprise. Effectively, this strategy would run controlled experiments of shareholder market socialism. The working population would learn about the feasibility of market socialism, and capitalist opponents of welfare entitlements would be disciplined by fear of the generalization of such experiments to settle again for the welfare state.

Another strategy is to introduce various experiments seeking to expand the impact of social power (as different from state and economic power) within society (as defined in sect. 1). (See survey in Wright 2010: chs. 6–7). A set of mechanisms would target the deepening of democracy. Forms of direct democracy could foster citizens’ deliberative engagement in decision-making, as exemplified by the introduction of municipal participatory budgeting in Porto Alegre, Brazil (which features citizens’ assemblies identifying priorities for public policy). The quality of representative democracy can be enhanced (and its subservience to the power of capitalists decreased) by introducing egalitarian funding of electoral campaigns (e.g., by giving citizens a sum of money to allocate to the parties they favor, while forcing parties to choose between getting funding from that source and any other source—such as corporations), and by creating random citizen assemblies to generate policy options which can then be subject to society-wide referenda (as in the attempt to change the electoral system in British Columbia in Canada). Finally, forms of associational democracy can be introduced that feature deliberation or bargaining between government, labor, business, and civil society groups when devising national economic policies or when introducing regional or local (e.g., environmental) regulations. A second set of mechanisms would foster social empowerment more directly in the economy. Examples are the promotion of the social economy sector featuring economic activity involving self-management and production oriented to use value (as displayed, e.g., by Wikipedia and child care units in Quebec), an unconditional basic income strengthening people’s ability to engage in economic activities they find intrinsically valuable, and the expansion of the cooperative sector. None of these mechanisms on its own would make a society socialist rather than capitalist. But if we see societies as complex “ecologies” rather than as homogeneous “organisms”, we can notice that they are hybrids including diverse institutional logics. An increase in the incidence of social empowerment may significantly extend the socialist aspects of a society, and even eventually make them dominant (a point to which we return in the next section).

We can also mention the vision of socialism offered by Piketty (2020: ch. 17; see also O’Neill 2021). Although Piketty’s “participatory socialism” does not recommend the complete elimination of private property in the means of production, it proposes significant reforms that would make property significantly more “social” and “temporary”. Thus, large firms would include schemes of codetermination that give workers a say on how production proceeds. Capital would be dispersed through progressive taxation on property, inheritance, and income, with the proceeds being used to fund a capital grant for young people, a secure basic income for all, and the public services of a social sate (such as education and health care). Piketty also envisions changes to the structure of democratic politics to reduce inequalities of influence among citizens, and proposes new international institutions that restrict capital flight.

A final point worth mentioning as we close our discussion of dimension DII of socialism concerns the growing interest in addressing not only the economic arena, but also the political and personal-private ones. Some scholars argue that classical socialists neglected the increasing “functional differentiation” of modern society into these three “spheres”, concentrating in an unduly narrow way on the economic one (Honneth 2015 [2017]). Thus, recent socialist work has increasingly explored how to extend socialist principles to the organization of relatively autonomous governmental institutions and practices and to the shaping of intimate relationships among family members, friends, and lovers, as well as to the relations between these diverse social arenas (see also Fraser 2009, 2014, 2022; Albert 2017). There is, of course, also a long-standing tradition of feminist socialism that has pushed for a wide scope in the application of socialist ideals and a broader understanding of labor that covers productive and reproductive activities beyond the formal workplace (see, e.g., Arruzza 2013, 2016; Dalla Costa and James 1972; Federici 2012; Ehrenreich 1976 [2018]; Gould 1973–4; Rowbotham et al 1979; Rowbotham 1998).

We turn now to the last dimension of socialism (DIII), which concerns the transformation of capitalist societies into socialist ones. The discussion on this dimension is difficult in at least two respects which call for philosophical exploration (Gilabert 2017a: 113–23, 2015: 216–20; 2023a: 157-68, 122-31). The first issue concerns feasibility. The question is whether socialist systems are accessible from where we are now—whether there is a path from here to there. But what does feasibility mean here? It cannot just mean logical or physical possibility, as these would rule out very few social systems. The relevant feasibility parameters seem instead to involve matters of technical development, economic organization, political mobilization, and moral culture. (For some discussion on these parameters see Wright 2010: ch. 8; Chibber 2017.) But such parameters are comparatively “soft”, in that they indicate probability prospects rather than pose strict limits of possibility, and can be significantly changed over time. When something is not feasible to do right now, we could have dynamic duties to make it feasible to do later by developing our relevant capacities in the meantime. The feasibility judgments must then be scalar rather than binary and allow for diachronic variation. These features make them somewhat murky, and not straightforwardly amenable to the hard-edged use of impossibility claims to debunk normative requirements (via contraposition on the principle that ought implies can).

A second difficulty concerns the articulation of all things considered appropriate strategies that combine feasibility considerations with the normative desiderata provided by socialist principles. The question here is: what is the most reasonable path of transformation to pursue for socialists given their understanding of the principles animating their political project, viewed against the background of what seems more or less feasible to achieve at different moments, and within different historical contexts? Complex judgments have to be formed about the precise social systems at which it would be right to aim at different stages of the sequence of transformation, and about the specific modes of political action to deploy in such processes. These judgments would combine feasibility and desirability to assess short-term and long-term goals, their intrinsic costs and benefits, and the promise of the former to enhance the achievement of the latter. The difficulty of forming such judgments is compounded by the uncertainty about the prospects of large societal changes (but also about the long-term consequences of settling for the status quo).

Marx (1875 [1978b]) himself seemed to address some of these issues in his short text “The Critique of the Gotha Program” of 1875. Marx here envisioned the process of socialist transformation as including two phases. The final phase would fully implement the Abilities / Needs Principle . But he did not take that scenario to be immediately accessible. An intermediate step should be pursued, in which the economy would be ruled by a Contribution Principle requiring that (after some provisions are put aside to fulfill basic needs regarding health care, education, and support for those unable to work) people gain access to consumption goods in proportion to how much they contribute. This lower phase of socialist transformation would be reasonable because it would enhance the prospects of transitioning away from capitalism and of generating the conditions for the full realization of socialism. The implementation of the Contribution Principle would fulfill the promise systematically broken by capitalism that people would benefit according to their labor input (as in capitalism capitalists get much more, and workers much less, than they give). It would also incentivize people to increase production to the level necessary for the introduction of socialism proper. Once such level of development is in place, the social ethos could move away from the mantra of the “exchange of equivalents” and instead adopt a different outlook in which people produce according to their diverse abilities, and consume according to their diverse needs. This sequential picture of transformation features diachronic judgments about changes in feasibility parameters (such as the expansion of technical capacity and a change in patterns of motivation). Marx also envisioned political dimensions of this process, including a “dictatorship of the proletariat” (which would not, as some popular interpretations hold, involve violation of civil and political rights, but a change in the political constitution and majoritarian policies that secure the elimination of capitalist property rights (Elster 1985: 447–9)). In time, the state (understood as an apparatus of class rule rather than, more generally, as an administrative device) would “wither away”.

History has not moved smoothly in the direction many socialists predicted. It has not been obvious that the following steps in the expected pattern materialized or are likely to do so: capitalism generating a large, destitute, and homogeneous working class; this class responding to some of the cyclical crises capitalism is prone to by creating a coherent and powerful political movement; this movement gaining control of government and resolutely and successfully implementing a socialist economic system (G.A. Cohen 2000b: ch. 6; Laclau and Mouffe 1985). Given the fact that this process did not materialize, and seems unlikely to do so, it turns out that it would be both self-defeating and irresponsible to fail to address difficult questions about the relative feasibility and moral desirability of different strategies of potential socialist transformation. For example, if the process of transformation involves two or more stages (be they the two mentioned above, or some sequence going, say, from the welfare state to shareholder or coupon market socialism and then to a version of the Carensian model), it might be asked who is to evaluate and decide upon what is to be done at each stage of the process, on what grounds can it be expected that earlier stages will enhance the likelihood of the success of later stages rather than undermine them (e.g., by enshrining institutions or values that will make it hard to move further along the path), what transitional costs can be accepted in earlier stages, and whether the costs expected are outweighed by the desirability and the increased probability of attaining the later stages. Such questions do not want for difficulty.

Addressing questions such as these dilemmas of transitional strategy, socialists have envisaged different approaches to social and political transformation. Four significant examples (extensively discussed in Wright 2010: Part III, 2015b, 2016—which we follow here) are articulated by considering two dimensions of analysis regarding (a) the primary goal of the strategy (either (i) transcending the structures of capitalism, or (ii) neutralizing the worst harms of it) and (b) the primary target of the strategy (either (i) the state and other institutions at the macro-level of the system, or (ii) the economic activities of individuals, organizations, and communities). (See Wright 2019: 38-53 for a slightly more complex framework, and its discussion in Leopold 2022: sect. 5.4.)

The first strategy, smashing capitalism , picks out the combination of possibilities (a.i) and (b.i). A political organization (e.g., a revolutionary party) takes advantage of some of the crises generated by capitalism to seize state power, proceeding to use that power to counter opposition to the revolution and to build a socialist society. This is the strategy favored by revolutionary socialists and many Marxists, and pursued in the twentieth century in countries such as Russia and China. If we look at the historical evidence, we see that although this strategy succeeded in some cases in transitioning out of previously existing capitalist or proto-capitalist economic systems, it failed in terms of building socialism. It led instead to a form of authoritarian statism. There is debate about the causes of these failures. Some factors may have been the economically backward and politically hostile circumstances in which the strategy was implemented, the leaders’ deficits (in terms of their tactics or motives), and the hierarchical frameworks used to suppress opposition after the revolution which remained in place for the long-term to subvert revolutionaries’ aims. Large system changes normally have to face a “transitional trough” after their onset, in which the material interests of many people are temporarily set back (Przeworski 1985). A political dilemma arises, in that, if liberal democratic politics is retained (with a free press, liberty of association, and multiparty elections) the revolutionaries may be unseated due to citizens’ political response to the “valley of transition”, while if liberal democratic politics are supplanted, then authoritarian statism may be the consequence, eradicating the possibility of a socialist outcome to which it would be worthwhile to seek to transition.

A second strategy, picking out the combination of possibilities (a.ii) and (b.i), has been taming capitalism . It mobilizes the population (sometimes in sharp political struggles) to elect governments and implement policies that respond to the worst harms generated by capitalism, with the aim of neutralizing them. New policies include social insurance responding to risks faced by the population (e.g., illness and unemployment), tax funded, state provision of public goods which markets tend to fail to provide (e.g., education, public transportation, research and development, etc.), and regulation of negative externalities produced in markets (e.g., regarding pollution, product and workplace hazards, predatory market behavior, etc.). The strategy, implemented by social-democratic parties, worked quite well during the three decades of the “Golden Age” or Trente Glorieuses following World War II. However, progress was halted and partly rolled back since the retreat of social democracy and the introduction of neoliberalism in the 1980s. Possible explanatory factors are the financialization of capitalism, and the effects of globalization, as discussed above in section 4.3 . There is a debate as to whether capitalism is really tameable—it may be that the Golden Age was only a historical anomaly, borne out of a very particular set of political and economic circumstances.

The third strategy, escaping capitalism , picks out the combination of possibilities (a.ii) and (b.ii). Capitalism might be too strong to destroy. But people could avoid its worst harms by insulating themselves from its dynamics. They could focus on family and friendships, become self-subsistence farmers, create intentional communities, and explore modes of life involving “voluntary simplicity”. However, this strategy seems available mostly to relatively well-off people who can fund their escape with wealth they have amassed or received from capitalist activities. The working poor may not be so lucky.

