What Are the Main Differences between Capitalism and Socialism?

There is a debate happening in America – capitalism versus socialism. The debate is intense, and “the recent election of socialist-leaning candidates in major U.S. cities highlights the contemporary relevance of this topic,” according to an article written by Sanjai Bhagat, Ph.D., and published at The Daily Signal. 

A recent Gallup poll finds that Americans view capitalism more positively than socialism; the 54% viewing capitalism favorably is down from 60% in 2021. Americans view socialism more negatively (57%) than positively (39%), with little movement in these attitudes over time.

How have the people of a country fared that have adopted socialism? Not so well – the evidence below indicates.

How have the people of a socialist country that have adopted capitalism fared? Very well – again, the evidence below indicates.

The primary differences between the capitalist and socialist economic systems are the ownership of the means of production, right to private property, and the incentives to work and innovate. In a capitalist system, private individuals and for-profit corporations are the major owners of the means of production. In a socialist system, the state is the major owner of the means of production.

The right to private property is a cornerstone of capitalism; this right is protected and encouraged by the state. Individuals have very limited private property rights in a socialist economy.

The capitalist system provides individuals with powerful economic incentives to work and innovate; this contributes to and stimulates their economy. One of the major flaws of the socialist system is its complete disregard for human incentives – resulting in an ongoing and significant negative impact on their economy, and more importantly, on the lives of their citizens.

We highlight the differences in the economic well-being of citizens of socialist and capitalist economies. We consider the change in economic well-being of four countries that transitioned from socialism to a more capitalist economy, to wit, Poland, Bulgaria, India, and China. Also, we consider the change in economic well-being of Cuba and Venezuela that transitioned from capitalism to socialism.

Bhagat shares charts and explanations to illustrate how life in Poland, Bulgaria, India, and China improved by using a form of capitalism and how life in Cuba and Venezuela declined by turning to socialism. The example of China shows how capitalism can improve life even under a communist government. I find it interesting that there are any Americans who think that socialism is good after watching the decline of Venezuela in our lifetime.