Akinpelu Babatola

Guest Writer, The Xpress Train

When describing a nation’s economic system, you use the three “–isms”: capitalism, socialism, and communism. These economic systems are employed to one extent or the other all over the globe. They are basically used to describe the level of government involvement within the economy. 

 This article will serve as a learning guide on these three systems.

Let’s get started. 

Capitalism

A capitalist economy is one in which all factors of production are privately owned. Only goods and services that can earn a profit are produced. 

The capitalist economy is a highly competitive one. Innovation and efficiency are two major characteristics of a capitalist economy. There is no room for equality, which leads to the creation of classes (Upper, Middle, and Lower class)

An example of a capitalist nation is the United States of America. Companies, like Apple, Amazon, employ current technology trends to stay ahead of rivals. They also end up hiring more workers than the government. 

Key Features of Capitalism

  • Competition is encouraged.
  • Property is privately owned
  • Wealth can easily be accumulated
  • Wages are earned in exchange for labor
  • There is a price system for goods and services. 

Socialism

In a socialist economy, the state or the government controls all factors of production. You can think of it in terms of a cooperative society. Everyone is working for the benefit of society and not of the individual. 

Socialist economies focus more on equality rather than efficiency and innovation. There is an equal distribution of wealth. Consequently, this is a no class system.

The USSR operated on a socialist economy before its dissolution. Norway is another example of a socialist state. The government at all levels is responsible for the welfare of its citizens, providing most of all their needs. 

Key Features of Socialism

  • Equality is encouraged
  • Property is publicly owned
  • The state is responsible for citizen’s welfare

Communism

Socialism went on to birth other schools of thought, one of them was Communism. Communism just like socialism supports that factors of production and distribution should be publicly owned. It is a system that believes the workers (proletariats) should own everything (common ownership).  

Communism can be traced to “The Communist Manifesto” written by Karl Marx. The philosopher argued that the dissolution of government would occur resulting in a classless society. Consequently, such a system would birth an economy that supported common ownership of property and business. In his words, “from each according to his ability, to each according to his need.”

China and Cuba are examples of communist economies in the world today. The two countries operate a one-party system and the state is in charge of a majority of all economic factors. The government still exists in both of these nations though, leading some philosophers to consider them to be socialist economies.

Key Features of Communism.

  • No government
  • Equality is promoted
  • There is no price system as everything is commonly owned. 

Capitalism, Socialism, and Communism

While the three schools of thought have their benefits, they are not without their flaws. 

For instance;

  • Capitalism only encourages the production of individual profit-driven goods and services. Any good or service that provides profit to the public, such as free or cheap healthcare is not produced.
  • Socialism and Communism on the hand often lead to economic stagnation. Since there is no competition, innovation is almost non-existent.

To combat these flaws, nations employ a mixed economic system. This means that the government and the individual take control of the factors of production. The level of involvement is what truly matters in such systems.

References

https://www.investopedia.com/ask/answers/020915/what-are-differences-between-capitalism-and-socialism.asp

https://www.investopedia.com/ask/answers/100214/what-difference-between-communism-and-socialism.asp

https://taagung.com/capitalism-vs-socialism-vs-communism/

Akinpelu Babatola

Guest Writer, The Xpress Train