Essay on Economic and Political Systems

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Economic and Political Systems:
Capitalism vs. Socialism

The political spectrum has played a vital role in economics. For centuries, governments have disputed over numerous economic systems which they consider to be the most suitable, in order to develop and grow today’s nations. In recent years, there has been constant disagreements between left wing and right wing leaders and supporters, for example in Latin America, which has resulted in many economic, social and political problems. This disruption has been caused by contradicting ideologies on how to achieve what the people desire as individuals and as a society. This essay will briefly explore the mayor differences between a socialist and a capitalist economic system and forms of government.

Capitalism is defined by the Oxford Dictionary to be “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.” It has many distinctive characteristics that have made it a very popular and appealing ideology, adopted by many nations and individuals. Capitalism is mainly defined by its self-regulated free trade, where people are encouraged to engage in enterprise, thus obtaining legal rights of ownership on property and resources.
The Capitalist economic system possesses various strengths. Firstly, its ability to motivate individuals into becoming more entrepreneurial, by easing the process needed in order to set up businesses. Profit is also a mayor motivator for people and firms to produce at lowest possible cost. The existence of competition and individual’s control over resources, means that those seeking profits achieve it at a relatively low cost, by optimising their efficiency. In comparison to other systems, consumers have a significant amount of control over what is made and to some extent, the price at which it is sold. This is achieved through market signals such and supply and demand of goods and services. Due to the lack of state intervention, producers use these signals in order to produce a wide variety of goods. Furthermore, the competition between firms has meant that firms aim to produce a wide range of products and quality, as well as encouraging innovation.
However, there are also certain weaknesses which arise from Capitalism, the most significant being mayor instability. As the market has little/no restrictions, the market’s choices lead to economic booms as well as busts. Other aspects which tend to fluctuate are inflation and levels of employment, as there is no state intervention to prevent and control such issues. Another crucial flaw of capitalism is that it creates masses of inequality among people, where great amounts of wealth benefit only a small portion of the population, whilst poor people are affected the most. Due to inequality and wealthy individuals having too much control, there are continuous conflicts between social classes. Limited government control also means that there is a lack of welfare and little regard for poverty. On the opposite side of the spectrum there is the Socialist economic system. Encyclopaedia Britannica defines “Socialism as a social and economic doctrine that calls for public rather than private ownership or control of property and natural resources.” It is characterised by its heavy central planning in regards to all/most (depending of the degree of socialism) aspects of the economy and society. Resources are socially owned and all aspects of production are centrally planned.
Socialists consider this system to have greater economic efficiency as there is central planning of production resulting in better resource allocation. It focuses on social welfare and supplying its people with their needs rather than focussing on profit maximisation. As it is centrally planned, it reduces the amount of wasted resources and unwise investments associated with business fluctuations. This ‘careful’ planning is considered by
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