Cairo university

Faculty of economics and political science

English department

Egyptian Economic System

Topic:
The Fundamental Differences between The capitalist
System and Socialist system

“First Level”
Dr/ Mohamed Zaky

Students:

Name: E-mail: Code:

Abd Elhamied Mustafa Abdelhamid.badawy2019@[Link] 5190299
Abd Elhamied Badawy
Asmaa Mohamed Asmaa.mohammed2019@[Link] 5190842
fathallah mahmoud
Mohamed abd el Mohamed.elsawy2019@[Link] 5190424
Rahman Abo Zaid
Elsawy
Nagham Hamad Eldeen Nagham.mohamed2019@[Link] 5190934
Dafa-Alla mohamed
 Introduction
When talk about the fundamental difference between capitalism and socialism system we
should first definite each of them capitalism and socialism are the two principal economic
structures used to explain the environment and how economies work and we are benefit a lot
from their definition in our economy life so we will talk about both in our research and their
effects in our economy life. the capitalist economic model depends on free market conditions
to encourage innovation and wealth creation and control corporate behavior this market forces
modernization allows free choice leading to either success or failure.
objective of study :to definite capitalism and socialism and make different between them.

capitalism:-
it means that all service and goods of a firm or company are only owned to individuals that can
take act or behave or control on them as (he/she/they) like we can deduct that it is an
economic system in which capital resources belong to private individuals within the general
market and the manufacture of this goods and services depends on supply and demand at this
point we can put a generalization that it is a Market-Economy .

Functionally talking about capitalism is one mechanism by which the issues of economic growth
and the allocation of resources may be overcome Instead of planning economic decisions by
centralized political techniques . capitalism depends on the protection of private property rights
that provide incentives for investment in productive capital and its use for its output.
Socialism:-
It means that it is an economy system based on public ownership other name –common
ownership- this mean that socialism refer to including the tools and machines and bases of
company or factories which be uses to produce goods aims to satisfy human needs . Socialist
thought aims at preventing the possession of individuals, for the people of all walks of life and
their classes, being those who possess the means of production and preventing the
concentration of wealth in the hands of the wealthy group in society, preventing their
exploitation, excluding them from the working class and exploiting their need in return for a
small and insufficient financial return.

We can say there are countries follow capitalism system and there are another countries follow
socialism system and it is possible to apply both in the country. while socialism and capitalism
appear to be quite contradictory some aspects of socialism are present in most capitalist
economies today liberal economy and capitalist economy are components that can be merged
into a mixed economy most developed countries do indeed work with a mixed economic
structure production and distribution are influenced by both government and individuals.

Abstract
-capitalism and socialism are a very important systems in every country than each country
should be run by any of them or both.

-there are a lot of models of capitalism and socialism every model contain advantages and
disadvantages we should study and analyze both to apply best suited in our country.

-these models and studies show the economists skills in country system and enforce them
double their studies and analyzes to refresh the country’s economy.

-the aim of study is to see many economic system that apply these plans and take benefits from
them.

Capitalist System:
A capitalist economic system is one characterized by free markets and the lack of
economic government interference. A capitalist economy will need some state
interference in practice primarily in order to protect private land. This is necessary
to separate between capitalism and anarchism where almost no government is
present.
Definition Of The Capitalist System:
A capitalism is mainly private ownership system which is open to new
experiences, new businesses, and new owners- in short to new capital, since a long
time, the logic of capitalism to both supporters and opponents has been known its
dynamism, that is, its inventions and more subtly, its selectivity in the
developments it is seeking to achieve, at the same time, capitalism is known for its
tendency to create instability, often linked to the experience of financial collapse,
job insecurity and lack of inclusion of the disadvantaged¹.
Features of The Capitalist System :
● Economic liberty: it's easy for people to establish business and provide the good
and services they need.
● Consumer sovereignty: consumer are free to determine which goods and
services to buy.
● Government limited: government interference restricted to privacy protection
and provision of goods.
●Market forces: goods and services are allocated according the invisible hand of
consumer in other words market forces decide the distribution of goods. For
example as demand rises, businesses have a reason to raise supply.
●Profit motive: are seen as essential to enable efficient resource utilization and
encourage innovation and efficient markets.
●Sector finance: capitalism requires an advanced banking and financial system
that can provide loans to household.
A capitalist economic system is often contrasted with a communist or socialist
economic system in which government agencies make economic decision
centrally. The means of production are collectively held in a socialist economy and
the government has more control on what to manufacture, how to manufacture and
how to allocate money.

