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Advantages and Disadvantages of Capitalism and Socialism

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Every economic system has its strengths and weaknesses and capitalism is not an exception. Some of the pros of capitalism include economic freedom that spills over to become political freedom when the means of production and price determination is in the government's hand, it gives the government a lot of power that leads to the bureaucracy that may be evident in other parts of life as well. Capitalism experiences efficiency as firms is motivated to be efficient in producing goods according to demand. Such incentives encourage cost-cutting and reduced wastage (Pettinger par.

State firms have a tendency of being inefficient as they lack the motivation, for instance, to reduce the surplus work force and venture into innovative methods of production. As individuals and companies encounter motivation to work hard, this leads to innovation and expansion of the economy, consequently this aids in the increased actual growth of the GDP and improved standards of living. As wealth increases the standards of living also improve, theoretically, everybody seems to benefit from the wealth increase base on the trickle-down effect, from the “ have” to the “ have not” (Pettinger par. The flip side of capitalism is equally worth considering, with the most outstanding one being monopoly power.

Privately owned companies tend to gain the power to monopolize labor and product markets. This might lead to these firms misusing these powers to charge higher prices at will. With these powers firms can opt to pay low wages to the workforce and as commonly seen, there always seems to be great imparity between those who own capital and those working for these firms. The capital base economy tends to ignore social benefits.

Negative factors such as pollution are likely to be ignored by privately owned firms hence undermining living standards. On the other hand, they can ignore positive factors such as health when producing their goods, education and public transportation, and this is likely to lead to resource allocation that is not efficient.

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