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Essay on Capitalism and Communism

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Role of government, distribution of wealth, impact on society and economy.

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1000-Word Philosophy: An Introductory Anthology

Philosophy, One Thousand Words at a Time

Arguments for Capitalism and Socialism

Author: Thomas Metcalf Category: Social and Political Philosophy Wordcount: 993

Editor’s Note: This essay is the second in a two-part series authored by Tom on the topic of capitalism and socialism. The first essay, on defining capitalism and socialism, is available here .

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Suppose I had a magic wand that allowed one to produce 500 donuts per hour. I say to you, “Let’s make a deal. You use this wand to produce donuts, and then sell those donuts for $500 and give me the proceeds. I’ll give you $10 for every hour you spend doing this. I’ll spend that time playing video games.”

My activity—playing video games—seems pretty easy. Your job requires much more effort. And I might end up with a lot more money than $10 for every hour you work. How is that fair?

In the story, the magic wand is analogous to capital goods : assets (typically machinery and buildings, such as robots, sewing machines, computers, and factories) that make labor, or providing goods and services, more productive. Standard definitions of ‘capitalism’ and ‘socialism’ indicate that, in general, capitalist systems permit people to privately own and control capital goods, whereas socialist systems do not. And capitalist systems tend to contain widespread wage labor, absentee ownership, and property income; socialist systems generally don’t. [1]

Capital goods are morally interesting. As in the case of the magic wand, ownership of capital goods can allow one to make lots of money without working. In contrast, other people have to work for a living. This might be unfair or harmful. This essay surveys and explains the main arguments in this debate. [2]

1. Capitalism

Arguments for capitalism tend to hold that it’s beneficial to society for there to be incentives to produce, own, and use capital goods like the magic wand, or that it’s wrong to forcibly prevent people from doing so. Here are four arguments for capitalism, stated briefly:

(1) Competition: ‘When individuals compete with each other for profits, this benefits the consumer.’ [3]

Critique : Competition also may encourage selfish and predatory behavior. Competition can also occur in some socialist systems. [4]

(2) Freedom: ‘Preventing people from owning capital restricts their freedom. Seizing their income in the form of taxes may constitute theft.’ [5]

Critiques : Maybe owning property, itself, restricts freedom, by excluding others from using it. [6] If I announce that I own something, I may be thereby announcing that I will force you not to use it. And maybe “freedom” requires the ability to pursue one’s own goals, which in turn requires some amount of wealth. [7] Further, if people must choose between work and starvation, then their choice to work may not be really “free” anyway. [8] And the general distribution of wealth is arguably the result of a morally arbitrary “natural lottery,” [9] which may not actually confer strict property-rights over one’s holdings. [10] I didn’t choose where I was born, nor my parents’ wealth, nor my natural talents, which allow me to acquire wealth. So perhaps it’s not a violation of my rights to take some of that property from me.

(3) Public Goods: [11] ‘When objects, including capital, must be shared with others, then no one is strongly motivated to produce them. In turn, society is poorer and labor is more difficult because production is inefficient.’ [12]

Critique : People might be motivated to produce capital for altruistic reasons, [13] or may be coerced in some socialist systems to do so. Some putatively socialist systems allow for profitable production of capital goods. [14]

  (4) Tragedy of the Commons: ‘When capital, natural resources, or the environment are publicly controlled, no one is strongly motivated to protect them.’ [15]

Critique : As before, people might be motivated by altruism. [16] Some systems with partially-private control of capital may nevertheless qualify as socialist. [17]

2. Socialism

Arguments for socialism tend to hold that it’s unfair or harmful to have a system like in the story of the magic wand, a system with widespread wage labor and property income. Here are four arguments for socialism, stated briefly:

(1) Fairness: ‘It’s unfair to make money just by owning capital, as is possible only in a capitalist system.’ [18]

Critique : Perhaps fairness isn’t as morally important as consent, freedom, property rights, or beneficial consequences. And perhaps wage laborers consent to work, and capital owners have property rights over their capital. [19]

(2) Inequality: ‘When people can privately own capital, they can use it to get even richer relative to the poor, and the wage laborers are left poorer and poorer relative to the rich, thereby worsening the inequality that already exists between capital-owners and wage-laborers.’ [20]

Critiques : This is a disputable empirical claim. [21] And perhaps the ability to privately own capital encourages people to invest in building capital goods, thereby making goods and services cheaper. Further, perhaps monopolies commonly granted by social control over capital are “captured” by wealthy special-interests, [22] which harm the poor by enacting regressive laws. [23]

(3) Labor: ‘Wage laborers are alienated from their labor, exploited, and unfree because they must obey their bosses’ orders.’ [24]

Critiques : If this alienation and exploitation are net-harmful to workers, then why do workers consent to work? If the answer is ‘because they’ll suffer severe hardship otherwise,’ then strictly speaking, this is a critique of allowing poverty, not a critique of allowing wage labor.

(4) Selfishness: ‘When people can privately own capital, they selfishly pursue profit above all else, which leads to further inequality, environmental degradation, non-productive industries, economic instability, colonialism, mass murder, and slavery.’

Critique : These are also disputable empirical claims. Maybe when people are given control over socially -owned capital, they selfishly extract personal wealth from it. [25] Maybe when the environment is socially controlled, everyone is individually motivated to over-harvest and pollute. [26] State intervention in the economy may be a major cause of the existence of non-productive industry, pollution, and economic instability. [27] Last, some of the worst perpetrators of historical evils are governments, not private corporations. [28]

  3. Conclusion

It is difficult to justifiably draw general conclusions about what a pure capitalism or socialism would be like in practice. [29] But an examination of the merits and demerits of each system gives us some guidance about whether we should move a society in either direction.

[1] See my Defining Capitalism and Socialism for an explanation of how to define these systems.

[2] For much-more-extensive surveys, see Gilabert and O’Neill n.d. and Arnold n.d.

[3] By analogy, different people might try to construct even better magic wands, or use them for better purposes. Typically the benefits are thought to include lower prices, increased equality, innovation, and more options. See Smith 2003 [1776]: bk. 1, ch. 2 and Friedman and Friedman 1979: ch. 1.

[4] Schweickart 2011 presents an outline of a market socialism comprising much competition.

[5] By analogy, if I legitimately own the magic wand, then what gives you the right to threaten violence against me if I don’t give it to you? Nozick 1974: ch. 7 presents a general discussion of how socialism might restrict freedom and how taxation may be akin to theft or forced labor.

[6] Spencer 1995 [1871]: 103-4 and Zwolinski 2015 discuss how property might require coercion. See also Scott 2011: 32-33. Indeed, property in general may essentially be theft (Proudhon 1994 [1840]).

[7] See Rawls (1999: 176-7) for this sort of argument. See John Rawls’ ‘A Theory of Justice’ by Ben Davies for an introduction.

[8] See e.g. Burawoy 1979 for a discussion of whether workers consent to work. See also Marx 2004 (1867): vol. IV, ch. VII.

[9] Rawls 1999: 62 ff.

[10] Relatedly, while one may currently hold capital, one may greatly owe the existence of that product to many other people or to society in general. See e.g. Kropotkin 2015 [1913]: chs. 1-3 and Murphy and Nagel 2002.

[11] A public good is a good that is non-excludable (roughly, it is expensive to prevent people from using it) and non-rivalrously consumed (roughly, preventing people from using it causes harm without benefiting anyone) (Cowen 2008).

[12] By analogy, why bother building magic wands at all if someone else is immediately going to take it from me and start using it? Standard economic theory holds that public goods (non-excludable and non-rivalrous goods) will, on the free market, be underproduced. This is normally taken to be an argument for government to produce public goods. See e.g. Gaus 2008: 84 ff.

[13] For example, according to Marxist communism, the ideal socialist society would comprise production for use, not for profit. See e.g. Marx 2004 [1867]: vol. 1 ch. 7. See also Kropotkin 1902, which is a defense of the general claim that humans will tend to be altruistic, at least in anarcho-communist systems.

[14] In a market-socialist system (cf. Schweickart 2011), it is possible to make capital goods and sell them at a profit that gets distributed to the laborers.

[15] By analogy, if I know that anyone in the neighborhood can use the magic wand, I might not invest my own time and money to maintain it. But if it’s mine alone, I care a lot more about maintaining it. This is the basis of the well-known ‘Tragedy of the Commons’ alleged problem. See, e.g., Hardin 1968.

[16] Kropotkin 1902.

[17] As before, in Schweickart’s (2011) system, firms will be motivated to protect capital if they must pay for capital’s deprecation, even though the capital is owned by society.

[18] By analogy, as noted, the wand-owner might make lots of money for basically doing no work. Sherman 1995: 130; Schweickart 2011: § 3.2.

[19] See e.g. Friedman 2002 for a collection of consequentialist arguments for capitalism, and Nozick 1974: chs. 3 and 7 for some arguments concerning freedom and capitalist systems.

[20] By analogy, the wand-owner might accumulate so much money as to start buying other magic wands and renting those out as well. See e.g. Piketty 2014.

[21] Taking the world as a whole, wealth in absolute terms has been increasing greatly, and global poverty has been decreasing steeply, including in countries that have moved in mostly capitalist directions. See e.g. World Bank Group 2016: 3. Friedman 1989: ch. 5 argues that capitalism is responsible for the improved position of the poor today compared to the past.

[22] See e.g. Friedman 1989: ch. 7 for a discussion of regulatory capture.

[23] Friedman 2002: chs. IV and IX; Friedman 1989: ch. 4.

[24] By analogy, the person I’ve hired to use the wand might need to obey my orders, because they don’t have a wand of their own to rent out, and they might starve without the job I’ve offered them. Marx 2009 [1932] introduces and develops this concept of alienation. See Dan Lowe’s 2015 Karl Marx’s Conception of Alienation for an overview. See also Anderson 2015 for an argument that private corporations coercively violate their workers’ freedom.

[25] See n. 21 above. This result is most-obvious in countries in which dictators enrich themselves, but there is nothing in principle preventing rulers of ostensibly democratic countries from doing so as well. Presumably this worry explains the presence of the Emoluments Clause in the U. S. Constitution.

[26] See n. 14.

[27] See e.g. Friedman 2002: chs. III and V and the example of compliance costs for regulations.

[28] See Huemer 2013: ch. 6 ff.

[29] All or nearly all large-scale economies have been mixed economies. In contrast, a pure capitalism would be an anarcho-capitalism (see e.g. Gaus 2010: 75 ff. and Huemer 2013), and a pure socialism wouldn’t permit people to privately own scissors. See also the entry “Defining Capitalism and Socialism.”

Anderson, Elizabeth. 2015. Private Government: How Employers Rule Our Lives (and Why We Don’t Talk about It) . Princeton, NJ: Princeton University Press.

Arnold, Samuel. N. d. “Socialism.” In The Internet Encyclopedia of Philosophy (ed.), The Internet Encyclopedia of Philosophy , URL = < https://www.iep.utm.edu/socialis/ >

Burawoy, Michael. 1979. Manufacturing Consent: Changes in the Labor Process under Monopoly Capitalism . Chicago, IL and London, UK: The University of Chicago Press.