Characteristics Of the Capitalist System:

Industry Revolution that took place during the 18th and 19th centuries, paved the
way for recognition of the rights and roles of the private sector in the development
of industries. Adam Smith underscored the essential role of the private sector in
economic growth in his theory (laissez faire). The theory popularized one
economic System, capitalism. the same system that existed particularly in Greece
and Italy. Capitalism Is an economic System in which the private sector possesses
capital, labor and land as factors of production. Capitalism is established on private
property and wealth motives. Any one is free to participate in any production
process, set the product price and supply the demanded products and services.

The following related Principles of capitalism help to defining the characteristics

of capitalist system as a mode of production:

1-Generalized Commodity Production: the production of goods in capitalism is

fundamentally systemic and described. An ever-increasing variety of products and
services is being generated as resources for commercial trade in order to generate
money and profit. Competition among capitalists drives and create innovation and
productivity.
2- Imperative Of Accumulation: Capitalism is defined by the fundamental role of
productive capital. Productive capital invests in means of production (land, tools,
machines, raw materials..etc.) and labor power to work with such means of
production, which it then organizes to create new goods, new values as
a critical move towards making a profit on its investment.

3-The Commodity labor Power: It takes attention to the most recognizable

features of the capitalist mode of production. As we mentioned previously that
capitalism was established on a social relation among Capitalists, Owners of
production and workers who share their labor force or their ability to work in order
to gain their livelihood. Labor power is important since it is the only commodity
whose usage in output makes a profit more than its own value. In theoretical term,
This is because: The value of labor power (like any commodity) reflects the labor
which has gone into making it, reflected in the salary for which it exchanges and
labor power becomes the property of the capitalist who buys it and commands
whose use in producing new commodities of higher value.

Characteristics Of capitalism:

1-Decentralized Decision-Making: Decision making is decentralized since firms

or private individuals make their own decisions according their business. What to
supply and in what quantity are decided by private sectors and individuals.

2-Pricing: Commodity prices are dependent on prevailing market price. Any price
changes depend on buyer and supplier behavior. Businessmen watch the market to
decide what goods and services to sell in order to make great profit.

3-Ownership of Resources and Wealth: All individuals and businessmen are free
accumulate wealth and own the capital. Private property is allowed without
limitations or restrictions. Because of huge salaries and income from their firms,
capitalists and entrepreneurs get wealthier whereas the workers who earn small
wages have a slim chance of being wealthy and own property. Obviously, the
allocation of wealth under this system is unequal.

4-Profit Motive: Profit is the primary concern of all individuals who are engaged
in business. They enter the business world with profit in mind. Businessmen in
capitalism highlight consumer goods, which are patronized by the purchasing
public. Individuals tend to participate in business in order to make money and not
to serve the country nor to become bankrupt².

Turkey as a Model of The Capitalist System:

Turkey's state capitalism mode showed an impressive potential for economic
growth. In the midst of the world depression in the 1930s, (GNP) rose by 7-9% a
year in real terms During this time , industrial output has experienced an average
annual growth rate of 11.5 %, doubling its share of GNP, so that its share of GNP
doubled. At this time, the contraction of Western economies naturally encouraged
the substitution of imports by local manufacturing, which was part and parcel of
the rationale of industrial growth, and expansion was accompanied by a decline in
relative imports of manufactured products, to the point that the previous trade gap
was eliminated. Thus, thanks to a partial exit, part voluntary and part coerced, from
the foreign market, the Turkish industry witnessed its firs bursting with growth.
Moreover, the process of industrialization of import-substitution was started in the
wide countries of Latin America at this period, Often attributed to the mixture of
global business turmoil and "developmentalist" economic policy.

Turkish market capitalism had two distinguishing characteristics: on the one hand,
state management of capital production was inseparable from the participation of
national private capital in economic activity and internal (trade and finance) and
external (importation) intermediate functions, The expansion of the economy, on
the other hand, rested on the national market rather than on exports. Public industry
investment complemented private investment rather than a few branches such as
textiles and footwear or cement. Private money participated in public sector
deficits, typically by the development of small and medium-sized companies in
technologically basic building and public works³.