The final strategy, eroding capitalism , picks out the combination of (a.i) and (b.ii). Economic systems are here seen as hybrids. People can introduce new, socialist forms of collective activity (such as worker cooperatives) and progressively expand them, eventually turning them from marginal to dominant. Recently this kind of strategy of the erosion of capitalism through institutional transformation rather than piecemeal changes within existing economic structures, has been referred to as “the institutional turn” in leftist political economy (see Guinan and O’Neill 2018, 2019). Wright (2015b, 2016) suggests the analogy of a lake ecosystem, with the introduction of a new species of fish that at first thrives in one location, and then spreads out, eventually becoming a dominant species. Historically, the transformation from feudalism to capitalism in some parts of Europe has come about in this way, with pockets of commercial, financial, and manufacturing activity taking place in cities and expanding over time. Some anarchists seem to hold a version of this strategy today. It offers hope for change even when the state seems uncongenial, and likely to remain so. But critics find it far-fetched, as it seems unlikely to go sufficiently far given the enormous economic and political power of large capitalist corporations and the tendency of the state to repress serious threats to its rules. To go further, the power of the state has to be at least partially recruited. The fourth strategy then, according to Wright, is only plausible when combined with the second.

As discussed by Wright, this combined strategy would have two elements (we could see Corneo’s proposal discussed in section 4.3 as another version of this approach). First, it would address some important, problematic junctures to expand state action in ways that even capitalists would have to accept. And second, the solutions to the crises introduced by state action would be selected in such a way that they would enhance long-term prospects for socialist change. One critical juncture is global warming, and the social and political problems of the Anthropocene era (Löwy 2005; Purdy 2015; Wark 2016; Forrester and Smith 2018; Lawrence and Laybourn-Langton 2021; Saito 2017, 2023, 2024). Responding to its effects would require massive generation of state-provided public goods, which could remove neoliberal compunctions about state activism. A second critical juncture concerns the large levels of long-term unemployment, precariousness, and marginalization generated by new trends in automation and information technology. This involves threats to social peace, and insufficient demand for the products corporations need to sell on the consumption market. Such threats could be averted by introducing an unconditional basic income policy (Van Parijs and Vanderborght 2017), or by the significant expansion of public services, or by some other mechanism that secures for everybody a minimally dignified economic condition independent of their position within the labor market. Now, these state policies could foster the growth of social power and the prospects for socialist change in the future. Workers would have more power in the labor market when they came to be less reliant upon it. They could also be more successful in forming cooperatives. The social economy sector could flourish under such conditions. People could also devote more time to political activism. Together, these trends from below, combined with state activism from above, could expand knowledge about the workability of egalitarian, democratic, and solidaristic forms of economic activity, and strengthen the motivation to extend their scope. Although some critics find this strategy naïve (Riley 2016), proponents think that something like it must be tried if the aim is democratic socialism rather than authoritarian statism. (For specific worries about the political feasibility of a robust universal basic income policy as a precursor to rather than as a result of socialism, see Gourevitch and Stanczyk 2018; see also Gourevitch 2022).

Other significant issues regarding dimension DIII of socialism are the identification of appropriate political agents of change and their prospects of success in the context of contemporary globalization. On the first point, socialists increasingly explore the significance not only of workers’ movements, but also their intersection with the efforts of activists focused on overcoming gender- and race-based oppression (Davis 1981; Albert 2017). On many views, forms of gender-based injustice and racial injustice are ineradicably linked to the explanation of what is wrong with capitalism, and these connections also hold with regard to the forms of political agency that would be needed in order to overcome and replace capitalism (Basevich 2020; Gomberg 2007, 2024; Fraser 2022; Laurence 2021; Mills 2017). Some argue that the primary addressee of socialist politics should not be any specific class or movement, but the more inclusive, and politically equal group of citizens of a democratic community. For example, Honneth (2015 [2017: ch. IV]), following in part John Dewey and Jürgen Habermas, argues that the primary addressee and agent of change for socialism should be the citizens assembled in the democratic public sphere. Although normatively appealing, this proposal may face serious feasibility difficulties, as existing democratic arenas are intensely contaminated and disabled by the inequalities socialists criticize and seek to overcome. The second issue is also relevant here. There is a traditional question whether socialism is to be pursued in one country or internationally. The tendency to embrace an internationalist horizon of political change is characteristic among socialists as they typically see their ideals of freedom, equality, and solidarity as having global scope, while they also note that, as a matter of feasibility, the increasing porousness of borders for capitalist economic activity make it the case that socialist politics may not go very far in any country without reshaping the broader international context. A difficulty here is that despite the existence of international social movements (including workers’ movements, international NGOs, human rights institutions and associations, and other actors), institutional agency beyond borders that can seriously contest capitalist frameworks is not currently very strong. In addressing these difficulties, action and research on socialist justice must interact with ongoing work in the related areas of gender, race, democracy, human rights, and global justice. [ 2 ]

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Introduction

Economic systems in theory, capitalism:, key differences, ownership of resources:.

Distribution of Wealth:

Economic efficiency:, historical examples, capitalism: the united states:, socialism: soviet union:, contemporary realities, mixed economies:, nordic model:, china's hybrid approach, strengths and weaknesses, the role of government.

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• > Journals
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• > Capitalism and Socialism: How Can they be Compared?

Article contents

Capitalism and socialism: how can they be compared.

Published online by Cambridge University Press:  13 January 2009

How is one to set about the task of comparing capitalism and socialism in a systematic fashion? The contest between capitalism and socialism has many facets. It is both an intellectual debate about the relative merits of models of hypothetical social systems and a real and substantive historical struggle between two groups of states seen as representing capitalism and socialism. Perhaps the intellectual challenge to capitalism thrown down by Marxist thinkers and the “cold war” contest between the U.S.A. and U.S.S.R. are such diverse phenomena that it is pointless and even misleading to try to treat them as part of a single problem. However, I believe that the dieoretical and historical aspects of the capitalism/socialism issue are directly related. I would argue that a full understanding of, say, the cold war is not possible without understanding the socialist critique of capitalism – and that a purely abstract comparison of capitalist and socialist models would fail to do justice to the historical and empirical essence of these two grand conceptual schemas.

In Section I, I expand upon these arguments, seeking to convince Utopian socialists that they should not continue to rely upon invocations of a hypothetical future, but must come up with some empirical examples of what socialism is and how it works. After all, it is more than a hundred years since Marx and Engels railed against Utopian socialists in favor of socialist arguments based on empirical reality. This is not to say that Marx and Engels were crude empiricists, accepting “facts” at face value.

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* I would like to thank my former colleagues at the University of Texas at Austin, the participants in the Key Biscayne, Florida conference on “Capitalism and Socialism,” November 1987, and in particular Ellen Frankel Paul, for useful comments on an earlier draft of this paper.

1 A recent interesting collection on the debate broadly understood is Machan , T.R. , ed., The Main Debate: Communism versus Capitalism ( New York : Random House , 1986 ). Google Scholar

2 One of the few works coming out of the Left over the past 15 years which directly addresses the question of Soviet socialism adopts such an approach, treating the U.S.S.R. as indistinguishable from “other” capitalist nations is; Buick , A. and Crump , J. , State Capitalism: The Wages System Under New Management ( London : St. Martins , 1986 ). CrossRef Google Scholar

3 Thus, for example, even a self-confessed “revisionist” socialist such as A. Przeworski has as his “worst case” that socialism be only as efficient as capitalism! Przeworski , A. , Capitalism and Social Democracy ( Cambridge : Cambridge University Press , 1985 ), p. 236 . CrossRef Google Scholar

4 Berger , P.L. , The Capitalist Revolution ( New York : Basic Books , 1986 ). Google Scholar Also, on the general question of system comparison, see Eastil , R.D. , Freedom in the World ( New York : Freedom House , 1988 ). Google Scholar

5 Szymanski , A. , Is the Red Flag Still Flying? ( New York : Zed Press , 1978 ). Google Scholar

6 There was, however, a change in the 1985 handbook: the comparative section was moved from its traditional place at the front, to the back. Narodnoe khozyaistvo SSSR v 1985 g. (Moscow: Finansy i statistika, 1986), pp. 578–627.

7 On this, see Evans , A. , “ The Decline of Developed Socialism? ,” Soviet Studies , vol. 38 , no. 1 (January 1986 ), p. 1 CrossRef Google Scholar ; and Sochor , L. , The Ideology of Real Socialism ( Munich : Research Project on the Crisis in Soviet-Type Systems , 1984 ). Google Scholar

8 see Chellappa , D. , Soviet Economic Achievements: Their Significance For Developing Countries ( New Delhi : Kalamkar Prakashan , 1978 ) Google Scholar , for a not particularly edifying example.

9 Solomon , S.G. , ed., Pluralism in the Soviet Union ( London : St. Martins , 1983 ). CrossRef Google Scholar

10 For example, G.W. Breslauer advanced a theory of “welfare state authoritarianism” – see his Five Images of the Soviet Future (Berkeley: Institute of International Studies, 1978). The concept of a “social contract” wherein the workers offer loyalty in return for job security and welfare benefits is widely accepted. See, for example, Hauslohner , P. , “ Gorbachev's Social Contract ,” Soviet Economy , vol. 3 , no. 1 (Spring 1987 ), p. 54 . Google Scholar

11 Rawls , J. , A Theory of Justice ( Cambridge : Harvard University Press , 1971 ). Google Scholar

12 This point was made to the author by J. Higley, who presents his own version of the theory in Field , G. Lowell and Higley , J. , Elitism ( London : Routledge and Kegan Paul , 1980 ). Google Scholar For a review of the economic literature, and an application to the socialist countries of South East Europe, see Jackson , M.R. , “ Economic Development in the Balkans Since 1945 Compared to Southern and East Central Europe ,” Eastern European Politics and Societies , vol. 1 , no. 3 (Fall 1987 ), p. 393 . CrossRef Google Scholar

13 Two examples of works which try to provide a systematic analysis of the structural features of socialism are Von Beyme , K. , Economics and Politics Within Socialist Systems ( New York : Praeger , 1982 ) Google Scholar ; and Mieczkowski , B. and Zinam , O. , Bureaucracy, Ideology and Technocracy: Quality of Life East and West ( Charleston : East Illinois University Press , 1984 ). Google Scholar The present author also essayed an overview of the structural features of Soviet socialism; Rudand , P. , The Myth of the Plan: Lessons of Soviet Planning Experience ( La Salle : Open Court , 1985 ). Google Scholar

14 For a representative work, see D.E. , Schulz and J.S. , Adams , eds., Political Participation in Communist Systems ( New York : Pergammon , 1981 ). Google Scholar

15 Schumpeter , J.S. , Capitalism, Socialism and Democracy ( London : Allen and Unwin , 1976 ). Google Scholar Schumpeter's analysis of socialism does not, in the view of the present author, match the perspicacity of his analysis of capitalist democracy.