Cohen, G. A. 2009. Why Not Socialism? Princeton, NJ: Princeton University Press.

Cowen, Tyler. 2008. “Public Goods.” In David R. Henderson (ed.), The Concise Encyclopedia of Economics . Indianapolis, IN: Liberty Fund.

Dagger, Richard and Terence Ball. 2019. “Socialism.” In Encyclopædia Britannica, inc. (ed.), E ncyclopædia Britannica . Retrieved from https://www.britannica.com/topic/socialism

Dahl, Robert A. 1993. “Why All Democratic Countries have Mixed Economies.” Nomos 35: 259-82.

Dictionary.com. N.d. “Capitalism.” URL = < https://www.dictionary.com/browse/capitalism >

Editors of Encyclopædia Britannica. 2019. “Henri de Saint-Simon.” In Encyclopædia Britannica , Retrieved from https://www.britannica.com/biography/Henri-de-Saint-Simon

Friedman, David D. 1989. The Machinery of Freedom: Guide to a Radical Capitalism , Second Edition. La Salle, IL: Open Court Publishing Company.

Friedman, Milton. 2002. Capitalism and Freedom . Chicago, IL: University of Chicago Press.

Friedman, Milton and Rose Friedman. 1979. Free to Choose: A Personal Statement . New York, NY: Harcourt Brace.

Gaus, Gerald. 2010. “The Idea and Ideal of Capitalism.” In George G. Brenkert and Tom L. Beauchamp (eds.), The Oxford Handbook of Business Ethics . New York, NY: Oxford University Press.

Gaus, Gerald. 2008. On Philosophy, Politics, and Economics . Belmont, CA: Thomson Wadsworth.

Gilabert, Pablo and Martin O’Neill. 2019. “Socialism.” In E. N. Zalta (ed.), The Stanford Encyclopedia of Philosophy . Retrieved from https://plato.stanford.edu/entries/socialism/ .

Hardin, Garrett. 1968. “The Tragedy of the Commons.” Science 162(3859): 1243-48.

Herzog, Lisa. 2019. “Markets.” In E. N. Zalta (ed.), The Stanford Encyclopedia of Philosophy , Spring 2019 Edition, URL =https://plato.stanford.edu/archives/spr2019/entries/markets/

Huemer, Michael. 2013. The Problem of Political Authority: An Examination of the Right to Coerce and the Duty to Obey . Houndmills, UK and New York, NY: Palgrave Macmillan.

Investopedia. 2019. “Mixed Economic System.” Retrieved from https://www.investopedia.com/terms/m/mixed-economic-system.asp

Kropotkin, P. 1902. Mutual Aid: A Factor of Evolution . New York, NY: McClure Phillips & Co.

Kropotkin, Peter. 2015 [1913]. The Conquest of Bread. London, UK: Penguin Classics.

Lowe, Dan. 2015. “Karl Marx’s Conception of Alienation.” 1000-Word Philosophy . Retrieved from https://1000wordphilosophy.com/2015/05/13/karl-marxs-conception-of-alienation/.

Marx, Karl. 2009 [1932]. “Economic and Philosophic Manuscripts of 1844.” In Karl Marx and Friedrich Engels, Economic and Philosophic Manuscripts of 1844 and the Communist Manifesto , tr. Martin Milligan (Amherst, NY: Prometheus Books), pp. 13-202.

Marx, Karl. 2004 [1867]. Capital: A Critique of Political Economy, Volume One . New York, NY: Penguin Classics.

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Tom Metcalf is an associate professor at Spring Hill College in Mobile, AL. He received his PhD in philosophy from the University of Colorado, Boulder. He specializes in ethics, metaethics, epistemology, and the philosophy of religion. Tom has two cats whose names are Hesperus and Phosphorus. shc.academia.edu/ThomasMetcalf

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Essay Capitalism vs Communism

More From Forbes

Capitalism versus communism: who's winning the 100-year war.

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Below are observations by noted economist Mark Skousen prompted by Forbes ’ 100 th anniversary. Skousen is a Presidential Fellow at Chapman University, editor of Forecasts & Strategies  and a former columnist for Forbes (1995–2001). 

“No system has been as effective as capitalism in turning scarcity into abundance.  Democratic capitalism, as a system, is more humane than government-dominated command-and-control economies.” -- Steve Forbes

One of the curiosities of financial history is that 1917 saw the birth of both Forbes , America’s first business magazine, and the Bolshevik Revolution that launched the anticapitalist movement of Marxism/Leninism.

The centennial event is not unlike a modern-day version of Job in the Old Testament, who was blessed with wealth and then tested by the devil. Similarly, after seeing the flowering of free enterprise and the flourishing of his faithful servant B.C. Forbes, God allowed the devil to test the invisible hand of market capitalism with its greatest threat, the spread of communism and the Soviet socialist central planning model throughout the world during the 20 th century. Like Job, Forbes’ brand of heroic capitalism would ultimately withstand the test and win this war, but not without a great deal of human suffering. At one point almost a third of the world’s population lived under the cruel yoke of communist rule.

Ronald Reagan, SF and Mikhail Gorbachev at Forbes' 75th anniversary celebration.

Three generations of Forbeses have been at the magazine’s helm and participated in the intensive battle of ideologies between capitalism and communism.

--Treason in the Textbooks. Founder B.C. Forbes lived largely in an era when capitalism was on the defensive. Socialism and Nazism were all the rage during the Great Depression, especially on college campuses. During the late 1930s, B.C. Forbes became embroiled in a nationwide fight over high school textbooks written by “radical professor” Howard Rugg of the Teacher’s College at Columbia. This was the era of “progressive” education under John Dewey and other like-minded educators who encouraged students to question the old-fashioned patriotism of the past and the view that America is the “land of opportunity” for all.

B.C. took a seat on his local school board in Englewood, N.J. in order to rid classrooms of what he felt were “communist-inspired” textbooks. Forbes said that the Rugg books were “shot through … with the kind of propaganda championed by the Communists.” He wrote, “If I were a youth, I would be converted by reading these Rugg books to the belief that our whole American system, our whole American form of government, is wrong, that the framers of our Constitution were mostly a bunch of selfish mercenaries, that private enterprise should be abolished, and that we should set up Communistic Russia as our model.” B.C. and his followers were largely successful in their cause, and by 1943 most of Rugg’s textbooks were no longer used in American classrooms.

--Malcolm Forbes: Happy Warrior for Capitalism! Malcolm Forbes (MSF), representing the second generation running the magazine, took a more positive approach during the Cold War era. After having run for the N.J. governorship twice (unsuccessfully) in the 1950s, MSF gave up his political ambitions and became a happy warrior for capitalism. But instead of attacking it directly, he began a campaign promoting the idea that capitalism is a better system than communism.

How do you get rid of a bad idea?  With a better idea!  MSF did this by promoting Forbes as a “punchy, highly profitable, easy-to-read, mass-circulation business magazine devoted to money, wealth and success,” to quote Forbes biographer Arthur Jones. It worked, as Forbes surpassed rivals Business Week and Fortune  as the world's most influential business magazine.

Malcolm Forbes exuberantly and unapologetically promoted entrepreneurial capitalism. His collections of Fabergé eggs, motorcycles and hot-air balloons; the money-green-and-gold jet, the “Capitalist Tool;” and the constant entertaining of current and potential advertisers on the yacht, The Highlander , made Forbes not only a great journalistic and commercial powerhouse but also the symbol of entrepreneurial success.

MSF countered the challenge of Russian leader Nikita Khrushchev by, in essence, saying: “We capitalists will bury you!”

To counterbalance Mao’s “little red book,” MSF published his own little green version, The Sayings of Chairman Malcolm . He was also the first person to free-fly in a hot-air balloon in China in 1982, defying flight restrictions placed on him by Communist officials.

MSF’s revolutionary capitalism campaign achieved the ultimate triumph in November 1989, when the Berlin Wall was torn down.

--“Capitalism Will Save Us!” Steve Forbes took over the reins in 1990, when his father died of a heart attack. Steve has successfully managed the difficulties of the “creative-disruption” era of economic freedom. When Mikhail Gorbachev engineered his own anticommunist revolution in Russia, the former Russian leader became a private citizen. In May 1992 Gorbachev decided to take a two-week tour of the U.S. Steve made the company jet, the “Capitalist Tool,” available to Gorbachev and his aides, flying them around the country, which included stops at the Chicago Mercantile Exchange and the NYSE, not to mention Radio City Music Hall, where Steve introduced Mr. Gorbachev and Ronald Reagan to a crowd gathered to celebrate Forbes magazine’s 75 th anniversary.

Throughout his career as editor-in-chief, Steve Forbes has championed the benefits of low taxes, sound money and sensible government regulation over heavy-handed government regulation.  Neither Keynesianism nor socialist central planning promised any lure, even during the financial crisis of 2008–09.  “Only a dynamic, entrepreneurial private sector is capable of producing the [necessary] growth and prosperity.  Government command-and-control economics simply can’t do it,” he concluded in How Capitalism Will Save Us (Crown Business, 2009).

Since 1917, we’ve witnessed a running war between these two major forces of political ideology. At times Forbes magazine barely survived the onslaught from its enemies, but it has ultimately been able to conquer the boom-bust publishing business cycle and the foes of economic liberty. At this year’s FreedomFest Steve Forbes declared victory:  “The spirit of capitalism lives on,” he stated triumphantly. William Baldwin, the former editor of Forbes, said it best, “Capitalism and Forbes have outlived the Bolshevik Revolution.”

--Mark Skousen

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Why Capitalism Is Superior To Communism

Capitalism vs communism is one of the most important debates of the century. It has caused a Cold War and indirectly put someone on the moon but it should not even be a debate at all. Capitalism is unquestionably superior to communism.

Capitalism is more stable than communism. Communism is completely reliant on government. This means that if the government ever becomes corrupt, the economy does as well. The free market of capitalism ,however, is free from government influence. In other words, because the industry is private, even if the government becomes corrupt, the industry is unaffected. For example, if the government wants to stop funding public schools, private education is still available. One may argue that businesses are only concerned with profit rather than public good. This argument is invalid because of the simple fact that it is profitable to be concerned with the public good. Whoever has the most helpful product will make the most sales. In communism ,however, the government can stop funding education and as a result, people will just be uneducated. Even if the government does care for the public it can't react nearly as quickly as business can to public need.

Capitalism is more efficient than communism. When there is demand in communism, the government provides the supply. This is slow and involves lots of red tape. The government might even consider the demand arbitrary because they do not profit from it. Conversely, in a capitalist model, when there is a demand it is immediately profitable to be the first to supply. Business will literally race to meet this demand. For example, in 2017there was a solar eclipse. As soon as there was news of that, stores started stocking up. Knowing that they were going to make millions of sales on a product that would almost never sell in other circumstances. On the flip side, people who would normally need to search for eclipse glasses will suddenly be able to find them at any store they go into. The people benefit and so does business. A counter-argument to this is that, because communist nations tend to be totalitarian, a dictator could just order to stock up on a product. First of all, why would a dictator care about products such as solar eclipse glasses? Secondly, people would need to go to a government facility to get a product which would be much less efficient than going to your local department store. Lastly, because there is no competition, the government will take its own sweet time with distribution.