Socialist System:
In the early and mid-twenties, socialism adopted many socialist ideas in one way
or another. However, many countries that did socialism, such as Chile, Hungary,
North Korea, and others, failed, and as a result, socialism deteriorated. But
socialism experienced a resurgence in the twenty-first century. This is due to
economic inequality and because of the influence of socialist politicians.
According to a poll by Gallup ,Most people have a positive view of socialism⁴.
Definition of The Socialist System:
-Socialism is one of the various political and economic theories and refers to
collective or government ownership and the management of the means of
producing and distributing goods
-The state society system in which the means of production are owned and
controlled.
-The stage of society in the transitional theory between communism and
capitalism, characterized by an unequal distribution of goods, according to the
work done.
Socialism is a political and economic system of social organization, as the means
of production and distribution are collectively owned by society, in contrast to
capitalism, which calls for private ownership of the means of production.
The means of production include such things as land, machinery, and factories
Collective ownership may take place through the state or through cooperative
societies.
Features of The socialist System:
-It is the main Features of socialism in a socialist economy. The means of
production and distribution are owned, controlled and organized by the public
through the state or cooperatives.
-The main motivation for this is not only the use of means of production for profit
but for the benefit of economic planning, unlike the capitalist economy where the
socialist economy does not move the laws of supply and demand where all
economic activities are planned and coordinated.
-A socialist economy relies on the central planning authority to distribute the
revolution rather than on the market.
-Socialism aims at ensuring that everyone in the socialist economy is in economic
equality.
-In a socialist economy, basic needs such as food, clothing, and health are provided
by the government without any distinction, and these are among the greatest
benefits of socialism. However, providing the government with basic needs can
lead to public belief that it cannot survive without the government and this creates
an ideal environment for the emergence of authoritarian governments.
-In the socialist economy, there is no competition in the market because the state is
the only entrepreneur, as the state focuses only on providing necessities, and this
leads to a limited choice of consumers.
-The state controls and regulates product prices, with states setting both the market
price for consumer goods and the accounting price that helps managers make
decisions about commodity production.
-Another major reason behind the progression of socialism is the protection of the
working class from exploitation, where under socialist systems there is no
exploitation as the state takes care of the working class by protecting labor and the
minimum wages.
-The characteristics of the socialist system are the collective ownership of the
means of production, which means that the means of production of the state and all
members of society are owned by it and not one individual or some individuals and
includes individual socialist ownership and be on some simple matters such as
consumer goods and household appliances.

Characteristics Of The Socialist System:

One of the most common and widespread misconceptions about socialism is that
individuals are not allowed to own personal items even though socialism calls for
private ownership of the means of production. Except that it does not own
ownership of personal things. Therefore, if the state adopts socialist ideology, there
is no concern that the state will withdraw special items such as television or books.
Since the means of production under socialism are owned by society as a whole,
the value derived from these means of production belongs to society collectively,
where each person gets a share of the value created by the means of production
based on his contribution⁵.