16 On these questions, see Connor , W.D. , Socialism, Politics and Equality ( New York : Columbia University Press , 1979 ) Google Scholar ; and Kerblay , B. , Modern Soviet Society ( New York : Random House , 1983 ). Google Scholar On income inequality, see Echols , J.M. III “Does Socialism Mean Greater Equality?,” S. , White and D. , Nelson , eds., Communist Politics: A Reader ( London : Macmillan , 1986 ), p. 361 CrossRef Google Scholar ; and Jain , S. , Size Distribution of Income: A Compilation of Data ( Washington : World Bank , 1975 ). Google Scholar

17 See the collection edited by Lane , David , Labour and Employment in the USSR ( Brighton, Sussex : Harvester , 1986 ). Google Scholar

18 Andrle , V. , Managerial Power in the Soviet Union ( New York : Saxon House , 1976 ). Google Scholar

19 Lampert , N. , “Job security and the Law in the USSR,” Lane , , ed., Labour , p. 256 . Google Scholar

20 Mason , D.S. , Public Opinion and Political Change in Poland, 1980–82 ( Cambridge : Cambridge University Press , 1985 ). CrossRef Google Scholar For similar data from former Soviet citizens, see Silver , B.D. , “Political Beliefs of the Soviet Citizen: Sources of Support for Regime Norms,” J.R. , Millar , ed., Politics, Work and Daily Life in the USSR ( Cambridge : Cambridge University Press , 1987 ), p. 100 . CrossRef Google Scholar

21 As in, for example, George , V. and Manning , N. , Socialism, Social Welfare and the Soviet Union ( London : Routledge and Kegan Paul , 1980 ). Google Scholar

22 Glasnost has partially opened the door to public discussion of homelessness – in Czechoslovakia, at least. For example, one news magazine carried a story on a couple with two children who were living in a van in a Prague parking lot; Vondracek , D. , “ Ale maji se radi ,” Mlady svet , no. 2 , 1988 , p. 15 . Google Scholar

23 see Macauley , A. , Economic Welfare in the Soviet Union ( Madison : University of Wisconsin Press , 1979 ) Google Scholar ; and Matthews , M. , Poverty in the Soviet Union ( Cambridge : Cambridge University Press , 1986 ). CrossRef Google Scholar For recent data, see Trehub , A. , “ Social and Economic Rights in the Soviet Union ,” Radio Liberty Supplement , no. 3 ( 1988 ) Google Scholar ; Bush , K. , “ Retail Prices in Moscow and Four Western Cities ,” Radio Liberty Supplement , no. 1 ( 1987 ) Google Scholar ; Vinokur , A. and Ofer , G. , “Inequality of Earnings, Household Income and Wealth in the Soviet Union in the 1970s,” in J.R. , Millar , ed., Politics , p. 171 . Google Scholar On the US side, see Patterson , J.T. , America's Struggle Against Poverty, 1900–80 ( Cambridge : Harvard University Press , 1981 ). Google Scholar

24 See Rutland, The Myth , ch. 8, for a review of the Soviet health care system.

25 Szelenyi , I. and Manchin , R. , “Social Inequalities in Eastern Europe,” M. , Rein , ed., Stagnation and Renewal in Social Policy ( New York : M.E. Sharpe , 1987 ), p. 110 . Google Scholar

26 Pryor , F.L. , “ Growth and Fluctuations of Production in OECD and East European Countries ,” World Politics , vol. 37 , no. 2 (Summer 1985 ), p. 204 . CrossRef Google Scholar

27 Burawoy , M. and Lukacs , J. , “ Capitalist and Socialist Work ,” American Sociological Review , vol. 50 , no. 6 (December 1985 ), p. 723 . CrossRef Google Scholar

28 For the bravest effort to compile data, see Van Den Berg , G.P. , The Soviet System of Justice: Figures and Policy ( Boston : M. Nijhoff , 1985 ), p. 15 CrossRef Google Scholar for East European data.

29 Hollander , P. , Soviet and American Society: A Comparison ( Chicago : University of Chicago Press , 1978 ) Google Scholar , ch. 4.

30 See, for example, G.W. , Lapidus , ed., Women, Work and Family in the Soviet Union ( New York : M.E. Sharpe , 1981 ). Google Scholar

31 To my knowledge, no Soviet writers have directly addressed the question of how their society would measure up against the Rawlsian criteria of social justice. A Soviet philosopher, Mal'tsev , G.V. , gave an accurate summary of Rawls's ideas in the book Problemy gosudarstva i prava v sovremennoi ideologicheskoi bor'be ( Moscow : Yuridicheskaya literature , 1983 ), p. 145 . Google Scholar He is surprisingly uncritical of the content of Rawls's ideas (surprising because the book's title refers to the “ideological struggle” with the West), and merely reproaches Rawls for a lack of realism and a naive faith in the independence of the law.

32 For a summary view of the state of Soviet philosophy, see Scanlan , J.P. , Marxism in the USSR ( Ithaca : Cornell University Press , 1986 ). Google Scholar

33 Joke , reported in New York Times , 6 July 1969 , p. E6 Google Scholar , recounted in Ulc , O. , Politics in Czechoslovakia ( San Francisco : W.H. Freeman , 1974 ), p. 45 . Google Scholar

34 Macfarlane , A. , The Origins of English Individualism ( Oxford : Blackwell , 1978 ). Google Scholar

35 Of course, phenomena such as geographic mobility or living with parents do not reflect the free choices of individuals within the U.S.S.R.: they are largely a product of state policies, the housing shortage, and other forces beyond the power of the individual citizen. However, they nevertheless produce a more collectivist culture, even if they are not caused by such a culture.

36 This is the thrust of the widely discussed work by Bellah , R. et al. , Habits of the Heart ( New York : Harper and Row , 1986 ). Google Scholar

37 Berlin , I. , Four Essays on Liberty ( New York : Oxford University Press , 1969 ). Google Scholar See also Howard , R.E. and Donnelly , J. , “ Human Dignity, Human Rights and Political Regimes ,” American Political Science Review , vol. 80 , no. 3 (September 1986 ), p. 801 CrossRef Google Scholar ; and Lane , D. , “ Human Rights Under State Socialism ,” Political Studies , vol. 32 , no. 3 (September 1984 ), p. 349 CrossRef Google Scholar ; also Kadarsky , A. , Human Rights in American and Russian Political Thought ( New York : University Press of America , 1982 ). Google Scholar

38 B. Silver, “Political Beliefs.”

39 It is clearly a standard Soviet tactic to respond to Western criticism by turning the Western arguments around against the West itself. For example, one Soviet author keen to disprove the Totalitarian model did so by, among other arguments, accusing bourgeois society itself of developing a “totalitarian character”; Shikin , Yu.M. , Sotsial'noe edinstvo i totalitamoe obshchestvo ( Leningrad : Lenizdat , 1982 ), p. 33 . Google Scholar

40 Marrus , M.R. , The Unwanted: European Refugees in the Twentieth Century ( New York : Oxford University Press , 1985 ). Google Scholar

41 see Dowry , A. , Closed Borders ( New Haven : Yale University Press , 1987 ) Google Scholar , for a survey of the migration issue.

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• Volume 6, Issue 1
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• DOI: https://doi.org/10.1017/S0265052500002740

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Differences Between Capitalism and Socialism

What is capitalism, pros and cons of capitalism, pros explained, cons explained, what is socialism, pros and cons of socialism, mixed economies, frequently asked questions.

Image by © The Balance 2018

Capitalism and socialism are two different political, economic, and social systems blended together by countries around the world. Sweden is often considered a strong example of a socialist society, while the United States is usually considered a prime example of a capitalist country.

In practice, however, Sweden is not strictly socialist, and the United States is not strictly capitalist. Most countries have mixed economies with economic elements of both capitalism and socialism.

Capitalism is an economic system where the means of production are owned by private individuals. "Means of production" refers to resources including money and other forms of capital. Under a capitalist economy, the economy is substantially run by individuals who own and operate private companies. Decisions over the use of resources are made by the individual or individuals who own the companies.

In a theoretical capitalist society, companies that incorporate are treated by the same laws as individuals. Corporations can sue and be sued; they can buy and sell property, and they can perform many of the same actions as individuals.

Under capitalism, companies live by the motivation for profit. They exist to make money . All companies have owners and managers. In small businesses, the owners and managers are generally the same people, but as businesses grow, the owners may hire managers, who may or may not have any ownership stake in the firm. In those cases, the managers are called the owners' "agents."

The job of the management is more complex than just making a profit. In a capitalist society, the goal of the corporation is maximizing shareholder wealth.

Under capitalism, it's the government's job to enforce laws and regulations to make sure there is a level playing field for privately run companies. The amount of governing laws and regulations in a particular industry generally depends on the potential for abuse in that industry.

Encourages competition

Provides consumers with choices

Potential for economic growth

More inequality

Lack of social safety net

Opportunities for corruption

Encourages competition: In capitalist societies, it's survival of the fittest when it comes to businesses. New businesses are frequently created and compete with others in the same industry. A competitive market means that higher-quality goods and services are being produced and provided.

Provides consumers with choices: One byproduct of the competitive market is that consumers have more options to choose the products and services they prefer.

Potential for economic growth: With more businesses and more choices, there's more spending by consumers, which means that companies can hire more. All of these factors can lead to economic expansion.

More inequality: Again, the basic premise of capitalism is survival of the fittest. People who don't have in-demand skills may have a hard time catching up once they fall behind. The gap between the rich and the poor widens; the rich get richer, and the poor get poorer.

Lack of social safety net: There might not be as many provisions for social benefits programs such as universal health care in capitalist societies.

Opportunities for corruption: In capitalism, there isn't always a separation of government and private business. That means wealthy business owners may lobby for favor among politicians, further increasing the gap between those with power and those without.

Socialism is an economic system where the means of production, such as money and other forms of capital, are owned to some degree by the public (via the state). Under a socialist system, everyone works for wealth that is in turn distributed to everyone.

A socialist economic system operates on the premise that what is good for one is good for all and vice versa. Everyone works for their own good and for the good of everyone else. The government decides how wealth is distributed among public institutions.

In a theoretical socialist economy, there is a more limited free market than in an archetypal capitalist economy, and thus the taxes are usually higher than in a capitalist system. There are government-run healthcare and educational systems for taxpayers. Socialist systems emphasize more equal distribution of wealth among the people.

Reduces income inequality

Social stability and infrastructure

Greater rights for workers and individuals

Depends on cooperation

Government may abuse power

Fewer rewards for innovation

Reduces income inequality: In socialism, wealth is distributed among the population, and relative poverty is reduced.

Social stability and infrastructure: With programs such as universal basic income, universal health care, and tax-funded education, individuals may be less likely to fall upon hard times.

Greater rights for workers and individuals: Socialism protects workers from exploitation, because they own the means of production. There are often strict labor laws in place as well.

Depends on cooperation: In socialism, the idea is that everyone is working together toward the same goals. However, there is no guarantee that individuals will always want to cooperate with each other.

Government may abuse power: The government decides how wealth should be distributed, but a corrupt government could mean that resources and wealth are not distributed fairly.

Fewer rewards for innovation: Socialism doesn't depend on competition, which means that workers and businesses might not be interested in continually improving their products and services.

Most counties have a blended economic system that includes elements of both capitalism and socialism. In many socialist countries—like Sweden, for example—there are still private businesses as well. 

In the U.S., there are many government-run programs that are funded through taxes, including Social Security, Medicaid, banking bailouts, and public schools.

Who invented capitalism, and when was it invented?

The Scottish political analyst and philosopher Adam Smith is often credited with having invented modern capitalist theory in the 18th century. One of his most famous works, "An Inquiry into the Nature and Causes of the Wealth of Nations," was published in 1776.

What is crony capitalism?

Crony capitalism is a form of corruption that may be prevalent in some capitalist societies. In crony capitalism, the government or government agencies show favoritism to certain businesses, which helps them get ahead of their competitors.

What is late-stage capitalism?

The concept of late-stage capitalism focuses on the inequalities that are present in modern capitalistic societies. The term is used to criticize capitalism as it has evolved from its original free-market-based economic system to the widening gap between social classes it has caused.

What is democratic socialism?

Democratic socialism is a modern form of socialism that is used in several countries around the world, including Sweden, France, and Germany. It places a larger focus on social programs, such as free university education and state-provided health care.

What is the difference between socialism and fascism?

The ideologies of socialism and fascism both were created in response to the downfall of capitalism. Socialism aims to eliminate economic inequality through shared resources and the shared goal of working toward the "greater good." Fascism, on the other hand, works toward its idea of the "greater good" using forcible suppression, often leading to nationalism, xenophobia, and social Darwinism.

International Monetary Fund. " What Is Capitalism? " Accessed Aug. 16, 2021.

Stanford Encyclopedia of Philosophy. " Socialism ." Accessed Aug. 16, 2021.

Robinhood. " What Is a Mixed Economic System? " Accessed Aug. 16, 2021.

Britannica. " Capitalism ." Accessed Aug. 16, 2021.