Capitalist values and ideals are better and more realistic. Communist ideology revolves around the idea that equality is all important. Ironically in communism everyone is under the government. Generally you are very poor or you work in the government. If you were to ignore the government and just focus on the masses, yes everyone is equal, but is it worth it. If everyone is equal that means that no one is rich. A fitting analogy is, if the world is on the brink of destruction, either everyone dies, or a select few get to escape. It would not be equal at all for humans to survive. Which is the better option, equality or the continuation of the human race. In a communist society there are none of the amenities of capitalism. In a capitalist society at least some people would be able to access these goods. In a communist society, they would be utterly nonexistent and labeled as bourgeoise. One could argue that material wealth is not the most important thing. That’s reasonable, but how could one not care about material wealth and still care about material inequality. Everyone in poverty in capitalism is free from the material possession that is "unrelated to happiness" after all.

Capitalism is overall better than communism because it is a more stable, efficient, and righteous system. There are very few functioning communist societies in the world, but Marx predicted that revolution would come from within a capitalist society. People should be reaffirmed that Capitalism is the greater option, or it might be the October Revolution all over again.

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Socialism vs. Capitalism: What Is the Difference?

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Socialism and capitalism are the two main economic systems used in developed countries today. The main difference between capitalism and socialism is the extent to which the government controls the economy.

Key Takeaways: Socialism vs. Capitalism

• Socialism is an economic and political system under which the means of production are publicly owned. Production and consumer prices are controlled by the government to best meet the needs of the people.
• Capitalism is an economic system under which the means of production are privately owned. Production and consumer prices are based on a free-market system of “supply and demand.”
• Socialism is most often criticized for its provision of social services programs requiring high taxes that may decelerate economic growth.
• Capitalism is most often criticized for its tendency to allow income inequality and stratification of socio-economic classes.

Socialist governments strive to eliminate economic inequality by tightly controlling businesses and distributing wealth through programs that benefit the poor, such as free education and healthcare. Capitalism, on the other hand, holds that private enterprise utilizes economic resources more efficiently than the government and that society benefits when the distribution of wealth is determined by a freely-operating market.

The United States is generally considered to be a capitalist country, while many Scandinavian and Western European countries are considered socialist democracies. In reality, however, most developed countries—including the U.S.—employ a mixture of socialist and capitalist programs.

Capitalism Definition

Capitalism is an economic system under which private individuals own and control businesses, property, and capital—the “means of production.” The volume of goods and services produced is based on a system of “ supply and demand ,” which encourages businesses to manufacture quality products as efficiently and inexpensively as possible.

In the purest form of capitalism— free market or laissez-faire capitalism—individuals are unrestrained in participating in the economy. They decide where to invest their money, as well as what to produce and sell at what prices. True laissez-faire capitalism operates without government controls. In reality, however, most capitalist countries employ some degree of government regulation of business and private investment.

Capitalist systems make little or no effort to prevent income inequality . Theoretically, financial inequality encourages competition and innovation, which drive economic growth. Under capitalism, the government does not employ the general workforce. As a result, unemployment can increase during economic downturns . Under capitalism, individuals contribute to the economy based on the needs of the market and are rewarded by the economy based on their personal wealth.

Socialism Definition 

Socialism describes a variety of economic systems under which the means of production are owned equally by everyone in society. In some socialist economies, the democratically elected government owns and controls major businesses and industries. In other socialist economies, production is controlled by worker cooperatives. In a few others, individual ownership of enterprise and property is allowed, but with high taxes and government control. 

The mantra of socialism is, “From each according to his ability, to each according to his contribution.” This means that each person in society gets a share of the economy’s collective production—goods and wealth—based on how much they have contributed to generating it. Workers are paid their share of production after a percentage has been deducted to help pay for social programs that serve “the common good.” 

In contrast to capitalism, the main concern of socialism is the elimination of “rich” and “poor” socio-economic classes by ensuring an equal distribution of wealth among the people. To accomplish this, the socialist government controls the labor market, sometimes to the extent of being the primary employer. This allows the government to ensure full employment even during economic downturns. 

The Socialism vs. Capitalism Debate  

The key arguments in the socialism vs. capitalism debate focus on socio-economic equality and the extent to which the government controls wealth and production.

Ownership and Income Equality 

Capitalists argue that private ownership of property (land, businesses, goods, and wealth) is essential to ensuring the natural right of people to control their own affairs. Capitalists believe that because private-sector enterprise uses resources more efficiently than government, society is better off when the free market decides who profits and who does not. In addition, private ownership of property makes it possible for people to borrow and invest money, thus growing the economy. 

Socialists, on the other hand, believe that property should be owned by everyone. They argue that capitalism’s private ownership allows a relatively few wealthy people to acquire most of the property. The resulting income inequality leaves those less well off at the mercy of the rich. Socialists believe that since income inequality hurts the entire society, the government should reduce it through programs that benefit the poor such as free education and healthcare and higher taxes on the wealthy. 

Consumer Prices

Under capitalism, consumer prices are determined by free market forces. Socialists argue that this can enable businesses that have become monopolies to exploit their power by charging excessively higher prices than warranted by their production costs. 

In socialist economies, consumer prices are usually controlled by the government. Capitalists say this can lead to shortages and surpluses of essential products. Venezuela is often cited as an example. According to Human Rights Watch, “most Venezuelans go to bed hungry.” Hyperinflation and deteriorating health conditions under the socialist economic policies of President Nicolás Maduro have driven an estimated 3 million people to leave the country as food became a political weapon. 

Efficiency and Innovation 

The profit incentive of capitalism’s private ownership encourages businesses to be more efficient and innovative, enabling them to manufacture better products at lower costs. While businesses often fail under capitalism, these failures give rise to new, more efficient businesses through a process known as “creative destruction.” 

Socialists say that state ownership prevents business failures, prevents monopolies, and allows the government to control production to best meet the needs of the people. However, say capitalists, state ownership breeds inefficiency and indifference as labor and management have no personal profit incentive. 

Healthcare and Taxation 

Socialists argue that governments have a moral responsibility to provide essential social services. They believe that universally needed services like healthcare, as a natural right, should be provided free to everyone by the government. To this end, hospitals and clinics in socialist countries are often owned and controlled by the government. 

Capitalists contend that state, rather than private control, leads to inefficiency and lengthy delays in providing healthcare services. In addition, the costs of providing healthcare and other social services force socialist governments to impose high progressive taxes while increasing government spending, both of which have a chilling effect on the economy. 

Capitalist and Socialist Countries Today 

Today, there are few if any developed countries that are 100% capitalist or socialist. Indeed, the economies of most countries combine elements of socialism and capitalism.

In Norway, Sweden, and Denmark—generally considered socialist—the government provides healthcare, education, and pensions. However, private ownership of property creates a degree of income inequality. An average of 65% of each nation’s wealth is held by only 10% of the people—a characteristic of capitalism.

The economies of Cuba, China, Vietnam, Russia, and North Korea incorporate characteristics of both socialism and communism .

While countries such as Great Britain, France, and Ireland have strong socialist parties, and their governments provide many social support programs, most businesses are privately owned, making them essentially capitalist.

The United States, long considered the prototype of capitalism, isn’t even ranked in the top 10 most capitalist countries, according to the conservative think tank Heritage Foundation. The U.S. drops in the Foundation’s Index of Economic Freedom due to its level of government regulation of business and private investment.

Indeed, the Preamble of the U.S. Constitution sets one the nation’s goals to be “promote the general welfare.” In order to accomplish this, the United States employs certain socialist-like social safety net programs , such as Social Security, Medicare, food stamps , and housing assistance.

Contrary to popular belief, socialism did not evolve from Marxism . Societies that were to varying degrees “socialist” have existed or have been imagined since ancient times. Examples of actual socialist societies that predated or were uninfluenced by German philosopher and economic critic Karl Marx were Christian monastic enclaves during and after the Roman Empire and the 19th-century utopian social experiments proposed by Welsh philanthropist Robert Owen. Premodern or non-Marxist literature that envisioned ideal socialist societies include The Republic by Plato , Utopia by Sir Thomas More, and Social Destiny of Man by Charles Fourier. 

Socialism vs. Communism

Unlike socialism, communism is both an ideology and a form of government. As an ideology, it predicts the establishment of a dictatorship controlled by the working-class proletariat established through violent revolution and the eventual disappearance of social and economic class and state. As a form of government, communism is equivalent in principle to the dictatorship of the proletariat and in practice to a dictatorship of communists. In contrast, socialism is not tied to any specific ideology. It presupposes the existence of the state and is compatible with democracy and allows for peaceful political change.

Capitalism 

While no single person can be said to have invented capitalism, capitalist-like systems existed as far back as ancient times. The ideology of modern capitalism is usually attributed to Scottish political economist Adam Smith in his classic 1776 economic treatise The Wealth of Nations. The origins of capitalism as a functional economic system can be traced to 16th to 18th century England, where the early Industrial Revolution gave rise to mass enterprises, such as the textile industry, iron, and steam power . These industrial advancements led to a system in which accumulated profit was invested to increase productivity—the essence of capitalism.

Despite its modern status as the world’s predominant economic system, capitalism has been criticized for several reasons throughout history. These include the unpredictable and unstable nature of capitalist growth, social harms, such as pollution and abusive treatment of workers, and forms of economic disparity, such as income inequality . Some historians connect profit-driven economic models such as capitalism to the rise of oppressive institutions such as human enslavement , colonialism , and imperialism .

Sources and Further Reference

• “Back to Basics: What is Capitalism?” International Monetary Fund , June 2015, https://www.imf.org/external/pubs/ft/fandd/2015/06/basics.htm.
• Fulcher, James. “Capitalism A Very Short Introduction.” Oxford, 2004, ISBN 978-0-19-280218-7.
• de Soto, Hernando. The Mystery of Capital.” International Monetary Fund , March, 2001, https://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm.
• Busky, Donald F. “Democratic Socialism: A Global Survey.” Praeger, 2000, ISBN 978-0-275-96886-1.
• Nove, Alec. “The Economics of Feasible Socialism Revisited.” Routledge, 1992, ISBN-10: 0044460155.
• Newport, Frank. “The Meaning of ‘Socialism’ to Americans Today.” Gallup , October 2018), https://news.gallup.com/opinion/polling-matters/243362/meaning-socialism-americans-today.aspx.
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Events, news & press, capitalism vs. socialism.

Over the last century countries have experimented with variations on both capitalism and socialsm. So how do socialism, capitalism, and their many variants compare?

