Capitalism is an economic system that is driven by profit generation by individuals or entities through private ownership of business and properties and control of resources, and the market is driven by the forces of demand and supply ( William H. Shaw, 2017). This is the dominant economic system in the United States. The pros of this system are;
a. Power of choice; due to competition consumers are able to get a variety of quality goods and services.
b. Source of motivation for businesses to innovate, grow and improve and as result existence of superior businesses (CFI, 2021). This is driven by the desire to earn huge profit.
c. Development of market efficiencies as businesses find new ways to cut production costs and at the same time maintain quality of the products. But, this can be a disadvantage if the businesses shift their production to other nations with low cost of production ( William H. Shaw, 2017).
The cons of this economic system include;
a. Creation of inequality in the society. The rich who are major investors in these businesses earn huge profits while the poor only work for the rich and earn salaries and wages. This has led to erosion of work ethics.
b. Emergence of oligopolies and monopolies in supply of goods and provision of services, which is detrimental as it can lead to higher prices and compromise in quality of goods and services ( William H. Shaw, 2017).
c. Political corruption whereby the profits made by these businesses can be given to politicians through donations and in the process laws be put in place to favor these entities.
Socialism is an economic system where the factors of production, resources, prices and properties are owned by the public and managed by the government. This system works on the notion that what is good for an individual is also good for the whole population ( William H. Shaw, 2017). The pros of this system are;
a. Equal treatment; the government distributes the profit generated by the state-owned entities equally to all the people.
b. Focus on social benefit; the control of factors of production by the government ensures there is fairness and equality in distribution of resources to the benefit of the community.
c. Better terms and treatment; the government involvement in the economic activities may lead to lower taxation of basic commodities and therefore consumers can enjoy lower prices of goods and services (CFI, 2021).
The cons of socialism consist of;
a. Inefficiency; employees lacks motivation to innovate and reduce cost of operation.
b. Dependence of cooperative pooling; this system does not encourage competition and the individuals who show competitiveness are seen as if in a mission to cause unrest.
c. Reduces poverty levels; the community decides how resources will be utilized and every person is entitled to basic goods and services (CFI, 2021).