The Hoover Institution at Stanford University. " The Rise of Crony Capitalism ." Accessed Aug. 16, 2021.

Museum Center at 5ive Points. " Curious Curator Mini: Capitalism, Fascism, Socialism, and Communism ." Accessed Aug. 16, 2021.

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Capitalism vs. Socialism: Principles and Arguments

The fundamental principles and arguments of the supporters of socialism and capitalism as opposing systems were established in the period of the 19th century and the practical implication of the 20th century led to the adaptation and further solidification of their respective argumentative basis. Capitalism is an economic system, which is based on the idea of private property and the market distribution of goods and factors of production.

It emphasizes the rationality and efficiency of the process of capitalist development. The main bias and fallacy of the author is the fact that he states most capitalist nations have almost no absolute poverty, which is not necessarily true due to the presence of mass homelessness in countries, such as US (Caplan). Through the mechanism of competition, the private interests of individual economic entities spontaneously fall into line with public interests, which allows to systematically improve the standard of living of the population in the long term.

The rhetorical argument is effective because another claim is the statement about fair distribution based on the market mechanism, since the generated income of the entities is proportional to their productive contribution. The author uses mainly logos as a rhetorical appeal, but ethos and pathos are also present. It is important to understand that capitalism promotes free market, which allow people to improve themselves (Caplan). Theoretical or real-life socialism, that is, absolute equality, is stated to be economically inefficient and irrational, since it diminishes the moral and institutional foundations of society through dictatorship. Moreover, this contradicts not only economic, but also political freedom.

The prevalent interpretations of socialism and capitalism as systems of economy have certain similarities such as wage labor, the expanded division of labor, problems of finding stable regimes or forms of capital, the accumulation and distribution of income, and the regulation of the activities of institutional economic entities. Majority of capitalist nations are proponents of freedom and human rights, whereas the latter usually deprives citizens from their fundamental needs (Caplan).

In general terms, national systems of economy are complicated states of numerous interconnected entities – some of which are newly created, while others have evolved. In a dynamic perspective, they, on the one hand, should have consistency and stability, and on the other, flexibility and adaptability. In addition, most capitalist nations are indeed richer and more developed than their socialist counterparts (Caplan). The historical experience of national systems has shown the existence of contrasting models of each system. While some of the positive features of the preferred system intensified during certain periods and in individual countries, its existing weaknesses also became apparent.

Moreover, the reasons presented by the author fall under the *STAR acronym. The situation is manifested in the fact that these systems are reviewed as ideal economies for both cases. The task is to identify the reasons why socialism fails to be viable compared to capitalism as an economic system. The actions undertaken by the author is to compare the ideals versions and their manifestations in the real countries. The overall results are that modern form capitalism does not fully match the ideal capitalism, but these nations are still outperforming socialist counterparts.

The arguments given to the audience are correct and plausible due to the fact that it uses straight forward examples and common-sense knowledge. Supporters of socialism adhere to the notion that it is defined as an economic system manifested on organized regulation of the economic processes and public ownership. It also uses similar basic economic tools, but with opposing derivatives about economic realities. This system considered capitalism as an unequal system and it is a result of free markets. The ideal existing socialism, is considered to be a model that allows conscious organized development, which eliminates capitalist flaws, like crises and social conflicts. It is such a model that promotes its own progress and a high degree of freedom, which in practice almost always had the opposite character.

Evidently, existing economic systems are structurally contrasting, but capitalism can offer more flexibility and adjustability to its proponents. The differences between the historical realities of favored systems are far from the ideal model, which is considered the direction of further development. The arguments given by the author are a comparative analysis based on the proclaimed values ​​and objectives, such as efficiency, rationality, justice, freedom and modernization.

However, in general, they provide regulatory standards for economic modernity. The capitalist model of housekeeping has proven its viability in the long run. Socialism, as an alternative system, proved to be more stable in the short term.

In conclusion, deep transformations, as a rule, are associated with changes in cultural values, social differences, and international relations. Moreover, these transformations occur within a short historical period and differ in their rhythm and pace. The traditional economic theory, based on the analysis of equilibrium, is unable to resolve the causal relationships that have arisen.

There is a need to formulate an approach to explain how the general historical background, the same starting conditions, systemic interdependence, institutional reform and similar policies can lead to different country results. The transformation of economies, the testing of diverse development models is, of course, a multifaceted and controversial historical process. However, the arguments given throughout the article give a clear picture of capitalism being more reliable and suitable for prosperity of the nations and its population.

Caplan, Bryan. “Capitalism vs. Socialism: The Bruenig-Caplan Debate.” EconLog , 2018. Web.

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What Is Capitalism

What is socialism, historical perspectives, how capitalism works, how socialism works, hybrid economies, socialism vs. capitalism debate in the u.s., examples of socialism in the u.s., main differences between capitalism and socialism, both systems exist on a spectrum, types of capitalism and socialism, what is the difference between communism and socialism, which countries have socialist economies today, what are the main benefits and drawbacks of capitalism, what are the main benefits and drawbacks of socialism.

• Government & Policy

Capitalism vs. Socialism: What's the Difference?

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

While capitalism and socialism are often presented as opposing economic systems, in reality, the economies of most countries exist on a spectrum incorporating elements of both. No economy is purely capitalist or socialist. Rather, most feature markets and social welfare systems tailored to meet the unique needs, cultural values, and historical contexts of their societies.

This article will provide an overview of both systems, including their definitions, history, key principles, and real-world examples.

Key Takeaways

• The capitalist economic model relies on free market conditions for the creation of wealth; the production of goods and services is based on supply and demand in the general market.
• In a socialist economic model, the production of goods and services is either partially or fully regulated by the government; this is referred to as central planning, and the economic structure that is created is known as a planned economy or a command economy.
• Most countries are mixed economies, falling somewhere on the spectrum between pure capitalism and pure socialism.

Capitalism is an economic system based on the private ownership of the means of production (i.e., factories, offices, tools & equipment, etc.) and their operation for profit. Central characteristics of capitalism include private property , capital accumulation, wage labor, voluntary exchange, and a price system derived from competitive markets.

In a capitalist economy, decision-making and investments are determined by the owners of capital (i.e., wealth, property, and production capacity), whereas prices and the distribution of goods and services are mainly determined by competition in markets for goods and services.

Some of the fundamental principles of capitalism include:

• Business owners who control the means of production and hire labor, who are paid wages
• Private property rights
• Competitive markets
• Minimal government intervention in the economy

Under capitalism, the prices and production of goods and services are determined by the voluntary interactions of individuals and companies in the marketplace. Capitalists argue this free market mechanism leads to the most efficient allocation of resources.

Socialism is an economic system where the means of production are owned by the society as a whole, meaning the value made by workers belongs to everyone in that society, rather than a group of private owners and investors. It is an economic philosophy based on the principles of shared ownership and cooperation.

Production under socialism is meant to directly satisfy economic demands and human needs, rather than indirect satisfaction of needs through making profits and capital accumulation. The essential goal of socialism is to increase equality among members of society.

Some of the key tenets of socialism include:

• Collective or public ownership of major industries and resources
• Central planning and regulations to ensure equal distribution of wealth and fair provision of goods
• Production for social need rather than profit
• Cooperative management of the economy

With socialism, the means of production are commonly owned by the community or state on behalf of its citizens. Resource allocation and production are determined through central planning, with the goal of ensuring an equitable distribution of wealth and benefits to all members of society.

In addition to capitalism and socialism, the other major school of contemporary economic thought is communism . While there are certain core similarities between socialism and communism, there are also important distinctions between them .

The concepts of capitalism and socialism originated in Europe in the early 19th century. Prior to their advent, the economic landscape of Europe was shaped largely by feudalism and mercantilism.

Feudalism, a hierarchical system prevalent in medieval Europe, relied on a fixed class structure wherein nobles granted lands to vassals (serfs) in exchange for loyalty and military service. With the decline of feudalism, many individuals, no longer tied to the land, sought work in cities, marking the beginnings of wage labor.

Another system known as mercantilism emerged around the late 16th century as cities began to attract large populations and become centers of society. Under mercantilism, governments began to regulate their economies with an aim to augment state power, promoting exports over imports to accumulate wealth and encouraging colonization for resource access. These systems established the foundation for the emergence of a labor market and facilitated the accumulation and concentration of wealth, thereby setting the stage for capitalism. The advent of capitalism and socialism also coincided with a period of rapid industrialization and urbanization in the 19th century. As agricultural production became more efficient, populations shifted from rural areas to cities in search of better-paying jobs. Urban centers swelled as people moved to find work in the new factories and mills. This rupture of traditional agrarian lifestyles produced immense social displacements. Traditional bonds of family and community often broke down, replaced by impersonal labor relations. The sheer scale and speed of urbanization under early industrial capitalism led to major problems like overcrowded, unsanitary slums, child labor, grueling working conditions, and stark inequalities of wealth. This climate of rapid social change and worker exploitation catalyzed calls for reform and regulation.

The Rise of Capitalism

The restrictive trade practices of mercantilism were increasingly seen as inhibiting the potential of the burgeoning market economy. Mercantilist policies often involved protectionist measures like tariffs, quotas, and subsidies to boost local industries. Colonies were exploited as sources of cheap raw materials and captive export markets. The prevalent thought was that trade was a zero-sum game - one nation could only enrich itself at the expense of others.

The rise of capitalism challenged these mercantilist assumptions. Adam Smith's The Wealth of Nations , published in 1776, made a case against government interference in trade based on the efficiency of free markets guided by the “ invisible hand .” Over time, capitalist ideas shifted economic ideology toward free trade and open competition.

By the end of the 19th century, capitalism had become the dominant economic model in the Western world. The rise of industrialization during this period led to unprecedented economic growth and wealth in capitalist societies.

However, it also exacerbated socio-economic disparities, leading to the emergence of a working class that was often subject to unsafe working conditions and low wages. These inequalities sparked social and political unrest, leading to the rise of trade unionism and political movements advocating for social justice and labor rights.

It is important to also understand the rise of capitalism in the context of European colonialism and the transatlantic slave trade, which paved the way for capital accumulation and consumption in today's capitalist societies. The slave trade enabled European businesses to profit enormously from the forced labor of millions of enslaved Africans on colonial plantations producing sugar, tobacco, cotton, and other commodities sold for world consumption.

The Rise of Socialism

The origins of socialism can be traced back to the late 18th century, particularly the works of philosophers like Robert Owen and Charles Fourier. But socialism did not become a prominent political and economic movement until the mid-19th century as a reaction to the social problems created by industrial capitalism at the time and the growing inequality between the small group of wealthy business owners and the masses of poor workers. Socialist parties began forming by the end of the 19th century in Europe and the United States, advocating public ownership of industry.

In 1848, Karl Marx and his collaborator Friedrich Engels published The Communist Manifesto , which outlined a critique of capitalism based on the concept of class struggle. Marx believed capitalism was inherently exploitative and alienating. He argued that workers were denied the full value of their labor while owners reaped profits, creating unequal social relations between the bourgeoisie owners and the proletariat workers.

Marx predicted that the internal tensions and contradictions of capitalism would heighten class conflict and ultimately lead to revolution by the oppressed workers. The Manifesto concludes by declaring, "The proletarians have nothing to lose but their chains. They have a world to win. Working men of all countries unite!" This rallying cry bolstered the burgeoning socialist movement.

Socialist and Marxist ideas spread among the working classes through labor unions, worker cooperatives, political parties, and activist organizations. Major early victories included winning the right to form unions , instituting child labor laws, establishing the 8-hour work day, and other progressive reforms. Outside Europe, socialist and even communist revolutions occurred in places like Russia, China, and Cuba where peasants and rural populations suffered extreme inequality and poverty.