From economic shutdowns to trillions of dollars in new government spending, the 2020 COVID-19 pandemic led to a dramatic increase in government action. While much of the increase was temporary, there is now a growing desire to further expand government. We see calls for single-payer health care systems, expanded child-care subsidies, and trillions of dollars in federal infrastructure investments.

Arguments about what government should and should not do are not new. We regularly see them in the debates over the merits of socialism versus free market capitalism. While these debates are often in the abstract, over the last century countries have experimented with variations on both economic systems. The  Hoover Institution’s Human Prosperity Project  critically examined many of these experiments to see which economic system is best for human flourishing. The video below describes the project’s objectives:

So how do socialism, capitalism, and their many variants compare?

Part 2: How do socialism and capitalism affect income and opportunities?

Delivering broad-based prosperity should be the primary goal of all economic systems, but not all systems deliver the same results. Supporters of capitalism argue that free markets give people—entrepreneurs, investors, and workers—the right incentives to create goods and services that people value. The result is higher standards of living. Those sympathetic to socialism, however, respond that capitalism may produce wealth for some, but without government involvement in the economy many are left behind.

In his Human Prosperity Project essay  Socialism, Capitalism, and Income  economist Edward Lazear analyzed decades of income trends across 162 countries. He studied how incomes for low and high earners changed as countries shifted from government-controlled economies to more market-oriented economies. His conclusion?

The historical record provides evidence on how countries have fared under the two extreme systems as well as under intermediate cases, where countries adopt primarily private ownership and economic freedom but couple that with a large government sector and transfers. The general evidence suggests that both across countries and over time within a country, providing more economic freedom improves the incomes of all groups, including the lowest group.

Lazear points to several specific examples. First, China: in the 1980s, the Chinese Communist government began to adopt market-based reforms. Lazear finds that the market reforms, as skeptics of capitalism would predict, did increase income inequality. But, more importantly, the market reforms lifted millions of people out of poverty. Lazear notes:

Today, the poorest Chinese earn five times as much as they did just two decades earlier. Throughout the 1980s and before, a large fraction of the Chinese population lived in abject poverty. Today’s poor in China remain poor by developed-country standards, but there is no denying that they are far better off than they were even two decades ago. Indeed, the rapid lifting of so many out of the worst state of poverty is likely the greatest change in human welfare in world history.

As the video below highlights, market reforms led to similar economic miracles in India, Chile, and South Korea:

Part 3: What about mixed economies?

Of course, most modern-day critics of capitalism are not advocating for complete government control over the economy. They don’t want the economic policies of the Soviet Union or early Communist China; instead, they point to nations with mixed economies to emulate, such as those featuring social democracy. So how do these policies affect incomes and opportunities?

Economist Lee Ohanian compares the labor market policies of Europe and the United States in his essay The Effect of Economic Freedom on Labor Market Efficiency and Performance . Compared to the United States, European nations have higher minimum wages, stricter rules that prevent the firing of workers, and high rates of unionization. These rules are intended to protect workers, but Ohanian finds that they discourage employment and result in lower compensation rates. His analysis indicates:

These findings have important implications for economic policy making. They indicate that policies that enhance the free and efficient operation of the labor market significantly expand opportunities and increase prosperity. Moreover, they suggest that economic policy reforms can substantially improve economic performance in countries with heavily regulated labor markets and high tax rates.

The video below highlights some of Ohanian’s key findings:

What about the effects of income redistribution and the taxes that pay for it? Supporters argue that these programs keep people out of poverty. Critics, however, argue that financing these systems comes with high costs both to taxpayers and to recipients.

In their essay Taxation, Individual Actions, and Economic Prosperity: A Review , Joshua Rauh and Gregory Kearney consider the effects of raising tax rates on high-income Americans to finance new government spending. They examine the effects of income and wealth taxes in Europe. They find that wealth taxes and high income tax rates discourage high-income filers from investing in a country, which ultimately reduces economic growth. Thus, calls in the United States to increase income and wealth taxes “come despite a body of evidence showing that the country is already one of the more progressive tax regimes in the world, that wealth confiscation results in worse outcomes for the broader economy.”

The long-term consequences of redistribution don’t fall just on taxpayers. Such transfer systems also create incentives for individuals to leave or stay out of the work force. In their contribution to the Human Prosperity Project , economist John Cogan and Daniel Heil consider the effects of Universal Basic Income (UBI) programs, which would provide a “no-strings-attached” cash benefit to families. They find that modern UBI proposals in the United States would either prove costly—requiring tax rates that would reduce incentives to work and invest—or would require steep phase-out provisions that punish recipients who try to re-enter the workforce. In either case, the result is that UBI programs are likely to reduce employment rates, ultimately depriving recipients of long-term economic opportunities.

Part 4: What about other aspects of human flourishing?

Human flourishing is more than material prosperity. For example, it requires a clean environment and access to good health care.

It might seem that socialist economies—where government controls the means of production—would have better environmental track records. Yet the evidence suggests the opposite. In his essay Environmental Markets vs. Environmental Socialism: Capturing Prosperity and Environmental Quality Economist , Terry Anderson summarizes the literature on economic systems’ effects on the environment. He points to research showing that countries with more economic freedom tend to have better environmental outcomes:

Seth Norton calculated the statistical relationship between various freedom indexes and environmental improvements. His results show that institutions—especially property rights and the rule of law—are key to human well-being and environmental quality. Dividing a sample of countries into groups with low, medium, and high economic freedom and similar categories for the rule of law, Norton showed that in all cases except water pollution, countries with low economic freedom are worse off than those in countries with moderate economic freedom, while in all cases those in countries with high economic freedom are better off than those in countries with medium economic freedom. A similar pattern is evident for the rule-of-law measures.

Anderson explains this surprising result with the adage that “no one washes a rental car.” In free-market societies, property rights give individuals incentive to protect and preserve the resources they own. In countries without these property rights provisions, no one has the right incentives, much like no one has the incentive to wash a rental car (except the rental car companies). The video below further explains why free markets and cleaner environments go hand and hand.

What about health care? Many developed nations that have generally free economies have still opted for government-run health care. The programs vary by country. Even in the United States, the government plays a large role in health care. Large government programs such as Medicare and Medicaid provide health care to low-income families, the disabled, and seniors. Nevertheless, relative to most developed nations, the United States relies far more heavily on the private sector and markets.

In his essay  The Costs of Regulation and Centralization in Health Care  Dr. Scott Atlas compares health care in the United States with that in other developed nations. The United States consistently ranks high across a variety of quality metrics. The system offers shorter wait times and faster access to life-saving drugs and medical equipment. The result is that the US system tends to deliver better medical outcomes than other developed nations. Watch this video to learn more:

Part 5: Conclusion

We’ve seen that whether we look at income statistics or environmental outcomes, economies with freer markets tend to have better outcomes. Nevertheless, there still may be unseen dimensions of economic systems that these statistics don’t address. Is there another way to determine which system is best for human flourishing?

Perhaps the best method is to observe where people choose to live when offered the choice. In his essay  Leaving Socialism Behind: A Lesson from German History ,  Russell Berman catalogues widespread immigration from East Germany to West Germany during the Cold War. Watch this video to learn its causes:

Citations and Additional Reading

• Why did liberal democracies succeed while communist nations failed in the twentieth century? Hoover Institution senior fellow Peter Berkowitz provides an answer in his essay  Capitalism, Socialism, and Freedom .
• In his essay  Socialism vs. The American Constitutional Structure: The Advantages of Decentralization and Federalism , John Yoo highlights the constitutional provisions that would make it difficult for the United States to adopt widescale socialist policies.
• Explore the other Human Prosperity Project essays  here .

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Sat / act prep online guides and tips, the 9 key capitalism vs socialism differences, explained.

General Education

Capitalism vs socialism is often framed as the major political face-off of our time. People often think of capitalism vs socialism as two totally opposite political ideologies. But are they really completely different systems? And should we compare capitalism and socialism at all? 

Here’s the facts: it does make sense to compare capitalism and socialism because they’re the main economic systems used in developed countries today. But to truly understand the differences between capitalism and socialism, we have to look to unbiased sources . These terms refer to complex philosophies that can’t be summed up by a meme, stereotype, or hot take! 

Capitalism vs socialism can be a complex topic, which is why we’re here to help you gain an objective understanding of capitalism vs socialism. In this article, we’ll provide a full guide to capitalism vs socialism that includes the following: 

• A deep dive into socialism, and a deep dive into capitalism
• A guide to the differences between democratic socialism vs capitalism
• A socialism vs capitalism chart with side-by-side comparisons
• A brief comparison of these concepts and other political theories, particularly capitalism vs socialism vs communism

Let’s get started!

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Capitalism vs Socialism: What’s the Difference?

Capitalism is an economic system in which the means of production are under private ownership, rather than government control. The means of production generally refers to entrepreneurship, capital goods, natural resources, and labor. Capitalism depends on a free market economy driven by supply and demand. 

In simplest terms, socialism is an umbrella term for types of economic systems that aim to eradicate inequality through shared ownership. To socialists, wealth should belong to the  workers who make the products, rather than groups of private owners. In practice, this means that the means of production are run and controlled by the government, which represents the will of the people.

As such, socialism is ultimately designed to increase social justice and equality regardless of class, race, or other socioeconomic factors . 

As models for economic systems, the primary difference between capitalism and socialism is the extent to which the government controls the economy. Capitalists believe that private enterprise, or privately owned business, is better at using economic resources. Asa result, capitalism argues that private business is what facilitates equitable distribution of wealth through a free market. In contrast, socialists believe that income inequality is most effectively managed through tight control of businesses and redistribution of wealth through social programs that are run by the government, such as free healthcare, education, and housing.

At first glance, capitalism and socialism might seem entirely incompatible. The truth is, most developed countries today implement some combination of capitalist and socialist practices in their economic structure and domestic policy. To help you understand how capitalism and socialism can be integrated in practice, we’ll do a deep dive into both socialism and capitalism, starting with socialism, next. 

What Is Socialism?

We’ve covered the core differences between capitalism vs socialism, so let’s take a closer look at socialism next. Below, we’ll give you a more comprehensive definition of socialism, go over the history of the term, explain democratic socialism vs capitalism, and provide some examples of socialist governments today . 

Because socialism and communism are often easily confused, we’ll also touch on capitalism vs socialism vs communism.

Socialism: Overview and Definition

Socialism is a social, economic, and political doctrine that calls for collective ownership of a society’s means of production. The main goal of socialism is to eliminate socioeconomic classes by ensuring equal distribution of wealth among the people. To accomplish this, a socialist government--which is elected by the people--has control over the country’s economy, including major businesses and industries and the labor market. At its core, socialism is designed to eliminate inequality through government regulation.

The word “socialism” comes from the Latin sociare, which means to combine or to share. But the modern term “socialism” didn’t appear until the 19th century. French philosopher and revolutionary Henri de Saint-Simon coined the term in his writings about the  abuses of the capitalist system and the  Industrial Revolution. 

