Capitalism and socialism are both economic systems where capitalism refers to that market structure under which the private sector is at the forefront when it comes to owning the factors of production and government has very limited role and the prices of goods and services are determined by the demand and supply and not by government authorities, while socialism refers to that market structure under which government is the powerhouse and private entities have to work according to policy of government even if it involves sacrificing some profits. Given below are some of the differences between capitalism and socialism –
- Under capitalism the role of government is limited to watchdog and interference by the government in the economy is very limited and hence one can say that economy is market driven under capitalism unlike socialism which is people driven and all policies of government are directed towards the welfare of poor and needy people.
- Capitalism reward those people who work hard and have innovative ideas and there is no free lunch in the form of subsidies for those people who do nothing or are financially weak and that is the reason why it is sometimes criticized as being pro rich and anti poor whereas under socialism the emphasis of government is take money from rich in the form of higher taxes and give that money to all sections of society in the form of subsidies.
- Under capitalism the goal of the companies is wealth maximization which leads to better efficiency because when all work is privatized then the idea will be the more you work the more money you will get thereby improving the efficiency of workers and organizations whereas under socialism the work culture is different as employees get fix salary and there is no incentive to improve the efficiency and that is the reason why socialist economies are less efficient than capitalist economies.
- Capitalism encourages entrepreneurship because profits are unlimited and if the idea clicks it leads to handsome rewards and since there is no interference of government it encourages young talent to start their own business rather than doing job whereas under socialism starting business involves so many steps and cumbersome procedures which leads to youngsters taking up jobs rather than doing business and hence in a way it leads to young minds losing their creativity and doing routine jobs.
As one can see from the above that there are many differences between socialism and capitalism and any government of a country does not follow either capitalism or socialism totally rather it a mix of both socialism and capitalism which is followed by the governments.