Under capitalism, the means of production (i.e., the factories, tools, equipment, raw materials, etc., that are used to produce goods) are primarily owned by private enterprises and individuals. Companies produce goods and services in order to generate profit, and so they decide what to produce based on what is most profitable given market demand and they compete with each other for customers in free markets. In this way, successful companies and entrepreneurs can accumulate substantial wealth. But unsuccessful ones risk bankruptcy and closure.

Labor in a capitalist economy is provided by workers in exchange for wages or salaries. These workers, unlike the capitalists who control the means of production and reap the profits from their sales, only earn their wages. They do not own the tools or machinery they use in production, nor are they entitled to profits derived from selling the goods they produce. This structure effectively creates a societal divide between owners (capitalists) and workers (labor).

Market forces, particularly supply and demand , drive prices in a capitalist economy rather than government price controls or mandates. Business owners are incentivized to maximize efficiency and minimize costs to boost profits and increase their market share, which fosters intense competition. Importantly, this competition fuels innovation and technological progress. In search of profits and market share, companies develop and invent new processes or improve existing ones in order to undercut their competitors. This mechanism has led to significant technological advancements in many areas including healthcare, communications, transportation, and more.

However, these benefits of a market economy are not without certain drawbacks. Critics contend that unfettered capitalism can also concentrate wealth in the hands of a small number of large corporations and individuals. This could lead to monopolistic tendencies or oligopolies that undermine competition. Capitalism's focus on profits may also incentivize negative externalities such as environmental damage, worker exploitation, short-term thinking, and financial instability in the absence of thoughtful regulation.

There is active debate among economists and policymakers regarding these potential benefits and drawbacks of capitalist systems. Some argue that prudent regulation can temper capitalism's excesses while preserving economic freedom. Others advocate for a greater role of government planning or altered incentive structures under capitalism.

Under socialism, society as a whole owns and controls the major means of production. This often takes the form of the state (i.e., government) controlling industries on behalf of the people. Rather than markets, which distribute goods according to who can afford what, central planners decide what should be produced and in what quantities based on consumer needs and fair allocation. Prices are set to ensure affordable access for all citizens. As such, it is sometimes known as a command economy .

In theory, socialism aims to eliminate class divisions and create a more egalitarian society through shared ownership and democratic control of industry. Production is intended to directly satisfy human needs rather than maximize profits, where individuals receive access to basic necessities like healthcare, education, housing and employment that is either heavily subsidized or free of charge, funded by taxation.

Personal property and small business still exist under socialism, but larger corporations and important industries are placed under public and cooperative ownership. Income levels are generally more equitable due to policies focused on worker protections, economic inclusion, and social welfare programs.

Critics argue that socialist central planning is inefficient compared to free markets. Excessive regulation stifles innovation. Removing the profit motive reduces incentives for productivity and quality control. Dependence on the state could also erode individual liberties.

While some argue that removing the profit incentive under socialism stifles innovation, innovation can still occur in the absence of profits or competition. For example, publicly-funded research and development initiatives have achieved major innovations in areas like space exploration, medicine, and technology. Open source software has also innovated rapidly through non-profit collaboration.

Most modern economies are, in fact, mixed economies. This means they exist somewhere on a continuum between pure capitalism and pure socialism, with the majority of countries practicing a mixed system of capitalism wherein the government regulates and owns some businesses and industries.

In the purest form of a capitalistic system (sometimes referred to as laissez-faire capitalism), private individuals are unrestrained, and the economy operates without any government checks or controls. Private individuals and businesses may determine where to invest, what to manufacture and sell, and the prices of goods and services.

In a purely socialist system, all means of production are collective or state-owned. Proponents argue this eliminates class divisions and allows for equal distribution of resources and profits. However, critics contend it concentrates excessive power in the hands of the state and removes market incentives. In practice, very few socialist countries have ever fully abolished all private ownership, even if the state exerts major control over the economy.

Some countries incorporate both the private sector system of capitalism and the public sector enterprise of socialism to overcome the disadvantages of both systems. In these economies, the government intervenes to prevent any individual or company from having a monopolistic stance and undue concentration of economic power. Resources in these systems may be owned by both the state and by individuals. The balance between public and private control is constantly debated, but mixed systems allow societies to harness benefits of both capitalist and socialist structures.

The debate between socialism and capitalism has long played out in America's economic policies and political discourse, as well as in Europe and elsewhere. Since its inception as a nation, capitalism has been deeply ingrained in the American social fabric, fostering a culture of entrepreneurship and a diverse marketplace of goods and services. The U.S. is often regarded as the epitome of a capitalist society with its strong emphasis on free markets, private property, and individual liberty. It has been, and still is, home to many of the world's largest and most influential corporations and has produced a significant number of successful entrepreneurs.

However, the prevalence of capitalism has not entirely extinguished socialist ideas from the American discourse. In the late 19 th and early 20 th centuries, socialist and communist ideas gained some prominence in America, leading to reforms like public education, antitrust regulations, the five-day work week, and child labor laws. In the wake of the Great Depression in the 1930s, President Franklin D. Roosevelt introduced the New Deal , a series of government programs and regulations aimed at providing relief, recovery, and reform. Many of these initiatives, such as Social Security and Medicare, have a socialistic nature as they involved government intervention to promote social welfare.

During the Cold War era, socialism as an economic system became entangled with the politics of Soviet communism in the American psyche. Capitalism was pitted against communism in an ideological battle of good vs. evil, leading to heightened resistance to socialist policies in the U.S. This binary framing left little space for nuance or balance, making socialism a dirty word in much of the mainstream discourse throughout the Cold War period. Any policy or program that smacked of collectivism, increased government involvement, centralized planning, or wealth redistribution was branded as a dangerous slippery slope towards Soviet-style communism and generated irrational fear and distrust of socialist ideas among the American public.

In recent years, the socialism versus capitalism debate has re-emerged in America. High-profile politicians like Bernie Sanders and Alexandria Ocasio-Cortez, have helped bring socialist ideas like universal healthcare , tuition-free college, and higher taxes on the wealthy back into the mainstream. While critics still equate socialism with excessive government control and a loss of individual liberties, defenders argue that socialist policies can coexist with capitalism and democracy in ways that promote the greater good. Public opinion has indeed become more favorable towards some government intervention in capitalism. For example, a Gallup poll in 2021 found around 40% of Americans believed some form of socialism would be good for the country – a level that has held steady since the 2010s. The rise of a more democratic socialism demonstrates many Americans wish to seek a middle ground between unchecked capitalism and government-dominated socialism.

It is wrong to imply that capitalism always inherently leads to inequality, while socialism leads to equality. In truth, there are variations of both systems, and outcomes depend greatly on implementation and broader political structures and social institutions.

While the U.S. has remained fundamentally capitalist, many programs incorporate socialist principles:

• Social Security - Provides retirement and disability benefits through a centralized, social insurance system funded by taxes.
• Medicare – Federal government-provided health insurance for the elderly.
• Medicaid – State government-provided health insurance for low-income residents
• Public Schools - Primary and secondary education funded by government at local, state, and federal levels.
• State Colleges and Universities – Higher education subsidized by state governments.
• U.S. Military - Collectively owned defense force funded through taxes.
• Law Enforcement, Fire Departments, & Garbage Collection - Local government services available to all residents.
• Public Libraries - Local libraries available to all residents, funded by taxes.
• Public Parks - Recreational parks built and maintained by local governments.
• Public Broadcasting - Radio and TV stations funded by the government and donations, such as PBS and NPR.
• Interstate Highway System - Federally funded network of highways available for public use.
• Progressive Taxation - Higher earners pay a larger share of their income in taxes to fund social services,
• Federal Deposit Insurance Corporation ( FDIC ) - Government insurance on bank deposits to protect savers.
• Public Housing - Subsidized rental housing for low-income families and individuals.
• Food Stamps/ SNAP - Federal food assistance vouchers for low-income households.
• Veterans Benefits & GI Bill - Variety of programs to support and compensate military veterans.

Very few societies adopt pure forms of either capitalism or socialism in practice. Most have mixed systems that combine elements of both philosophies . This demonstrates that capitalism and socialism exist more on a spectrum than as diametric opposites.

For instance, the U.S. is generally considered a very capitalist country. But the government does regulate certain industries like financial markets, healthcare, utilities, environmental standards, labor laws, and consumer protections. Moreover, the U.S. subsidizes industries such as agriculture, transportation, and energy, and implements public welfare programs like Social Security and Medicare—pointing to socialistic elements in the largely capitalist economy. Even in areas where private companies operate, such as postal services or waste management, the government often chooses who can run those operations and sets strict regulations and standards.

At the same time, countries like Sweden or France that are viewed as socialist democracies still allow substantial private ownership of businesses in most sectors. Their market economies coexist with expanded social welfare programs funded via taxation. Sweden, for example, has very generous universal social programs, but large and profitable companies like IKEA and H&M flourish with private ownership. And while France nationalized several industries after WWII, private enterprise drives most of its economy today.

Then there's China, a unique case that has evolved into a hybrid of capitalism and socialism. After its revolution in 1949, China was fundamentally a command economy, where the government controlled all the means of production and dictated economic output. However, from the late 1970s onward, under the leadership of Deng Xiaoping, China began to introduce market reforms. While it still identifies as a socialist country with "Chinese characteristics," it has embraced a mixed economy. In this model, large state-owned enterprises (SOEs) dominate strategic sectors such as energy, telecommunications, and defense, while private businesses and foreign investment have been allowed and even encouraged in other sectors. Today, China's economy is characterized by a mix of socialist planning, state ownership in the crucial sectors, and an open-market capitalism in its burgeoning private sector. This balance of public ownership and market competition has led to unprecedented economic growth and lifted hundreds of millions of people out of poverty

A " mixed economy " approach allows societies to incorporate the perceived benefits of both capitalism and socialism. Private ownership and free markets can incentivize innovation and production. But government intervention and redistribution of resources can potentially address areas where markets fail to serve social needs equitably. The balance between capitalist and socialist policies remains a continuous debate.

Given that most economies exist along a spectrum, there are different forms of capitalism and socialism with varying degrees of government intervention:

Varieties of Capitalism

• Laissez-faire - Strict free market model with no government involvement outside law enforcement and national defense.
• Welfare capitalism - Maintains free markets but government provides basic social services and protections.
• State capitalism - Government exerts strong direction of investment and some state ownership.
• Corporate capitalism - Economy dominated by large corporations and minimal competition.
• Crony capitalism - Wealthy elites exert political influence to manipulate policies and maintain power.
• Responsible capitalism - Private enterprise combined with ethics and social responsibility. Aims to balance profits with public welfare.

Varieties of Socialism

• Communism - Sometimes lumped in with socialism, communism is a classless society with communal ownership and no private property.
• Democratic socialism - Socialist principles achieved through democratic political processes. Many industries are nationalized or cooperatively run.
• Market socialism - Worker-owned cooperatives and publicly owned industry compete in market economies.
• Pragmatic socialism - Socially-owned sectors of the economy coexist with private enterprise and markets. Focused on achieving socialist goals gradually through reform. 

Examples of Socialist-Leaning Countries

• China : Remains officially communist but has implemented market reforms that allow substantial private business. The economy exhibits a mix of socialist planning and capitalist characteristics.
• Cuba : Agriculture, industry, and services are almost entirely state-run and planned. Private businesses are very limited.
• Vietnam : Similar to China, Vietnam maintains public ownership over major industries but has increasingly integrated market-based reforms.
• Venezuela : Oil production largely nationalized along with many other sectors. But sizable private businesses exist in consumer industries. Suffering severe economic crises.
• Bolivia - Socialist president elected in 2006 implemented sweeping nationalization policies.
• Sweden : While private companies dominate and Sweden ranks highly on business freedom, they have high taxes and an extensive welfare system.

