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The fundamental difference between capitalism and socialism is the scope of government intervention in the economy. The capitalist economic model allows free market conditions to drive innovation and wealth creation; this liberalization of market forces allows for the freedom of choice, resulting in either success or failure. The socialist-based economy incorporates elements of centralized economic planning, utilized to ensure conformity and to encourage equality of opportunity and economic outcome.

Ownership

In a capitalist economy, property, and businesses are owned and controlled by individuals. In a socialist economy, the state owns and controls the major means of production. In some socialist economic models, worker cooperatives have primacy over production. Other socialist economic models allow individual ownership of enterprise and property, albeit with high taxes and stringent government controls.

Equity

The capitalist economy is unconcerned about equity. The argument is that inequality is the driving force that encourages innovation, which then pushes economic development. The primary concern of the socialist model is the redistribution of wealth and resources from the rich to the poor, out of fairness and to ensure equality in opportunity and equality of outcome.

Efficiency

The capitalist argument is that the profit incentive drives corporations to develop innovative new products that are wanted by the consumer and have demand in the marketplace. It is argued that the state ownership of the means of production leads to inefficiency because without the motivation to earn more money, management, workers and developers are less likely to put forth the extra effort to push new ideas or products.

Employment

In a capitalist economy, the state does not directly employ the workforce. This can lead to unemployment during times of economic recession. In a socialist economy the state is the primary employer. During times of economic hardship, the socialist state can order hiring, so there is full employment even if workers are not performing tasks that are particularly useful.

Mixed Economy

Some countries incorporate both the public sector system of capitalism and the private sector enterprise of socialism to overcome the disadvantages of both systems. These countries are referred to as mixed economies. In these economies, the government intervenes to prevent any individual or company from having monopolistic stance and undue concentration of economic power. Resources in this system are owned by both state and individuals.

Examples

Examples of capitalist countries include Hong Kong, New Zealand, and Australia. Examples of socialist economies include China, Finland, Denmark, Norway, and Ireland. Some examples of mixed economies are the US, Canada, and the UK.

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