There are many economic systems and sub-systems that have been implemented around the world. These theories can be broken up into three major economic systems: socialism, communism and capitalism. This essay will define and provide examples of each economic system. It will discuss why capitalism is the most beneficial system and briefly explain how capitalism that is based on ethics has the potential to evenly distribute the wealth of society and reduce poverty.
Socialism is defined as “ an economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be more evenly distributed among the people”(Nickels, William G, et all, 2016). Countries in Scandinavia such as Sweden, Denmark and Norway, still adhere very strongly to their socialist beliefs. One of the major issues with socialism is that it fails to recognize incentives. Citizens of socialist countries have no desire to go above and beyond or to work harder because the end result is the same; your wealth will be taken and distributed evenly amongst the people. Another issue with socialism is the high tax rate that citizens pay. For example, in Sweden the current personal income tax rate sits at approximately 57%(“Sweden Personal Income”, 2017). Citizens are required to pay higher taxes in order to fund social welfare programs such as schools, hospitals etc. “When the regulation, therefore, is in support of the workman, it is always just and equitable; but sometimes it is otherwise when in favor of the masters” (Smith, A. 1723-1790).
Another major economic system that is still practiced today is communism. Communism is defined as “an economic and political system in which the government makes almost all economic decisions and owns almost all the major factors of production”(Nickels, William G, et all, 2016). Communism has the most direct form of government intervention out of the three major economic systems. Usually, communist governments are left to guess what goods to produce because the concept of supply and demand is an invisible theory. Without supply and demand there is no way to accurately determine the price of a good or service. Countries like North Korea and Cuba still adhere to communist principles and it is evident that communism is a failing system. Cuba is considered one of the world’s biggest economic disasters; food shortages plague the country, the public health system is a hygienic mess and many public welfare systems are less than acceptable. Historically speaking, the more government regulation that exists in country’s economic system, the worse off it is in the long run.
Capitalism is an economic system that is used worldwide and is the foundation of the U.S. economy. Capitalism is defined as “an economic system in which all or most of the factors of production and distribution are privately owned and operated for profit”(Nickels, William G,...