The thing to keep in mind about socialism is that it’s a blanket term that covers a wide variety of socialist ideas, practices, and theories. In his 1924 encyclopedia of socialism, historian Angelo Rappoport identified forty different definitions of socialism. This is why it’s tough to pin down a universal definition of socialism today. 

As an economic system and political theory, socialism has been applied in many different countries in many different ways . For example, communism is at its heart a form of socialism because it argues that everything in a society should be collectively owned and distributed to each according to their needs. But democratic socialism--which can combine capitalist and socialist ideologies--is also a type of socialism! 

Having said that, socialism is almost always employed as a critique of some aspect of capitalism . In some cases, socialism is also employed to replace capitalism. In most cases, though, socialism and capitalism are used together so that each ideology can make up for the other’s shortcomings. 

History of Socialism

Socialism was first used to criticize capitalist systems at the height of the Industrial Revolution in the 19th century. Henri de Saint-Simon and other prominent French philosophers were the first to critique the poverty and inequality of industrialized capitalism, and socialist thinkers advocated the transformation of society into small communities without private property. 

Socialism gained international recognition at the end of the 19th century. It was during this time that the movement became more oriented toward revolutionary thinking . This strain of socialist thought is largely attributed to the work of German philosophers Karl Marx and Friedrich Engels . In 1848, Marx and Engels wrote and dispersed a pamphlet called The Communist Manifesto detailing their ideas about socialism . 

According to the Communist Manifesto, socialism must eventually evolve into a more advanced system: communism . In the communist form of socialism as described by Marx and Engels (called Marxism), there would be no state, no money, and no social classes. Essentially, communism argues that private enterprise shouldn’t exist, and that the public (through the government) should own all the means of production in a society. 

This means that when socialism evolves into communism, it is fundamentally incompatible with capitalism . That’s because communism argues everything should be owned by the people and managed by government, whereas capitalism believes that economies should be run on private enterprise, which is controlled by individuals and not the government.This is why capitalism vs socialism vs communism can often be confusing. Just remember: the key difference between socialism and communism is that communism seeks to eliminate capitalism. But communism is just one type of socialism, and many other forms of socialism can be integrated into a capitalist economy. 

Marx and Engels helped popularize socialism, and in the 20th century, the first socialist governments appeared . The first mass party in Latin America, the Socialist Party of Argentina, was established in the 1890s, and in 1902, the British Labour Party won its first seats in Parliament. These elections of socialist politicians ushered in a new era of political legitimacy for the socialist movement. 

More radical forms of socialism emerged following World War I . In 1917, the Bolshevik Revolution occurred in Russia, led by philosopher Vladimir Lenin . Lenin and the Bolshevik faction of socialists overthrew the Russian monarchy and installed the first ever constitutionally socialist state, known as the Russian Socialist Federative Soviet Republic. Socialists who embrace Lenin’s methods today are most often referred to as communists.

By the 1920s, socialism in various forms had become the dominant secular movement on a global scale. That’s not to say that most governments were “socialist,” but they had definitely begun incorporating socialist ideas into their political policies. As socialism became more accepted, new forms of socialism continued to emerge, including the most common forms of socialism today: social democracy and democratic socialism. 

Bernie Sanders is the most well-known proponent of democratic socialism in the United States. (Secret-Name101/WikiMedia) 

Democratic Socialism vs Capitalism

Democratic socialism brings three core concepts together: democracy , socialism, and capitalism. Generally speaking, democratic socialism co mbines the safety net of a socialist economy with the wealth creation of capitalism within a democratic system of government. 

Here’s what that means. First things first: the organizational structure of the government is a democracy. Every citizen of a country can vote in a free and fair election to elect officials to represent them in government. These officials then represent the will of the people that elected them. You can learn more about democracies (vs republics and other types of government) in this article. 

Democratic socialism also combines aspects of socialism and capitalism in terms of its political ideologies and economic systems. Under democratic socialism , the elements of society that provide for basic human needs--like healthcare, labor protections, and childcare--are owned collectively and run by the government. 

However, democratic socialism also embraces aspects of capitalism--usually in terms of economic structure. Democratic socialism recognizes the importance of private enterprise, especially in terms of building national wealth. When the two are combined, though, capitalism is more tightly regulated by the government. 

Examples of Socialist Governments Today

There are many different ways that a country can implement socialism today . Socialism is a broad category that encompasses multiple types of economic systems. It’s also compatible with various government systems. 

While there aren’t any purely socialist countries in the world today, there are nations that are categorized as communist by virtue of how much power the government has over social and economic systems. Those countries are: 

• China, or the People’s Republic of China
• Cuba, or Republic of Cuba
• Laos, or Lao People’s Democratic Republic
• Vietnam, or Socialist Republic of Vietnam
• North Korea, or Democratic People’s Republic of Korea

Most countries implement aspects of socialism that are compatible with their form of government and economy in order to create equality for all people. These countries tend to have prominent socialist or democratic socialist political parties. Having a socialist political party does not necessarily mean that a country “is socialist.” Most of the time, it just means that some aspects of a country’s domestic agenda are influenced by socialism. 

Some of the countries with very influential socialist parties include the following: 

• Denmark 
• Poland 
• South Korea
• United Kingdom
• Venezuela 

Because democratic socialism is such a popular topic today, let’s look more closely at one country that implements democratic socialism: Sweden.

Sweden adheres to the Nordic Model , which refers to the economic and social policies common to the Nordic countries of Denmark, Finland, Iceland, Norway, and Sweden. The Nordic Model in Sweden fits the description of democratic socialism for two main reasons: it supports a universalist welfare state to promote social mobility, but it remains committed  to a market-based economy that’s partially fueled by private enterprise.

Sweden’s democratic government provides free health care, education, and lifetime retirement income. As a result, their Swedish citizens pay some of the highest taxes in the world. A high percentage of Sweden’s workers belong to a labor union, and the country is ranked high for protection of workers’ rights because of its strong social partnership between employers, trade unions, and the government.

At the same time, Sweden has a mixed-market capitalist economic system and high degrees of private ownership. To regulate its capitalist economy, Sweden allows free trade combined with collective risk sharing. These measures provide a form of protection against the risks associated with economic openness.

In other words: the country combines socialism and capitalism! in order to ’s political ideology is socialist, but its economy is capitalist. 

Because the government meets most of their needs, the Swedish people aren’t very concerned with accumulating wealth. As of 2020, Sweden also ranks high on the Global Peace Index and is ranked in the top 10 on the World Happiness Report.

Many people associate capitalism with making money. That's because capitalism believes that privately owned businesses should be the bedrock of a national economy.

What Is Capitalism?

Now that we’ve covered socialism, let’s tackle capitalism next . Below, we’ll give you a comprehensive definition and history of capitalism, and we’ll provide some examples of capitalist governments today . 

Capitalism: Overview and Definition

Capitalism is an economic system in which the private sector owns most of the means of production . In a capitalist economy, the government plays a lesser role. The main goal of capitalism is to employ the means of production to make a profit and generate capital. To accomplish this, capitalism usually has a free market economy , which is based on supply and demand and limited government control. At its core, capitalism is designed to enable private entities, which are often corporations, to make a profit . 

The term capitalism is derived from the word “capital,” which evolved from the late Latin word capitale . Capitale is based on the Latin word caput , which means "head" and connotes something of value, such as money, property, or livestock. Capitale emerged in the 12th to 13th centuries to refer to funds, stocks of merchandise, sum of money, or money carrying interest. By 1283, it was used to describe the capital assets of a trading firm . By this time, capital was often used interchangeably with other words, including wealth, money, funds, goods, assets, and property.

In English language usage, the term “capitalism” first appears in author William Makepeace Thackeray’s 1854 novel, The Newcomes. In Thackeray’s novel, “capitalism” refers to “having ownership of capital.” Other initial usage of capitalism in the modern period employs the term to describe a new type of economy. In this economy, capital, or the source of income, doesn’t belong to the workers who generate it through labor. Instead, it belongs to the people who own the businesses and companies that pay for the labor. 

Also keep in mind that just like socialism, capitalism exists on a spectrum . But whereas types of socialism are often categorized by how much power a centralized government has, types of capitalism are usually defined by how free and unregulated the economy is. 

History of Capitalism

Capitalism developed out of systems of feudalism and mercantilism in Europe during the Renaissance. In these systems, capital existed in the form of simple commodity exchange and production. 

At the end of the 16th century, the economic foundations of the agricultural feudal system began to break down in England. Land and resources became concentrated in the hands of a few private owners, and the labor market became more competitive. The expanding system put pressure on owners and workers to increase productivity to make greater profits. By the early 17th century, feudalism was effectively replaced by a new centralized state and economic market in England.

Between the 16th and 18th centuries in England, an economic doctrine of mercantilism prevailed. Merchant traders explored foreign lands and engaged in trade for profit. Under the rule of Queen Elizabeth I, merchants were granted state support. Through subsidies and other economic incentives, merchants expanded commerce and trade and made profits by buying and selling goods. 

The continued growth of capitalism required specific technologies for mass production, which early feudalist societies and individual merchants didn’t have. These technologies became widely available during the Industrial Revolution, and those who owned them were called industrialists. Industrialists facilitated the development of factory systems and manufacturing . These systems required a complex division of labor and established the modern concept of the capitalist mode of production. 

The Industrial Revolution established the dominance of capitalism as an economic system in the western world. By the 19th century, capitalism had spread globally . And by the end of the 19th century, goods and information were able to circulate around the world at a whole new pace. This was due to technologies such as the telegraph, the steamship, and railway. But this growth also hinged on a large--and cheap--labor force. 

When the Great Depression had a global impact in the 1930s, socialist practices first entered into the capitalist economies of the world. By the end of World War II, governments began  regulating these open, capitalist markets. Welfare states emerged in capitalist countries during this time as well. Since then, there hasn’t been a purely capitalist system in the world. Today, most capitalist economies incorporate some form of socialist practice. 

Many countries embrace capitalism...even if they also implement socialist policies. One good example of this is the United Kingdom, which has strong social programs but still allows for a robust private sector.

Examples of Capitalism Governments Today

There are many types of capitalism in existence today. Different countries’ implementation of capitalism may feature different economic policies and institutional structures. However, at their core, all capitalist countries share a common element: they are primarily based on private ownership of the means of production, generating profit through production, market-based control of resources, and accumulation of capital. 

Today, there are over 100 countries that have a capitalist economy . Here are a few examples of countries have some form of a capitalist economy:

• Austria 
• Chile 
• Ireland 
• Japan 
• Mauritius 
• Netherlands 
• United States of America

It’s important to recognize that none of these countries implement pure capitalism . Instead, they implement a form of capitalism that may be combined with other types of economic markets or political ideologies, including socialism. Let’s look at an example of a capitalist economy to understand what capitalism looks like in practice next.

The United States has a democratic capitalist political-economic system . The U.S. economy is also referred to as a mixed market economy. This means that it has characteristics of both capitalism and socialism that are combined with a democratic system of government. 