Examples of Capitalist-Leaning Countries

• United States : Economy based on private ownership and free markets. But government regulates many industries and provides welfare programs.
• Japan : Private ownership dominates but the government plays a more active role in directing some investment and business activity compared to other capitalist countries.
• Singapore : Extremely business-friendly, free market economy. Consistently ranks among the most capitalist countries in measurements of economic freedom.
• Australia - Free market economy with some government intervention. Ranks high on economic freedom.
• Canada - Mostly free market economy with universal healthcare and other social programs.
• Ireland - Business-friendly economy with low corporate tax rates to attract foreign investment.
• Switzerland - Long tradition of capitalism, free trade, and minimal regulation. Powerful financial sector.

Key Thinkers: Capitalism

• Adam Smith : Developed modern free market economics. Wrote "The Wealth of Nations" advocating laissez-faire policies.
• John Stuart Mill : Influential classical liberal philosopher who supported free markets and individual liberty.
• Friedrich Hayek : Influential Austrian economist. Defended free markets and criticized socialist planning.
• Ludwig von Mises : Prominent leader of the Austrian school of economics. Advocated laissez-faire capitalism and criticized government intervention.
• Milton Friedman : Prominent advocate of free markets and limited government. Leader of the Chicago school of economics.
• Ayn Rand - Bestselling author and radical defender of capitalism and individualism. Major influence on American libertarianism. 

Key Thinkers: Socialism

• Karl Marx : Philosopher and economist. Wrote "The Communist Manifesto" and defined modern socialism and communism. He collaborated closely with Freidrich Engels.
• Vladimir Lenin : Leader of the Bolshevik Revolution and architect of the Soviet Union's socialist model.
• Leon Trotsky: Marxist revolutionary who promoted socialism worldwide, including permanent revolution.
• John Maynard Keynes : Founder of Keynesian economics. He advocated for government intervention and public spending to achieve full employment and avoid recession.
• Paul Sweezy : American Marxist economist. Sweezy helped popularize Marxian economics in the 20th century.
• Erik Olin Wright : Contemporary analytical Marxist sociologist known for his work on class structure and social stratification. Wright sought to pragmatically insert socialist elements into larger capitalist structures.

Socialism and communism both advocate collective ownership of production and economic equality. But communism takes this further and seeks to establish a classless, egalitarian society with common ownership of all property and wealth. Under communism, the state is expected to eventually wither away after economic equality is achieved.

No countries today have purely socialist economies currently. But some examples of nations that have extensive socialist policies include China and the Nordic countries like Sweden and Norway. Most countries have mixed economies that combine elements of both capitalism and socialism.

Proponents argue capitalism promotes economic growth, innovation and individual choice through free market incentives and competition. Capitalism also encourages entrepreneurship, risk-taking, and innovation. Consumers benefit from greater efficiency, lower prices and higher quality goods and services resulting from businesses pursuing profits.

Critics, however, contend that unfettered capitalism leads to inequality, concentration of wealth, and lack of economic mobility. This is because it prioritizes profit over social welfare, public goods, and environmental concerns. Some economists have identified capitalism as contributing to cyclical instability and the tendency towards large monopolies/oligopolies without regulation or oversight.

In theory, socialism offers several advantages including greater equality, fairness, and shared prosperity through collective ownership of the means of production. Programs that provide basic services like healthcare and education are available to all citizens, and both workers and consumers are protected through careful regulation and oversight.

Critics argue that removing market incentives reduces productivity and economic output over time. Central planning is thought to react slower to changing consumer needs and preferences. Moreover, the fear of excessive government power and corruption at the top could also lead to reduced individual liberties and authoritarian tendencies.

The Bottom Line

Capitalism and socialism represent two opposing schools of thought when it comes to how economic systems and societies should operate. In their purest forms, neither system has ever been fully implemented in practice. Most modern nations have complex mixed economies that incorporate elements of both private enterprise and government control. The balance between free markets and centralized planning remains an ongoing source of political debate and economic reform around the world.

International Monetary Fund. " What Is Capitalism? "

Internet Encyclopedia of Philosophy. " Socialism ."

Braudel, F. (1992). Civilization and capitalism, 15th-18th century, vol. II: The wheels of commerce (Vol. 2). Univ of California Press.

Fulcher, J. (2015). Capitalism: A very short introduction (Vol. 108). Oxford University Press, USA.

Adam Smith. " An Inquiry into the Nature and Causes of the Wealth of Nations , " Project Gutenberg.

Taylor, Charles. " What's Wrong With Capitalism? ,"  New Left Review ,  2 (March/April), 5-11.

Bestor, Arthur. " The Evolution of the Socialist Vocabulary ."  Journal of the History of Ideas , Vol. 9, No. 3, 259-302.

Karl Marx and Friedrich Engels. " The Communist Manifesto ."

Piketty, T. (2014). Capital in the twenty-first century . Harvard University Press.

Patton, J. W. (1993). Winiecki, Jan. The Distorted World of Soviet-Type Economies . Journal of Interdisciplinary Studies , 5 (1/2), 205-206.

Economics Help. " Mixed Economy ."

Johnston, Gordon. " Revisiting The Cultural Cold War ." Social History, Vol 35 No. 3, Pages 290-307.

The Economist. " Millennial Socialists Want To Shake up the Economy and Save the Climate ."

Gallup. " Socialism, Capitalism Ratings in U.S. Unchanged ."

Robins, Fred. " China: A New Kind of 'Mixed' Economy? ," Asian Business and Management , Vol. 9, Pages 23-46.

Paul Sweezy. " The Theory of Capitalist Development ," NYU Press, 1970.

Erik Olin Wright. " Envisioning Real Utopias ," Verso, 2010.

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Socialism and Capitalism

Reassessing both socialism’s previous performance and its historical grounding is required in light of recent capitalist failures. Although orthodox economic theory suggests that socialism remains inferior to capitalism, there is no strong theoretical basis for this conclusion. There exists no conclusive evidence that socialist economies grew less rapidly than capitalist ones. By contrasting capitalism with socialism, this piece fills a critical conceptual need in people’s understanding of capitalism’s dynamic character. After conducting an in-depth study, it was shown that capitalism remains more competitive than the socialist alternative.

Introduction

The two most prevalent economic systems in the industrialized world today are socialism and capitalism. Capitalism as a political system has its roots in Europe and stretches back to the year 1400 AD. Socialism, on the other hand, has its roots in France and has been there since 1800. The most important contrast between capitalism and socialism the extent to which the government has control over the economy. Socialism remains a political and economic system wherein the state provides income and uses them for the benefit of the people. Production and consumer prices are regulated by the government to ensure that they fulfill the demands of the population. The means of production are privately held in a capitalist economy. Capitalism exists as the most successful economic system because of the various advantages it provides and the countless chances it generates for its citizens. Among the many advantages are the creation of money and new ideas, the enhancement of the quality of life for individuals, and the empowerment of the populace. The aim of essay compares capitalism vs socialism gets by considering from various sources.

People’s fundamental necessities are addressed in a socialist economy. These include necessities such as housing, schooling, healthcare, and financial stability. Economists call this system of government-managed resources and production of goods and services that citizens require “central planning.” Instead, capitalism rewards firms for their efforts by allowing them to keep all the wealth and profits they create. The means of production are owned by private companies, which run them for a profit. With the money they make from the business, they can buy additional raw materials, pay for operating costs and wages, and yet have money left over for future expansion and reinvestment.

At this very moment, people are in a world where capitalism, socialism, and a blend of both are all in charge. Individuals or private businesses continue to own and operate the resources and methods of production in capitalism. In a free market economy, the pricing of products and services are decided by competition, not by the proprietors of the economy itself. The government owns and controls all economic resources, including money and other kinds of capital, under socialist regimes. Wealth gets created by the country’s population and then dispersed to everyone. Prices under capitalism are set by the laws of supply and demand, therefore businesses with a monopoly can raise prices to protect their profits. However, in Socialism, prices are set by governments, which can lead to shortages or oversupply of any item. It should be the fundamental objective of all economic systems, yet not all systems achieve the same results.

Socialism and capitalism were evaluated by Republicans in percentage terms, according to a survey in the United State. Both capitalism and socialism were seen as with some degree by the majority of Republicans and Democrats. While the majority of Republicans and Democrats had a good view of both socialism and capitalism, with Democrats having a more inclined to see both concepts positively. Some 35% of republicans and democrats remained opposed to socialism, citing the failures of socialist nations like Venezuela and Russia as evidence. A similar percentage of people who had an unfavorable view of socialism felt it was incompatible with American democracy. Capitalism was seen favorably by 65% of Republicans and Democrats.

Capitalists claim that the appropriate incentives are provided by free markets for entrepreneurs, investors, and employees to produce commodities and services that consumer’s value. The end consequence remains a better quality of life. People who support socialism, on the other hand, argue that capitalism may enrich some people while leaving others behind, especially the poor. Self-management exists as a hallmark of this system, and it gets built on the idea that what’s good for one person gets accepted as good for all people. There are very few industrialized countries today that are completely capitalism or socialist. Healthcare, schooling, and pensions are all provided by the government in socialist countries like Sweden, Denmark, and Norway. In contrast to this, private property ownership promotes a degree of disparity in income. As powerful socialist parties are present in nations like France and Britain and their governments provide a wide range of social support programs, most firms in these countries are held by private individuals.

According to Zalesko (2015), competitiveness metric (GDP per capital) reveals indisputably that nations with a capitalist system are more competitive than those with a socialist system. Relationships between capitalist nations (relationships that foster development) and between nations in the socialist bloc appear to be the most important. According to capitalists, preserving private property ownership seems critical for preserving people’s inherent right to manage their own affairs. Those who advocate capitalism think that the free market provides better for society because it utilizes assets more efficiently than the government. On the other hand, socialists think that everyone should be able to possess property. Private ownership, they say, permits just a few affluent people to acquire the majority of property.

Capitalism, as a social system and a theory, remains the manifestation of the belief that economic prosperity leads to individual liberty and equality in a fair and autonomous society (Zalesko, 2015). On the other hand, socialism continues as a system that limits human initiative and entrepreneurship. To summarize, the two viewpoints on economic systems offered above indicate that the market economy (capitalism) outperforms the planned economy (communism) (socialism).

Li, M. (2013). The 21st century: Is there an alternative (to socialism)?. Science & Society, 77(1), 10-43.

Zalesko, M. (2015). Capitalism vs. socialism–an attempt to analyse the competitiveness of economic systems. Ekonomia i Prawo. Economics and Law, 14(1), 61-79

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Capitalism vs Socialism, Essay Example

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Capitalism might be termed the theory and practice of private property. Its opposite, socialism , might be termed the theory and practice of public property. These are nutshell descriptions but the point is that they are two different systems with one thing in common.

Critics of capitalism say that it is heartless because it really only rewards the making of money — specifically capital , which is money available for investment in profitable enterprises. Those enterprises then generate more capital. It pays workers as little as it can and gives to owners and stockholders as much as it can. Karl Marx, the first modern critic of capitalism, readily admitted that capitalism could work wonders of production, but that it was fundamentally unsustainable because wage-earning workers would increasingly be unable to purchase the products that they helped make, and that runaway production would destroy earned capital.

Critics of socialism say that it really is just capitalist investment and labor in disguise. Instead of private individuals taking private risk for private and public gain, the state does so, but in so doing sees to its own political needs first, which are different from private needs. As a result, socialist economies are wasteful and inefficient: their primary goals are political, not economic. Earnings are diverted from increased productive investment to satisfy an insatiable demand from politicians who themselves take their cues from their constituents, ever eager for subsidies and welfare in the form of generous unemployment insurance, pensions, and workman’s compensation. Adam Smith, one of the first economists of the modern world, readily admitted that people left to themselves were basically selfish, but that such people, if left alone to pursue their own selfish ends, would benefit their nations as if guided by an “invisible hand . ”

Probably the most famous hybrids of capitalism and socialism were National Socialism as practiced by Adolf Hitler; and Fascism , as practiced by Benito Mussolini. Both ended in 1945.