-State ownership: is the most common in socialist systems, In Soviet-type

economies, state property was the dominant form of industry as property. The state
held a monopoly on land and natural resources, and enterprises operated under the
legal framework of a nominally planned economy, operating according to different
criteria than state and private enterprises in capitalistic market and mixed
economies.
-Ownership of cooperative societies: Cooperative societies are built until
agricultural land or small factories are acquired, and that is through the
establishment of an association of a number of farmers with the aim of owning and
cultivating agricultural area.
-Social ownership of the means of production:
Indeed, there is a great importance to it in the socialist economic system, and that
importance is represented in the difference from the capitalist system, which means
that the means of production belong to society, not capitalism.
-Central economic planning:
The goal of planning is to submit all basic economic activities of all kinds to the
central goal of the state
This is represented in the equal distribution of goods and services, and this is
determined by the effort exerted for each person and the need for the commodity,
and that is through central planning committees, where it sets a unified plan for the
economy of the country as a whole, and central planning includes the production
and distribution plan and price setting
According to this characteristic, a specific convergence of interests occurs between
the workers and the production visit, as they are the owners of the means of
production, and those methods are used to satisfy the desires and needs of society⁶.
People's republic of china as a model of The Socialist System:
For the communist party of china (CPC) to lead the people and effectively
administer the country , ruling the country by law and creating a democratic
Society under the rule of low is a basic concept. We need to create a socialist
system of laws with Chinese characteristics In order to ensure that lows are
complied with in order to carry out state and social affairs; this a precondition and
a basis for us to implement , in all ways, the basic part of the rule of low and
systematic ensuring of growth and advancement for China. The socialist system of
laws with Chinese characteristics is a legal basis socialism with Chinese
characteristics to maintain its existence, a legal expression of the revolutionary
tradition of Chinese characteristic socialism, and a legal assurance of the stability
of Chinese characteristic socialism⁷.
 Conclusion
in our study we defined and made difference between two concepts of economic system.
Firstly: capitalism which give us a lot of benefits in our economy study which added to our
academic info that it means all services and good of the company or firm owned to individuals,
and advantage of it is to let the consumer free to choose goods and services, disadvantage is
the companies could achieve monopoly control over consumers and workers in capitalist
society. and we proofed that by giving our examples in real life like turkey’s state as a model of
capitalism and showed it in our study, and show the degree of government intervention
generally in each system and notice that in this system the government intervention is very low
in this system because the government want to encourage this free market. Secondly: socialism
which showed to us that the ownership is public and showed that the market isn’t free and
government intervention is very considerable (government ownership) its advantage that It
guarantees the equitable distribution of goods and services to individuals, and this is
determined by the effort made for each individual and the extent of his need for goods and
services, and this provides an opportunity for competition to emerge and demonstrate the skills
of individuals disadvantages individuals receive a few shares of money and initiatives ,laws are
inflexible, lack of developing a clear vision of how to manage distribute wealth. Then we notice
after this study and show advantages and disadvantages we can say there are a lot of difference
among countries in their economic system so we can’t determine which system should be
apply in which country before studying this country market and its dependents to get best
results when apply each system.

Also, we learned from this study that there is a great relationship between governments and
economic impacts as we realized that the government has the largest role in determining the
market system and through which the degree of its interference becomes clear, If it imposed
the capitalist system it wanted to attract a lot of investments and encouraged individuals to
invest, but if it wanted to serve the public without looking to profit and investment it applies
socialism and despite that there are governments that apply the two systems together and
achieve the best successes.

At the end we should know that capitalism and socialism are a very important systems in every
country that each country should be run by one of them or both.

The aim of study is to see many economic systems that apply these plans and take benefits
from them. And learn from advantages, try to avoid disadvantages.

References
¹22 July 2013 “Capitalist Economic System” by Tejvan pettinger.
Access Date: 31/5/2020
[Link]

² Turning Points Iv' 2007 Ed. By Imperial, Dallo, Samson, Antonio, Soriano. Published by Rex Book Store,
Philippine Copyright, 2007 by Rex Book Store, Inc. Page 140 to 141. [Link]
id=nJuzLwZcJUC&pg=PA140&dq=%22characteristics+of+capitalism
%22&hl=ar&sa=X&ved=0ahUKEwiK5qqo4rbpAhUDJBoKHXvwA0A4ChDoAQhSMAQ#v=onepage&q=
%22characteristics%20of%20capitalism%22&f=true

³ The Mediterranean, Between Autonomy and Dependency, By F. Yachir. Page 43 to 44

[Link]
%2B+model&hl=ar&sa=X&ved=0ahUKEwjXupmR1bjpAhUTrHEKHdZ7B_cQ6AEIeTAI#v=onepage&q=capit
alism%20%2B%20model&f=false

⁴(Title) socialism : characteristics ,pros, cons, examples and Types Author : Anastasia Belyh Date :
6/4/2019 Date of search :1/6/2020
[Link]

⁵Title : socialism Author : gilabert ,pablo and O'Neill ,Martin. Year :2019Date of search : 1/6/2020
[Link]
⁶[Link]
- [Link]

⁷Publication Date: 1/11/2011

Access Date: 1/6/2020
“The socialist system of laws with Chinese characteristics”
[Link]
zgzfbps/
[Link]&ved=2ahUKEwjsmu30nN_pAhUtyoUKHSayDFcQFjAKegQICRAB&usg=AOvVaw1fn5SEFImL
o4aI4JTVM6hT