In the form of capitalism implemented by the U.S., the means of production are based on private ownership and for-profit business. In other words: most businesses and services are privately owned, and those companies’ primary goal is to make money. But because the economy has regulations, taxation, and some subsidization, the U.S. can’t be considered a purely capitalist economy. 

Prior to World War II, the U.S. more closely resembled a truly free market . However, the government has always had some role in controlling the U.S. economy. Today, the U.S. government has partial control over education, physical infrastructure, healthcare, and postal deliveries. The government also provides subsidies to oil and financial companies and agricultural producers. While private businesses have a high degree of autonomy in the U.S., they are required to register with government agencies.

Some critics argue that the U.S. capitalist system serves the interests of a small percentage of the population, known as the one percent. Because of income inequality and intensifying class divisions in the U.S., many critics of capitalism advocate for the adoption of more socialist policies as a means to bridge that class divide . Two well-known advocates of increasing socialist policy in the U.S. are senator Bernie Sanders of Vermont and Alexandria Ocasio-Cortez of New York. 

Socialism vs Capitalism: Chart Comparison

We’ve covered a lot of info concerning capitalism vs socialism, so let’s condense things down to the core differences between capitalism and socialism next. 

Keep reading for a side by side comparison of capitalism and socialism in our chart below.

Fascism, Communism, and Marxism: A Quick Comparison 

Now that we’ve covered the differences between capitalism and socialism, let’s explain how they compare to other systems that they’re sometimes confused with. We’ll briefly clarify the differences between the socialist and capitalist systems and communism and fascism. 

Fascism vs Capitalism and Socialism

Fascism is a political ideology that supports authoritarianism and ultra-nationalism. Fascist states are ruled under dictatorships. They also suppress opposition by force and tightly control society and the economy. 

But how does fascism compare to socialism and capitalism? Socialism is generally considered incompatible with fascism. Socialism is liberally-minded and progressive, and it’s a relatively flexible ideology, whereas fascism is none of these things. In fact, because it is a far-right ideology, fascism opposes socialism. 

The relationship between capitalism and fascism is a little more complicated. Historically, fascism has sought to do away with capitalism because of its emphasis on autonomy and limited state control. However, fascism supports private ownership, wealth accumulation among private individuals, and a market economy. This means that fascism can support a very specific kind of capitalism, but capitalist economies are rarely fascist.

Communism vs Capitalism and Socialism

Let’s talk now about capitalism and socialism in relation to communism. Communism proposes a socioeconomic structure and political system that completely replaces a capitalist system with public ownership and communal control of the means of production. In communism, everything is collectively owned and private enterprise is eliminated. Because it seeks to eliminate money and social classes, communism is ultimately incompatible with capitalism.

However, socialism and communism are more closely related. In simplest terms, communism is a more revolutionary form of socialism , based on the ideology of Karl Marx. Socialism and communism share a core goal of placing power over the means of production in the hands of workers. Unlike communism, though, socialism is widely compatible with other forms of government. Forms of socialism can also be integrated into other economic systems, such as capitalism. 

Marxism vs Capitalism And Socialism 

You may also be wondering how Marxism relates to socialism and capitalism . Marxism is the political and economic theory proposed by Karl Marx and Friedrich Engels. Marxist theory was adapted by followers of Marx and Engels to articulate a specific approach to communism. This means that Marxism is a type of communism that incorporates socialist principles. Ultimately, socialism is a much broader concept than Marxism.

Marxism also addresses capitalism, though. In his book, Das Kapital, Karl Marx describes a capitalist mode of production. He is often credited as defining the modern concept of capitalism through his harsh critiques of it . He ultimately believed that capitalism would eventually stagnate, and socialism would take its place. 

What’s Next? 

If you want to learn more about how different governments work , check out our article on democracies versus republics.

The U.S. government is set up in three parts where no one section of the government has more power than the other . We’ll teach you everything you need to know about this checks and balances system.

If all of these topics are fascinating to you, then you might be interested in majoring in political science. Our experts will teach you everything you need to know about a political science degree , including what types of careers are available for poli-sci grads.

Ashley Sufflé Robinson has a Ph.D. in 19th Century English Literature. As a content writer for PrepScholar, Ashley is passionate about giving college-bound students the in-depth information they need to get into the school of their dreams.

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Home » Global Entrepreneurship Week (GEW) Updates » Debate on Capitalism Vs. Communism

Debate on Capitalism Vs. Communism

The debate was on ‘Capitalist Vs Communism ’ and was held at King’s College by Samriddhi, The Prosperity Foundation and King’s College on Nov 17, 2014. Samriddhi is the official host organization for marking GEW celebrations in Nepal and King’s College has joined hands with Samriddhi this year as well to mark this annual celebration.

The debate started at 3:30 pm with the two teams A and B. Team A argued that Capitalism best fosters entrepreneurship whereas Team supported Communism as the economic system that aids entrepreneurship.

Team A placed its arguments on 3 headings: Capitalism explores individuals’ potential to the fullest, gives freedom of choice and promotes equality. They argued that a free market creates competition, which leads to innovation. They further added that capitalism, against popular opinion, focuses on equality as it provides equal opportunity for everyone to improve and develop as opposed to communism where equality would simply mean equal burden of work. Team A’s argument also included both system’s natural predilection with power but distinguished capitalism as the system where there is opportunity to decentralize that power by allowing a larger mass to have access over resources and key economic decisions. They finally added that capitalism is complimentary to human rights as it embodies the core concept of individual freedom.

Team B placed its arguments on 3 headings as well: Equality for all, mutual cooperation for development and the exploitation of resources in Capitalism.

Team B argued that communism preserves basic human rights by providing essential services like education, health, etc.  without profit incentives whereas capitalism does not address this issue of universal access. Capitalist society, according to the group, fragments people into class, race, sex, etc. and will never be successful in achieving equality. The group added that innovation in capitalist markets is driven by competition while mutual understanding and cooperation for the development of all is the cornerstone of communism driven prosperity. Finally, it was argued that the basis of capitalism, which is the profit motive, promoted exploitation.

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Is Guyana’s Oil a Blessing or a Curse?

More than any single country, Guyana demonstrates the struggle between the consequences of climate change and the lure of the oil economy.

With the discovery of offshore oil, Guyana is now building a natural gas pipeline to bring the byproducts of oil production to a planned energy plant. Credit...

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By Gaiutra Bahadur

Photographs by Keisha Scarville

• March 30, 2024

Basjit Mahabir won’t let me in.

I’m trying to persuade Mr. Mahabir to open the padlocked gate of the Wales Estate, where he guards the ramshackle remains of a factory surrounded by miles of fallow sugar cane fields. The growing and grinding of sugar on this plantation about 10 miles from Georgetown, Guyana’s capital, ended seven years ago, and parts of the complex, its weathered zinc walls the color of rust, have been sold for scrap.

I plead my case. “I lived here when I was a little girl,” I say. “My father used to manage the field lab.” Mr. Mahabir is friendly, but firm. I’m not getting in.

The ruins are the vestiges of a sugar industry that, after enriching British colonizers for centuries, was the measure of the nation’s wealth when it achieved independence.

Now the estate is slated to become part of Guyana’s latest boom, an oil rush that is reshaping the country’s future. This nation that lies off the beaten track, population 800,000, is at the forefront of a global paradox: Even as the world pledges to transition away from fossil fuels , developing countries have many short-term incentives to double down on them.

Before oil, outsiders mostly came to Guyana for eco-tourism, lured by rainforests that cover 87 percent of its land. In 2009, the effort to combat global warming turned this into a new kind of currency when Guyana sold carbon credits totaling $250 million, essentially promising to keep that carbon stored in trees. Guyana’s leadership was praised for this planet-saving effort.

Six years later, Exxon Mobil discovered a bounty of oil under Guyana’s coastal waters. Soon the company and its consortium partners, Hess and the Chinese National Offshore Oil Corporation, began drilling with uncommon speed. The oil, now burned mostly in Europe, is enabling more global emissions — and producing colossal wealth.

The find is projected to become Exxon Mobil’s biggest revenue source by decade’s end. The deal that made it possible — and which gave Exxon Mobil the bulk of the proceeds — has been a point of public outcry and even a lawsuit, with a seeming consensus that Guyana got the short end of the stick. But the deal has nonetheless generated $3.5 billion so far for the country, more money than it has ever seen, significantly more than it gained from conserving trees. It’s enough to chart a new destiny.

The government has decided to pursue that destiny by investing even further in fossil fuels. Most of the oil windfall available in its treasury is going to construct roads and other infrastructure, most notably a 152-mile pipeline to carry ashore natural gas, released while extracting oil from Exxon Mobil’s fields, to generate electricity.

The pipeline will snake across the Wales Estate, carrying the gas to a proposed power plant and to a second plant that will use the byproducts to potentially produce cooking gas and fertilizer. With a price tag of more than $2 billion, it’s the most expensive public infrastructure project in the country’s history. The hope is that with a predictable, plentiful supply of cheap energy, the country can develop economically.

At the same time, climate change laps at Guyana’s shores; much of Georgetown is projected to be underwater by 2030.

Countries like Guyana are caught in a perfect storm where the consequences for extracting fossil fuels collide with the incentives to do so. Unlike wealthy countries, they aren’t responsible for most of the carbon emissions that now threaten the planet. “We’re obviously talking about developing countries here, and if there’s so much social and economic development that still needs to happen, then it’s hard to actually demand a complete ban on fossil fuels,” says Maria Antonia Tigre, a director at the Sabin Center for Climate Change Law at Columbia University. Still, she insists, “we’re in a moment in the climate crisis where no one can get a pass.”

This struggle between the existential threats of climate change and the material gains dangled by fossil fuels bedevils rich countries, too. The International Energy Agency predicts that oil demand will peak in five years as big economies transition to renewable sources. But it is a transition of indeterminate length, and in the meantime, the Biden administration approved drilling in the Alaska wilderness just last year, and the United States is producing more oil than ever in its history. A country like Guyana, with an emerging economy, has even more reason to jump at temptation.

The country has already been transformed. Next to its famously elegant but decaying colonial architecture, new houses, hotels, malls, gyms and offices of concrete and glass crop up constantly. Trucks carrying quartz sand for all this construction judder along the highways. While nearly half of Guyanese still live below the poverty line, the country is bustling with possibility, and newcomers arrive from around the world. During a five-month stay there, I met a logistics manager from Sri Lanka, a nightclub singer from Cuba, a Briton developing a shrimp farm and a Nigerian security guard who joked that a sure sign that Guyana had become a hustler’s paradise was that he was there.

As I survey the stranded assets of the sugar works on the Wales Estate, imagining the steel pipes to come, the gleaming future Guyana’s government promises feels haunted by its past as a colony cursed by its resources. The potential for the petroleum boom to implode is in plain sight next door, where Venezuela — which has recently resurrected old claims to much of Guyana’s territory — is a mess of corruption, authoritarian rule and economic volatility.