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Capitalism vs. Socialism

From economic shutdowns to trillions of dollars in new government spending, the 2020 COVID-19 pandemic led to a dramatic increase in government action. While much of the increase was temporary, there is now a growing desire to further expand government. We see calls for single-payer health care systems, expanded child-care subsidies, and trillions of dollars in federal infrastructure investments.

Arguments about what government should and should not do are not new. We regularly see them in the debates over the merits of socialism versus free market capitalism. While these debates are often in the abstract, over the last century countries have experimented with variations on both economic systems. The Hoover Institution’s Human Prosperity Project critically examined many of these experiments to see which economic system is best for human flourishing. The video below describes the project’s objectives:

So how do socialism, capitalism, and their many variants compare?

What do these economic systems look like?

In heated policy debates and on social media, we often hear policies described as socialist or capitalist. Sometimes it seems the terms are used as pejoratives rather than as honest descriptions. So what do these terms actually mean?

Capitalism refers to an economic system where economic decisions—such as what to make and how much to charge for it—are made by private actors. There are robust protections for property rights, which give people more reason to invest in businesses and invent new products. By contrast, in socialism economic decisions are largely made by the government. Policy makers decide what gets made and determine prices and wages.

Now, of course, even in capitalist economies governments still play an economic role. Likewise, private individuals still make some decisions in socialist economies. It gets even more complicated: some economies have social democracy, where governments leave most economic decisions in the hands of individuals but take an active role in redistributing income and regulating labor markets and industries. 

You can find a helpful glossary of related terms here .

How do socialism and capitalism affect income and opportunities?

Delivering broad-based prosperity should be the primary goal of all economic systems, but not all systems deliver the same results. Supporters of capitalism argue that free markets give people—entrepreneurs, investors, and workers—the right incentives to create goods and services that people value. The result is higher standards of living. Those sympathetic to socialism, however, respond that capitalism may produce wealth for some, but without government involvement in the economy many are left behind. 

In his Human Prosperity Project essay Socialism, Capitalism, and Income economist Edward Lazear analyzed decades of income trends across 162 countries. He studied how incomes for low and high earners changed as countries shifted from government-controlled economies to more market-oriented economies. His conclusion?

The historical record provides evidence on how countries have fared under the two extreme systems as well as under intermediate cases, where countries adopt primarily private ownership and economic freedom but couple that with a large government sector and transfers. The general evidence suggests that both across countries and over time within a country, providing more economic freedom improves the incomes of all groups, including the lowest group.

Lazear points to several specific examples. First, China: in the 1980s, the Chinese Communist government began to adopt market-based reforms. Lazear finds that the market reforms, as skeptics of capitalism would predict, did increase income inequality. But, more importantly, the market reforms lifted millions of people out of poverty. Lazear notes:

Today, the poorest Chinese earn five times as much as they did just two decades earlier. Throughout the 1980s and before, a large fraction of the Chinese population lived in abject poverty. Today’s poor in China remain poor by developed-country standards, but there is no denying that they are far better off than they were even two decades ago. Indeed, the rapid lifting of so many out of the worst state of poverty is likely the greatest change in human welfare in world history.

As the video below highlights, market reforms led to similar economic miracles in India, Chile, and South Korea:

What about mixed economies?

Of course, most modern-day critics of capitalism are not advocating for complete government control over the economy. They don’t want the economic policies of the Soviet Union or early Communist China; instead, they point to nations with mixed economies to emulate, such as those featuring social democracy. So how do these policies affect incomes and opportunities?

Economist Lee Ohanian compares the labor market policies of Europe and the United States in his essay The Effect of Economic Freedom on Labor Market Efficiency and Performance . Compared to the United States, European nations have higher minimum wages, stricter rules that prevent the firing of workers, and high rates of unionization. These rules are intended to protect workers, but Ohanian finds that they discourage employment and result in lower compensation rates. His analysis indicates:

These findings have important implications for economic policy making. They indicate that policies that enhance the free and efficient operation of the labor market significantly expand opportunities and increase prosperity. Moreover, they suggest that economic policy reforms can substantially improve economic performance in countries with heavily regulated labor markets and high tax rates.

The video below highlights some of Ohanian’s key findings:

What about the effects of income redistribution and the taxes that pay for it?  Supporters argue that these programs keep people out of poverty. Critics, however, argue that financing these systems comes with high costs both to taxpayers and to recipients.

In their essay Taxation, Individual Actions, and Economic Prosperity: A Review Joshua Rauh and Gregory Kearney consider the effects of raising tax rates on high-income Americans to finance new government spending. They examine the effects of income and wealth taxes in Europe. They find that wealth taxes and high income tax rates discourage high-income filers from investing in a country, which ultimately reduces economic growth. Thus, calls in the United States to increase income and wealth taxes “come despite a body of evidence showing that the country is already one of the more progressive tax regimes in the world, that wealth confiscation results in worse outcomes for the broader economy.”

The long-term consequences of redistribution don’t fall just on taxpayers. Such transfer systems also create incentives for individuals to leave or stay out of the work force. In their contribution to the Human Prosperity Project , economist John Cogan and Daniel Heil consider the effects of Universal Basic Income (UBI) programs, which would provide a “no-strings-attached” cash benefit to families. They find that modern UBI proposals in the United States would either prove costly—requiring tax rates that would reduce incentives to work and invest—or would require steep phase-out provisions that punish recipients who try to re-enter the workforce. In either case, the result is that UBI programs are likely to reduce employment rates, ultimately depriving recipients of long-term economic opportunities.

What about other aspects of human flourishing?

Human flourishing is more than material prosperity. For example, it requires a clean environment and access to good health care.

It might seem that socialist economies—where government controls the means of production—would have better environmental track records. Yet the evidence suggests the opposite. In his essay Environmental Markets vs. Environmental Socialism: Capturing Prosperity and Environmental Quality Economist Terry Anderson summarizes the literature on economic systems’ effects on the environment. He points to research showing that countries with more economic freedom tend to have better environmental outcomes:

Seth Norton calculated the statistical relationship between various freedom indexes and environmental improvements. His results show that institutions—especially property rights and the rule of law—are key to human well-being and environmental quality. Dividing a sample of countries into groups with low, medium, and high economic freedom and similar categories for the rule of law, Norton showed that in all cases except water pollution, countries with low economic freedom are worse off than those in countries with moderate economic freedom, while in all cases those in countries with high economic freedom are better off than those in countries with medium economic freedom. A similar pattern is evident for the rule-of-law measures.

Anderson explains this surprising result with the adage that “no one washes a rental car.” In free-market societies, property rights give individuals incentive to protect and preserve the resources they own. In countries without these property rights provisions, no one has the right incentives, much like no one has the incentive to wash a rental car (except the rental car companies). The video below further explains why free markets and cleaner environments go hand and hand.

What about health care? Many developed nations that have generally free economies have still opted for government-run health care. The programs vary by country. Even in the United States, the government plays a large role in health care. Large government programs such as Medicare and Medicaid provide health care to low-income families, the disabled, and seniors. Nevertheless, relative to most developed nations, the United States relies far more heavily on the private sector and markets.

In his essay The Costs of Regulation and Centralization in Health Care Dr. Scott Atlas compares health care in the United States with that in other developed nations. The United States consistently ranks high across a variety of quality metrics. The system offers shorter wait times and faster access to life-saving drugs and medical equipment. The result is that the US system tends to deliver better medical outcomes than other developed nations. Watch this video to learn more:

We’ve seen that whether we look at income statistics or environmental outcomes, economies with freer markets tend to have better outcomes. Nevertheless, there still may be unseen dimensions of economic systems that these statistics don’t address. Is there another way to determine which system is best for human flourishing?

Perhaps the best method is to observe where people choose to live when offered the choice. In his essay Leaving Socialism Behind: A Lesson from German History , Russell Berman catalogues widespread immigration from East Germany to West Germany during the Cold War. Watch this video to learn its causes:

Citations and Additional Reading

• Why did liberal democracies succeed while communist nations failed in the twentieth century? Hoover Institution senior fellow Peter Berkowitz provides an answer in his essay Capitalism, Socialism, and Freedom .
• In his essay Socialism vs. The American Constitutional Structure: The Advantages of Decentralization and Federalism , John Yoo highlights the constitutional provisions that would make it difficult for the United States to adopt widescale socialist policies.
• Explore the other Human Prosperity Project essays here .

Related Content

Socialism and Free-Market Capitalism: The Human Prosperity Project

An Untold Economic Miracle

Laboring in Vain: How Regulation Affects Unemployment

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Similarities Between Capitalism and Socialism. Compare & Contrast

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Introduction

Socialism has been regarded as kind of economy which relocates its means of production from individual ownership to state ownership and communal ownership.

A state that operates under socialism possesses all the means of production and also supervises them. This system has been believed to construct a different egalitarian system which is founded on the values of cooperation and solidarity. However, this further relies on another feature where human beings are viewed as capable of interacting and cooperating with one another (Newman 3).

Capitalism on the other hand could be reffered as a system where means of production are employed and owned by individuals. This kind of economy develops under the right of an individual who decides freely where and how they want to produce (Hunt and Lautzenheiser 5). Therefore these are two diverse systems; the following essay illustrates the differences and similarities between these two systems.

Economy and Trade

Marxist economists described various ideas concerning socialism and capitalism using various illustrations. According to his famous accounts, capitalist was depicted as destructive, a kind of system that is prone to crisis and administered by logic of capital. It was mostly expressed on the basis of economic laws of motion also the desire to accumulate on the capital.

However, socialism denoted elimination or suppression of such logic and its fundamental drives and laws, hence created the likelihood of a rational, organized way of managing social and economic life. Marxist economists condemned capitalism because of instability and irrational outcomes of a system based on private markets and properties.

Marxist noted the devastating social and economic outcomes of capitalist organizations, economic anarchy; for instance, sales seldom matched actual or expected levels of production, and the overall amount of savings planned for investments, hence affecting business cycles. Other associated crises were ineffective outcomes and uneconomical expenditures which led to starvation, unemployment, and ecological deterioration.

There was social disintegration and fragmentation because of unequal distribution of power and wealth and promotion of privacy, social interests, and personal interests over public. It encouraged alienation for instance through commodity fetishism because conception of false needs was encouraged rather than satisfaction of true needs. This led to denial of genuine individual knowledge concerning themselves and also the society surrounding them (Ruccio and Amariglio 216-17).

In contrast, socialism because of eliminating the scope of private markets and properties and its institution of planning, it has been represented as a system that demonstrates basic rationality and stability. Therefore, the results were fairly different; economic coordination and balance which was supervised by a central planning board and analyzed by enterprises and ministries.

Furthermore, the system portrayed effective and socially beneficial expenditures which were based on coherent calculations and no profit making motive. The system created unification and social harmony because of establishment of relative equality and social and private interests which were then allowed to converge.

More importantly, it promoted self realization and true needs could be articulated and the nature of social interactions was transparent and immediate. Marxist economists has also noted the degree at which capitalism has been based on individual exploitation which involves extraction of surplus value while in socialism almost all surplus was appropriated communally or socially (Ruccio and Amariglio 216-17).

Property Rights

Socialism could be defined as transfer of titles of a particular property from those individuals who have invested scarcely to those who have contractually acquired them or for some different use. It could be regarded as a social system where the scarce resources or means of production which are utilized to produce consumption products are socialized or nationalized.

The concept of socialization of means of production has been practiced in a number of countries such as Soviet Union and afterwards by Soviet dominated nations of Eastern Europe and various countries all over the world. If private property becomes the means of production, then one encourages differences. By eradicating private ownership everybody’s ownership means of production is equated.

Every person becomes the co- owner of all the properties and this reflects every individual’s identical standing as a human being. The economic rationale of a scheme like that one is suggested to be more effective. In contrast, capitalism which concentrates on private ownership as the means of production seems to be very chaotic. It appears more of a wasteful system which is characterized by ruinous competition, duplicating efforts and lacks concerted, coordinated action.

