Capitalism, Socialism, Communism. These are the three big economic systems in the world today. The terms are thrown around a lot, but what do they really stand for…and what do they mean for our Paychecks?
Capitalism
Capitalism is an economic system in which people or companies own goods and services. This is a system where the prices, production, and distribution of goods are determined by free market competition. Basically the makers make stuff, the owners own stuff, the buyers buy stuff…and everyone wins (most of the time!)
This system grew out of feudal Europe, when cities became centers of trade and population just in time for the industrial revolution. During this time, technology exploded and allowed both production and distribution to be located in cities where loads of workers were readily available. Like Fred and Ginger, it was the right combo at the right time!
Adam Smith was a pioneer of capitalism. He talked about how mutually beneficial free trade improved life for all economic classes. Capitalist societies rely on political freedom, free trade, private property rights, profit, and competition. Potential problems are corruption, crony capitalism, wealth inequality, and unemployment of unproductive workers.
Today, most countries practice some form of mixed capitalism, with a combination of government regulation and free(ish) markets. The United States is generally considered the prototype of capitalism, but when you consider all of the regulations currently put on businesses it’s actually not even in the top 10 “freest” economies in the world. We’re not taking sides here, but it really does depend on the administration; some lean into capitalism, and some seem to merely tolerate it.
Socialism
Socialism is an economic system where the community (i.e. a government) owns and administers the production and distribution of goods rather than individuals or companies. In a socialist society, everything is produced by the bigger society so everyone is entitled to a share of it. What’s that saying again? Oh yes: what’s mine is mine, and what’s yours is mine.
Socialism came to the forefront in our day as a response to capitalism during the Industrial Revolution. The most influential socialist thinker was Karl Marx, a German philosopher who gathered existing socialist ideas into one teaching… kinda like making an economic Frankenstein, tbh.
There are a number of flavors of socialism, but most socialist societies rely on strong government control. Potential problems are corruption, class inequalities, and unfairness of wealth distribution. Power corrupts, and this gives the government and regulators a lot of power!
In the 20th century, socialism narrowed into two primary versions: social democracy and Communism. After the fall of the U.S.S.R. in 1991, Communism lost a lot of influence around the world, leaving social democracy as the primary form of Socialism throughout Europe and into the United States. These movements sought gradual change toward socialist concepts inside the constructs of primarily capitalist societies. We’re not saying it’s parasitic, but, well, we’re not saying it’s not.
Communism
Communism is an economic system where goods are owned by the community and available to all who need those goods, where central planning dictates production and distribution, and where private property is rare or nonexistent.
Communism grew out of socialism. Marx, the most influential socialist thinker of the 1800s, endorsed active revolution by the worker class to overthrow the merchant class, propelling Communism as an extreme variation of Socialism. It was a direct response to the rise in capitalism. The Soviet Union was the biggest experiment in full-bore Communism, but it failed to achieve the promised utopia. Instead, it became a brutal dictatorship, where tens of millions were killed by their own government. Potential problems for Communism include absolute power being centralized in only a few individuals, major class and wealth inequalities, worker abuse, and a lack of freedom or individual choice. Absolute power corrupts absolutely.
Today, Communism is still the official system in China, Cuba, North Korea, Vietnam, and Laos. Russia technically claims to be a representative democracy (as does North Korea). More than anything, this demonstrates the lack of accountability that Communist nations, er, don’t have.
Comparison
So how do these systems compare? Answer: It probably depends on who you ask. If you’re at the top of the pyramid in any of them, life is probably pretty good! In a Socialist or Communist system, for those not at the top, life is different degrees of sucking. Folks may have little choice over what they do or where to go, but a person’s potential is limited by whatever the government allows. In a Capitalist system, there is opportunity for all, and anyone who creates a product or service that many others want will create their own Paycheck. A mixture of capitalism to drive the economy along with some socialist leanings to provide aid for the needy seems to be where most prosperous nations have landed in modern times.
Bottom line
There are some things to like about Socialism, to be sure. It helps protect the underprivileged. But, as British Prime Minister Margaret Thatcher once said, “The trouble with Socialism is that eventually you run out of other people's money.” Socialism only works when it’s layered on top of a capitalist base. Otherwise, it always slides into the more extreme of Communism over time.
If you want great Paychecks, capitalism is the way to go! Sure, you’ve gotta' work for it, but the sky really is the limit!
Bonus pop quiz: did you know that America actually began as a Socialist experiment? Spoiler: it failed. America 2.0 was capitalist in nature, and we’re still reaping the rewards of it today!
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