Question

Explain the basic model of capitalist economic production. Contrast this model to socialism. Assess the operation of capitalist and socialist economies in terms of economic productivity, economic equality, and support for political rights and freedoms.

Answer 1

Capitalist economic system: It is an economic system which is characterized by free markets and the absence of government intervention in the economy. In practice, this type of economy will need some government intervention, primarily to protect private property. The main features of a capitalist economic system are listed below:

• Economic freedom: Individuals free to set up business and provide goods and services they want.
• Consumer sovereignty: Consumers free to decide which goods and services to purchase.
• Limited government: Government intervention limited to protection of private property and provision of public goods.
• Finance sector: Capitalism requires a developed banking and financial system which can provide loans to companies and banking services to households.
• Free trade: Low tariff barriers to encourage international trade.

Capitalism	Socialism
It is a market-based economy made up of buyers (people) and sellers (private or corporate-owned companies).	The means of production are owned by public enterprises or cooperatives (the state), and individuals are compensated based on the principle of individual contribution.
The goods and services that are produced are intended to make a profit, and this profit is reinvested into the economy.	There is equal opportunity for all. Large-scale industries are cooperative efforts, and thus, the returns from these industries must be returned to and benefit society as a whole.
The government should not interfere in the economies of the free market, meaning, the market determines investments, production, distribution and decisions, and government interference is only allowed when making and enforcing rules or policies governing the conduct of business.	Economic activity and production are planned by the central planning authority and based on human consumption needs and economic demands.