Unless the communal ownership is substituted with private then it’s possible to eradicate that waste by executing a single, coordinated comprehensive production plan. The property regulations which are assumed under the socialization policy and those which comprise the general legal principles of nations such as Russia are distinguished by two complementary attributes. First, no one possesses socialized means of production but they are owned socially.

That means nobody or no group of people, or all of them together have the right to either obtain them or trade them and retain the receipts got from their sale confidentially. Their use is however determined by people not as the owners but as the caretakers of the things (Herman 19-22).

Secondly, no individual or groups of people or all of them together has the right to engage in personal investment and form new personal means of production.

They could neither invest through changing the existing, nonproductively already used resources into productive ones, by pooling resources with the rest of the people, by original saving, nor by a combination of those techniques. Investment could be done only by caretakers, not for private profit but for the benefit of the community. In an economy such as capitalism which is founded on private ownership, owners resolve what to do with the means of production.

However in socialized economy such owners never exist hence it cannot happen and the major problem is what to do with the means of production. The difference between socialized property economy and private one is the concept of whose will prevails if there are conflicts. In capitalism somebody must be there to control and others who do not control and therefore real difference exists among people.

In this case, the problem on whose opinion prevails is determined by original contract and appropriation. Similarly, in socialism real difference exists between noncontrollers and controllers under some occasions, the issue on whose opinion prevails is not resolved through previous contract or usership but through political means (Herman 19-22).

Therefore, capitalist differs from socialism by replacing public ownership with private ownership. Public ownership caused excessive depersonalization of the property.

Neither losses nor gains had exclusive and direct effects on a particular individual, responsibility normally was enormously low. To some extent private property still existed in socialism (Kornai 87). Nevertheless, it seems to be scarce hence it does not cover the means of production.

If the property could not be transferred to the state, communal properties like agricultural cooperatives or small businesses such as handicraft were introduced. This shows theoretically the membership is voluntary and such ownership was not affected legally. Hence collective ownership was regarded as an intermediary stage which would be replaced by the state ownership finally.

On the other hand, in capitalism under property right it is evident there was division of labor, making of profit and uneven distribution of wealth and massive involvement in economic exchanges. That was portrayed as the only means of maintaining an individual existence which signify a great need for steady rules and enforcement system. That is mainly essential for property rights, and their transfer and their protection.

Coordination

Another disparity between socialism and capitalism is depicted on how coordination is accomplished. Rather than letting people do what they desire, capitalism organizes the actions by restraining people to respect the earlier user ownership.

Capitalist is distinguished by decentralist and unstructured coordination instead of centralized management and steering. This is clearly observed in disincentives and incentives which are not set politically. In such society, distribution of resources occurs through the market.

On the other hand, in socialism rather than allowing people do what they wish, it manages individual plans through superimposing on an individual’s plan or the plan of a group and that of varying individual or group in spite of prior ownership and other mutual exchange contracts (Herman 23). This depicts central planning where the state owns almost all production facilities.

The required inputs for production and preliminary products are determined then organized, political priorities are always considered. The consumer and producer demand are anticipated while correct exchange relations are resolved by the setting of the price. However, this is costly and huge task to be carried by the administration which tends to be more complicated and develops technologically according to the nation economy.

Capitalists system argues that the major role of the government is to safe guard its citizens from deception or various forms of corruption. They argue that force is the security of individual’s rights.

To achieve that, the government employs police force that is in charge of security at their homes and military group which guards any exterior attack while the court ensures that local disputes between the residents are cleared. In addition, they believe that stirring force could only lead to violation of rights; hence the government simply uses force in case one initiates it.

In this society, anyone could begin any type of business one desires. This is because the security of monopolies does not operate. The main law which is plainly decreed and everybody is supposed to observe is that members of the society should not violate an individual’s human rights (De Soto 68). Thus they give credibility to observing individual’s rights which is supreme and freedoms are also regarded as supreme.

On the other hand, socialism is a reverse; the government is centrally involved while the society manages communal properties such as cooperatives and industries. Even though, they own those properties through the government. In addition, the workers are in charge of means of production owned by the society and are invested for the well being of the whole economy but not just the wealthy individuals.

In this system, the government manages the overall means of production but the members have the duty of choosing the best setting for the production, the amount to produce and which product should be produced. Those produces should also be allocated fairly to ensure everybody is satisfied.

Some philosophers like Karl Marx claimed that there is possibility of capitalism being overshadowed because already there are some evident changes in capitalist societies which resemble socialism. They further suggested that they must look for a means to conquer capitalists’ resistance and their proposers to achieve socialism.

In socialism economy, there is equal allocation of resources within its members and focuses on providing basic needs to the members to ensure equality. To make sure every member in the society benefits, the government ensures it caters for those who are needy and cannot support themselves, this is achieved through community based programs and related organizations.

In addition, socialist societies are usually known because of their charitable social security systems. These include: free education, full employment, total coverage through pension system, subsidized housing, welfare for the sick, orphans and elderly and good public security depicted by low crime rates (Rudiger 14).

Social Welfare

For several decades the Soviet Union lived as an enormous national socialist government. The Kibbutzim and Mennonites abandoned the Soviet Union and settled in capitalist nations like Israel and United States.

The Amish live peacefully under capitalism since the community reaps together and sows together. Because they are not buying food and paying wages, there is fairly little taxable business taking place. Furthermore, the community could also work jointly to produce goods which could be sold to neighbors surrounding the community.

That enables the community to pay for things like property taxes (Gilpin 220). That indicates that the socialist society should own the means of production, but not the individuals within their society. Since socialism depends on production which belongs to the collective, then it’s very hard for a single socialist unit to exist in another socialist unit. Also in a case of a joint ownership, one of the parties must have more power over the property than the other.

It is impossible for two units to have sovereignty over similar property. As a result, socialist groups like Kibbutzim and Mennonites abandoned areas such as Eastern Europe and Russia in favor of Israel and United States. Socialist society depends on willing contribution of every member of that society. In case of the less productive members within the society, that is not regarded as a problem.

Nevertheless, if the most productive members in that society were able of being independent, that could be a problem. This is because if those members who are most productive depart from the collective, then the overall resources allocated to every member decreases. In case this repeatedly happens then socialism would collapse, since the only people who would remain are the less productive (Duck 2).

There must be something to maintain the most productive members in the socialist country; this ensures they do not leave. For instance, majority of productive Mennonites are kept within their society by the religion or the Jews in their Kibbutzim.

Patriotism might also maintain majority of productive members in a socialist country. Nonetheless, the tie of religion is stronger than that of patriotism. Because socialism cannot permit most of its members who are productive to depart from the collective, then it is very hard for capitalist to exist within socialism.

This is evident because socialist government always takes production from those people who are most productive and then reallocate it to the less productive people. If that was done against the desires of the people, subsequently they will harbor bitterness against socialist government. As a result, the tie of patriotism will grow weaker (Duck 2).

Government Role on Social Life

Critics argue that a government which is capable of providing everything is also powerful enough to take away everything. This happened to German National Socialists and Communist Russia. Nevertheless, government with socialist system does not withhold social welfare but the power it has over the economy of that nation leaves the citizens vulnerable to the dictators (Newman 39).

They argue that in a nation where Congress are not permitted to pass law which focuses on establishment of religion, then government social programs seems to be corrupt and mostly tend to be agnostic. As a result, such social programs seem to prohibit religion which is a free exercise or others encourage atheism.

There are many well documented government education programs which prohibit prayer and encourage atheism. Socialist governments appear to atheism. The morality of Atheist is only a manifestation of the light reflected by biblical morality. Without the guiding light from the bible, atheist morality is likely to go off course. Finally, it degrades to level where immoral behaviors such as genocide turn to be acceptable.

Critics further argue that socialism should not be allowed to exist in a government and socialist groups ought to support capitalism in their government since in capitalism they can freely exist. They believe that the framework of capitalism leads to efficient socialism, this is because it allows people to embrace socialism (Duck 2-3).

Prices Formation

In capitalist system, prices are not determined by the state but set by interplay between demand and supply in the free markets. Nevertheless, the state could affect the prices indirectly through subsidization, taxation, restrictions of imports and in case it manages the Central Bank, through monetary policy like money supply and interest rates. Therefore, in this system coordination of transactions through prices is a distinctive feature of capitalist system (Friedman 8-13).

On the other hand, in case of socialist economy channeling so much power on the prices it would require sufficient market structure; it would also challenge the structure and the state that formed such system while trying to allocate resources in the economy. In socialist economy price mechanisms were not fully eliminated, mostly it was incorporated in economic planning.

This led to unofficial or multiple official price systems. This altered price system which never reflects true scarcity levels and makes consumers and companies to be price inelastic, thus they do not react adequately to increase and decrease of prices because these are meaningless. Conversely, households in classical socialist economy work under constrain due to the hard budget because their funds are limited.

Thus they never respond to prices because the state controls the prices which become political relevance. As a result, the prices of services and basic goods like medical services, staple food, housing, childcare, are normally subsidized whilst the demand for luxury goods is controlled through setting high prices. As proposed by classical economic theory the consumers respond promptly, they buy extra of the subsidized goods compared to what they would purchase in market equilibrium.

Market Structure

In capitalist system, private enterprises of different sizes coexist and usually compete with those enterprises owned by the state and other forms like the cooperatives. The main feature of capitalist system appears to be free market exit and entry. Thus it’s not a static system however it operates under dynamic renewal.

On the other hand, in socialist economy the seller incurs total transaction cost, seeks information on how and where to find the product, adapts to the seller’s supply through forced substitution. Therefore, the buyer bears the outcomes of uncertainty. This is opposite of capitalist economy which can be regarded as buyer’s market. In the case of seller’s market as in socialism, it’s usually a stable condition where demand constantly exceeds supply (Rudiger 11).

According to the discussion above it is evident that these two systems are quite different with a few similarities. Majorly, the socialist economy is depicted by its communal ownership as the name suggests. The society properties are owned by everybody and there is no one entitled as the sole manager.

The property rights are generally communal and the members act as caretakers of the properties. On the other hand, capitalism is distinguished by the private ownership of property. Analyzing on the prices the two systems are really diverse, under socialism the consumers are in control of the market and they bear the overall cost of market uncertainties.

Moreover, they are supposed to seek where and how to use the means of production hence the name seller market. On the other hand, under capitalism it’s the reverse it’s called the buyer market since the government is in control of the means of production. One similarity is that both governments control the amount of money workers contributes thus the pension is under government management.

Works Cited

De Soto, Hernando. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else . New York: Random House, 2000.

Duck, Samuel. “Comparing national socialism to capitalism, liberty, charity, and local socialism”, 2009. Web.

Friedman, Milton. Capitalism and Freedom . Chicago: University of Chicago Press, 2002.

Gilpin, Robert. Global Political Economy: Understanding the International Economic Order . Princeton: Princeton University Press, 2001.

Hans-Hermann, Hoppe. Theory of Socialism and Capitalism . Alabama: Ludwing von Mises Institute, 2007.

Hunt, E. and Lautzenheiser, Mark. History of Economic Thought: A Critical Perspective . New York: M.E. Sharpe, 2011.

Kornai, Janos. The Socialist System: The Political Economy of Communism. Princeton: Princeton University Press, 1992.

Newman, Michael. Socialism: a very short introduction . New York: Oxford University Press, 2005.

Ruccio, David and Amariglio, Jack. Postmodern moments in modern economics. Princeton: Princeton University Press, 2003.

Rudiger, Frank. “North Korea: East Asian Socialism, Capitalism, or What?” University of Vienna, 2008. Web.

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Home / Essay Samples / Economics / Capitalism / Capitalism Vs Socialism: The Debate on Economic Systems

Capitalism Vs Socialism: The Debate on Economic Systems

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