For centuries, foreign powers set the terms for this sliver of South America on the Atlantic Ocean. The British, who first took possession in 1796, treated the colony as a vast sugar factory. They trafficked enslaved Africans to labor on the plantations and then, after abolition, found a brutally effective substitute by contracting indentured servants, mainly from India. Mr. Mahabir, who worked cutting cane for most of his life, is descended from those indentured workers, as am I.

Fifty-seven years ago, the country shook off its imperial shackles, but genuine democracy took more time. On the eve of independence, foreign meddling installed a leader who swiftly became a dictator. Tensions between citizens of African and Indian descent, encouraged under colonialism, turned violent at independence and set off a bitter contest for governing supremacy that continues to this day. Indigenous groups have been courted by both sides in this political and ethnic rivalry.

It wasn’t until the early 1990s that Guyana held its first free and fair elections. The moment was full of possibility. The institutions of democracy, such as an independent judiciary, began to emerge. And the legislature passed a series of robust environmental laws.

Now that Exxon Mobil has arrived to extract a new resource, some supporters of democracy and the environment see those protections as endangered. They criticize the fossil-fuel giant, with global revenue 10 times the size of Guyana’s gross domestic product, as a new kind of colonizer and have sued their government to press it to enforce its laws and regulations. The judge in one of those cases has rebuked the country’s Environmental Protection Agency as being “submissive” toward the oil industry.

Addressing some of these activists at a recent public hearing, Vickram Bharrat, the minister of natural resources, defended the government’s oversight of oil and gas. “There’s no evidence of bias toward any multinational corporations,” he said. Exxon Mobil, in an emailed statement, said its work on the natural gas project would “help provide lower-emissions, reliable, gas-powered electricity to Guyanese consumers.”

The world is at a critical juncture, and Guyana sits at the intersection. The country of my birth is a tiny speck on the planet, but the discovery of oil there has cracked open questions of giant significance. How can wealthy countries be held to account for their promises to move away from fossil fuels? Can the institutions of a fragile democracy keep large corporations in check? And what kind of future is Guyana promising its citizens as it places bets on commodities that much of the world is vowing to make obsolete?

A land of new possibilities

Oil has created a Guyana with pumpkin spice lattes. The first Starbucks store appeared outside the capital last year; it was such a big deal that the president and the American ambassador attended the opening. People still “lime” — hang out — with local Carib beer and boomboxes on the storied sea wall, but those with the cash can now go for karaoke and fancy cocktails at a new Hard Rock Cafe.

The influx of wealth has introduced new tensions along economic lines in an already racially divided country. Hyperinflation has made fish, vegetables and other staples costlier, and many Guyanese feel priced out of pleasures in their own country. A new rooftop restaurant, described to me as “pizza for Guyana’s 1 percent” by its consultant chef from Brooklyn, set off a backlash on social media for serving a cut of beef that costs $335, as much as a security guard in the capital earns in a month.

This aspirational consumerist playground is grafted onto a ragged infrastructure. Lexus S.U.V.s cruise new highways but must still gingerly wade through knee-deep floods in Georgetown when it rains, thanks to bad drainage. Electricity, the subject of much teeth-sucking and dark humor, is expensive and erratic. It’s also dirty, powered by heavy fuel, a tarlike residue from refining oil. In 2023, 96 blackouts halted activity across the country for an average of one hour each. A growing number of air-conditioners taxing aging generators are partly to blame, but the system has been tripped up by weeds entangling transmission lines, backhoes hitting power poles and once, infamously, a rat.

The country’s larger companies — makers of El Dorado rum, timber producers — generate their own electricity outside the power grid. Small companies, however, don’t have that option. This year, the Inter-American Development Bank cited electrical outages as a major obstacle to doing business in Guyana.

The government’s investment in a natural gas pipeline and power plant offers the prospect of steady and affordable power. The gas, a byproduct of Exxon Mobil’s drilling, tends not to be commercialized and is often flared off as waste, emitting greenhouse gases in the process. But at the government’s request, Exxon Mobil and its consortium partners agreed to send some of the natural gas to the Wales site. The consortium is supposed to supply it without cost, but no official sales agreement has been made public yet.

At international conferences, rich countries have pledged to help poorer, lower-emitting ones to raise their living standards sustainably with renewable energy, but the money has fallen short . Natural gas is cleaner than the heavy fuel Guyana now uses, and the country’s leaders claim that it will serve as an eventual bridge to renewable energy. The fact that it’s not as clean as solar or other renewable sources seems, to some local manufacturers, beside the point because the status quo is so challenging.

During blackouts, Upasna Mudlier, who runs Denmor Garments, a textile company that makes uniforms, fire safety jackets and lingerie, has to send home the two dozen seamstresses she employs. That means a big hit in productivity. A chemist in her late 30s, she inherited the company from her father. Ms. Mudlier was nervous about networking in the burly crush of the male-dominated local business elite, but she nonetheless attended an event hosted by a business development center funded by Exxon Mobil. She leaned in, and it paid off: She won a contract to make a thousand coveralls for workers building an oil production vessel headed for Guyana’s waters.

It was a bright spot nonetheless dimmed by her electric bill. An astounding 40 percent of her operating budget goes to paying for power. Ms. Mudlier is eager for the natural gas plant. Cheaper, reliable energy could allow her to price her products to compete internationally.

Textiles are a tiny niche in Guyana, but hers is the kind of manufacturing that experts say Guyana needs to avoid becoming a petroleum state. Ms. Mudlier agrees with the government’s messaging on the gas project. “It will create more jobs for people and bring more investments into our country and more diversity to our economy,” she said.

Widespread anxiety that the best new jobs would go to foreigners led to a law that sets quotas for oil and gas companies to hire and contract with locals. Komal Singh, a construction magnate in his mid-50s, has benefited from the law. Mr. Singh, who directs an influential government advisory body on business policy, works as a joint partner with international companies building the Wales pipeline and treating toxic waste from offshore oil production.

“We say to them, ‘It’s you, me and Guyanese,’” he told me. “If Guyanese are not part of the show, end of conversation.”

Guyana has lost a greater share of its people than any other country, with two in five people born there living abroad. So the oil boom and the local partner requirement have set off something of a frenzy for passports and have fueled debate over who, exactly, is Guyanese. I met a British private equity manager with a Guyanese mother who obtained citizenship shortly after his second visit to the country. One local partner’s contested citizenship became a matter for the High Court.

With the value of land and housing skyrocketing, some local property owners have profited by becoming landlords to expats or by selling abandoned fields at Manhattan prices for commercial real estate. But to many Guyanese, it has seemed as if “comebackees,” the term for returning members of the diaspora, or the politically connected elite are the most poised to benefit from the boom.

Sharia Bacchus returned to Guyana after two decades living in Florida. Ms. Bacchus, who has family connections in the government and private sector, started her own real estate brokerage. She rents apartments and houses to expats for as much as $6,000 a month.

I shadowed her as she showed a prospective buyer — a retired U.S. Marine of Guyanese descent — a duplex condo in a coveted new gated community. She eagerly pointed out amenities that comebackees want: air-conditioning, a pool and, of course, an automatic backup generator.

“If you lose power at any time, you don’t have to worry about that,” she said, reassuringly.

The ghosts of the past

As glimpses of this new Guyana emerge, the ghosts of the past linger. A year ago, a Georgetown hotel, hustling like so many to take advantage of the new oil money, staged a $170-a-head rum-tasting event called “Night at the Estate House.” I’d been trying, unsuccessfully, to interview Exxon Mobil’s top brass in Guyana. When I heard rumors that its country manager would attend, I bought a ticket and, though he was a no-show, I found a seat with his inner circle.

As we sipped El Dorado rum in the garden of a colonial-style mansion, one of the event’s hosts gave a speech that invoked a time when “B.G.,” the insider’s shorthand for British Guiana, the country’s colonial name, also stood for Booker’s Guiana. Now, the speaker observed matter-of-factly, “it’s Exxon’s Guyana.”

Booker McConnell was a British multinational originally founded by two brothers who became rich on sugar and enslaved people. At one point, the company owned 80 percent of the sugar plantations in British Guiana, including the Wales Estate. The Exxon Mobil executive sitting next to me didn’t know any of this. His face reddened when I told him that the speaker had just placed his employer in a long line of corporate colonialism.

Independence came in 1966, but the U.S. and British governments engineered into power Guyana’s first leader, Forbes Burnham, a Black lawyer whom they deemed more pliable than Cheddi Jagan, a radical son of Indian plantation laborers, who was seen as a Marxist peril. But Burnham grew increasingly dictatorial as well as, in a twist of geopolitical fate, socialist.

Booker, which would later give its name to the Booker Prize in literature, still owned Wales at independence. But in the mid-1970s, Burnham took control of the country’s resources, nationalizing sugar production as well as bauxite mining. Like other former colonies, Guyana wanted to make its break with imperialism economic as well as political.

Burnham pushed the idea of economic independence to the breaking point, banning all imports. Staples from abroad, such as cooking oil, potatoes, wheat flour and split peas, had to be replaced with local substitutes. But Guyana didn’t have the farms and factories to meet the demand, so people turned to the black market, waited in ration lines and went hungry.

Guyana was 15 years free when my family arrived on the Wales Estate, by then part of the nationalized Guyana Sugar Company; my parents, then in their 20s, were young, too. My father, the son of plantation laborers, had just earned a natural sciences degree from the University of Guyana, founded at independence to educate the people who would build the new nation. As field lab manager, he tested sucrose in the cane to determine harvest time and oversaw the trapping of rats and snakes in the fields.

We lived in a former overseer’s house two doors from the estate’s main gate, where Mr. Mahabir now stands sentinel, and my mother taught high school in the guard’s village. My parents had only ever studied by kerosene lamp or gas lantern — but this house had electricity, generated on the estate by burning sugar cane trash.

I can remember at age 6 the cold delicacy of a refrigerated apple, a Christmas present from American aunts. It wouldn’t be long before we joined them.

Rigged elections kept Burnham in power for two decades of hardship and insecurity, both ethnic and economic. As soon as our long-awaited green cards allowing entry to the United States were approved, we left, participating in an exodus that created a “barrel economy,” with many communities sustained by money and care packages sent in barrels from relatives abroad. That exodus gutted Guyana: Today, less than 3 percent of the population is college educated.

Burnham’s death in 1985 touched off a series of events that began to change the country. Within seven years, Guyana held its first free and fair elections. Jagan, by then an old man, was elected president. Soon, a younger generation of his party took office and wholeheartedly embraced capitalism. Private companies could once again bid for Guyana’s vast resources. Corruption, endemic in the Burnham era, took new forms.

Then came proof of the dangers of unchecked extraction. In 1995, a dam at a Canadian-owned gold mine gave way. The 400 million gallons of cyanide-laced waste it had held back fouled two major rivers. Simone Mangal-Joly, now an environmental and international development specialist, was among the scientists on the ground testing cyanide levels in the river. The waters had turned red, and Indigenous villagers covered themselves in plastic to protect their skin. “It’s where they bathed,” Ms. Mangal-Joly recalled. “It was their drinking water, their cooking water, their transportation.”

The tragedy led to action. The next year, the government passed its first environmental protection law. Seven years later, the right to a healthy environment was added to the Constitution. Guyana managed to enshrine what the United States and Canada, for instance, have not.

For a moment, Guyana’s natural capital — the vast tropical rainforests that make it one of the very few countries that is a net carbon sink — was among its most prized assets. Bharrat Jagdeo, then president, sold the carbon stored in its forests to Norway to offset pollution from that country’s own petroleum production in 2009. Indigenous groups received $20 million from that deal to develop their villages and gain title to their ancestral lands, though some protested that they had little input. Mr. Jagdeo was hailed as a United Nations “Champion of the Earth.”

And then Exxon Mobil struck oil.

The vision of a green Guyana now vies with its fast-rising status as one of the largest new sources of oil in the world. The country’s sharply divided political parties stand in rare accord on drilling. Mr. Jagdeo, who is now Guyana’s vice president but still dictates much government policy, is a fervent supporter of the Wales project.

But a small, steadfast, multiracial movement of citizens is testing the power of the environmental laws. David Boyd, the U.N. special rapporteur on human rights and the environment, describes the country as a front line for litigation using innovative rights arguments to fight climate change. It includes the first constitutional climate change case in the region, brought by an Indigenous tour guide and a university lecturer.

Not all critics of the petroleum development are environmentalists. What unites them is the belief that the nation’s hard-won constitutional protections should be stronger than any corporation.

‘The rule of law is the rule of law.’

Liz Deane-Hughes comes from a prominent family. Her father founded one of Georgetown’s most respected law firms, and in the 1980s, back in Burnham’s time, he fought against repressive changes to the constitution. She remembers her parents taking her to rousing rallies led by a multiracial party battling Burnham’s rule. When she was 13, she came home one day to find police officers searching their home. “I lived through the 1980s in Guyana,” says Ms. Deane-Hughes, who practiced at the family firm before quitting the law. “So I do not want to go back there on any level.”

I talked to Ms. Deane-Hughes, now an artist and jewelry designer, on the sprawling veranda of a colonial-style house built on land that has been in her family for five generations. The government has claimed part of it for the natural gas pipeline, which crosses private property as well as the Wales Estate. But the issue, she told me, is bigger than her backyard.

Last month, Ms. Deane-Hughes joined other activists, virtually, at a hearing before the Inter-American Commission on Human Rights, making the argument that oil companies have compromised environmental governance in Guyana. This coterie of activists have spoken out and filed suits to bring the corporation under the scrutiny of the country’s laws and regulations.

Ms. Mangal-Joly, who responded to the cyanide disaster that prompted those environmental laws, says the government has failed to fulfill its oversight duties. As part of her doctoral research at University College London, she found that Guyana’s Environmental Protection Agency had waived the environmental assessments for every facility treating toxic waste or storing radioactive materials produced by offshore oil production.

The gas plant, too, has been given a pass. In January, the E.P.A. waived the environmental assessment for the proposed Wales plant because Exxon Mobil, although it isn’t building the plant, had done one for the pipeline.

The E.P.A. defended the decision. “It is good and common practice” to rely on existing environmental assessments “even when done by other project developers,” wrote an agency spokeswoman on behalf of its executive director. The agency asserted its right to waive assessments as it sees fit and noted that the courts hadn’t overturned its exemptions, saying, “This no doubt speaks to the E.P.A.’s high degree of technical competence and culture of compliance within the laws of Guyana.”

Ms. Mangal-Joly notes that the power plant sits above an aquifer that supplies drinking water to most of the country. “Our water table is shallow,” she says. “There’s a generation, and generations to come, that will not inherit clean water. We are despoiling a resource far more valuable than oil.”

The waiver infuriated Ms. Deane-Hughes. And the independence of the board that hears citizen concerns struck her as a sham. Its chairman, Mahender Sharma, heads Guyana’s energy agency, and his wife directs the new government company created to manage the power plant. At a hearing of the board, Ms. Deane-Hughes cited the mandate against conflicts of interest in the Environmental Protection Act and asked Mr. Sharma to recuse himself. “I would like you not to make a decision,” she told him.

Six weeks later, the board did make a decision: It allowed the power company to keep its environmental permit without doing an impact statement.

Mr. Sharma, the energy minister, dismissed the critics as a privileged intellectual elite sheltered from the deprivations that have led many Guyanese to welcome the oil industry.

At the Inter-American commission meeting, Mr. Bharrat, the minister of natural resources, argued that it is his government’s right as well as its responsibility to balance economic growth with sustainability. “Our country’s development and environmental protection are not irreconcilable aims,” he told them. And he reminded them that they can turn to the courts with their complaints.

Guyana’s highest court has dealt the activists both setbacks and victories. In one of the more consequential cases, activists have thus far prevailed. Frederick Collins, who heads the local anti-corruption group Transparency Institute of Guyana, sued the E.P.A. for not requiring Exxon Mobil’s local subsidiaries to carry a more substantial insurance policy. Mr. Collins argued that the existing $600 million policy was inadequate in the extreme. Major oil spills aren’t rare — two happen worldwide every year. The biggest blowout ever, at BP’s Deepwater Horizon, cost that company $64 billion. The deepwater drilling in Guyana is the riskiest kind.

A retired insurance executive and Methodist preacher, Mr. Collins had been feeling pessimistic about the case ever since the judge allowed Exxon Mobil, with its daunting resources, to join the E.P.A. as a defendant a year ago. In legal filings, the defendants had dismissed him as a “meddlesome busybody” without legal standing to bring the suit.

But in May, the judge, Sandil Kissoon, pilloried the E.P.A. as “a derelict, pliant” agency whose “state of inertia and slumber” had “placed the nation, its citizens and the environment in grave peril.” He found that the insurance held by Exxon Mobil’s local subsidiary failed to meet international standards and ordered the parent company to guarantee its unlimited liability for all disaster costs — or stop drilling. The case is being appealed.

An Exxon Mobil spokesperson said by email that the company’s insurance is “adequate and appropriate” and that a $2 billion guarantee it recently provided, at the order of the court considering the appeal, “exceeds industry precedent and the estimate of potential liability.”

At a news conference, Mr. Jagdeo, the vice president, criticized the ruling and called on Guyana’s courts to make “predictable” decisions. “We are playing in the big leagues now,” he said. “We are not a backwater country where you can do whatever you want and get away with it.”

To Melinda Janki, the lawyer handling most of the activists’ suits and one of the few local lawyers willing to take on the oil companies, the question is whether Exxon Mobil can get away with doing whatever it wants. She helped shape some of Guyana’s strongest environmental laws. “Even though this is a massive oil company,” she said, “they still have to obey the law. The rule of law is the rule of law.”

The dissidents are deploying the law in their fight against the oil giant and the government, but with billions on the line, they’re also combating the currents of public opinion.

A fossil fuel economy in a changing world

For all the misery wrought by sugar during the colonial era, its legacy as an economic powerhouse lingers in local memory.

In Patentia, the village closest to Wales, where I attended first grade, laid-off sugar workers remember the estate as the center of the community. When its 1,000 workers lost their jobs, thousands more were sent reeling, as businesses from rum shops to mom-and-pop groceries folded.

The Guyana Sugar Corporation, then the country’s largest employer, eliminated a third of its work force, leaving about a fifth of the population coping with the effects of unemployment.

The timing of the closures, a year after the oil discovery, raised hopes that the petroleum industry might somehow fill the void. Seven years after the closures, however, most sugar workers haven’t found new jobs. Certainly, very few are employed by the petroleum industry.

Their struggle raises a crucial question for Guyana as it wrestles with the transition from the old economy to the new: How can Guyanese without the skills or education for petroleum jobs benefit? Nested within that quandary ticks another: What if the new economy isn’t so new? What if its petroleum-driven vision of progress is actually already outdated?

Thomas Singh, a behavioral economist who founded the University of Guyana’s Green Institute, has argued for transforming the still-active sugar industry’s waste into cellulosic ethanol, a cutting-edge biofuel. But Mr. Sharma, the energy agency head, says the industry is too small for its cane husks to power very much. Some of the jackpot from Norway for carbon offsets has been earmarked for eight small solar farms, but Mr. Sharma, who drives an electric car and has solar panels at his house, maintains that solar energy is too expensive to be a primary power source, despite arguments to the contrary . The giant hydroelectric project the Norway deal was supposed to fund, powered by a waterfall, has long been stalled.

What dominates the local imagination now is oil and gas. During my stay in Guyana, I kept hearing the calypso song “ Not a Blade of Grass ” on the radio. Written in the 1970s as a patriotic rallying cry and a stand against Venezuela, which threatened to annex two-thirds of Guyana, it has made a comeback with a new cover version. (So, too, have Venezuela’s threats .) The lyrics, to an outsider’s ear, sound like an anthem against Exxon Mobil: “When outside faces from foreign places talk about takin’ over, we ain’t backin’ down.” But in Guyana, it has been invoked recently to assert the nation’s right to pump its own oil. The voices against drilling, however outspoken, remain isolated; the more passionate debate is over whether Guyana should renegotiate its contract to get a bigger take of the oil proceeds.

Oil is seen as such a boon that even questioning how it’s regulated can be branded unpatriotic. Journalists, academics, lawyers, workers at nongovernmental organizations and even former E.P.A. employees confided their fear of being ostracized if they spoke against petroleum.

Since becoming an adult, I’ve returned to Guyana every few years to research the country’s past and its legacies. During this recent trip, an elder statesman I interviewed told me that it was time I moved back permanently. The thought points to a hope, reawakened by oil, that Guyana can reclaim its lost people. But from my recent trips back to the country, it’s hard to tell now what Guyana is becoming, and who will thrive there as it evolves.

The house my family lived in on the Wales Estate still stands. It has been freshly painted and refurbished, with a daunting sign outside threatening trespassers with closed-circuit television, dogs and drone surveillance. It has passed into private hands.Exactly who owns it is a matter of speculation. The rumor in Patentia? A former sugar worker from Wales repeated it to me: “Exxon owns that house.”

Do you have a connection to Guyana?

It’s still early days in Guyana’s transformation, and the events unfolding in Guyana will have a notable impact worldwide. We’d like to hear your perspectives on where the country is heading. We especially want to engage Guyanese people and those with family or ancestral connections to the country.

The Headway initiative is funded through grants from the Ford Foundation, the William and Flora Hewlett Foundation and the Stavros Niarchos Foundation (SNF), with Rockefeller Philanthropy Advisors serving as a fiscal sponsor. The Woodcock Foundation is a funder of Headway’s public square. Funders have no control over the selection, focus of stories or the editing process and do not review stories before publication. The Times retains full editorial control of the Headway initiative.

Gaiutra Bahadur is the author of “Coolie Woman: The Odyssey of Indenture.” She teaches English and journalism as an associate professor at Rutgers University in Newark.

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