What is the difference between capitalism and socialism?

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This is a highly charged political question. In simplest terms, socialism involves commonly held possessions or government oosessions as opposed to solely individual property. The idea is for everyone to look out for everyone else, in theory. In reality, it can be used by corrupt governments to maintain all control.
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Capitalism is an economic system based on private ownership and control of the means of production. Socialism on the other hand advocates public or joint ownership and control of means of production. This is implemented in practice by government ownership and control of industries. As in a democracy the government is representative of common people, the control over economic activity that is managed by the government theoretically is with everyone instead of a select few.

Capitalism, has advantages in the form of increased efficiency and better managed industrial activity. As increasing profits is a primary objective of the owners of businesses, they are compelled to use the capital and labor in the most optimum manner. In socialism on the other hand, there is no such objective to be met and those who control industrial activity are free to utilize resources in any way. This decreases efficiency and ultimately serves no advantage for the general public.

One marked difference that the two systems create is that in capitalism a part of the population is extremely well off compared to the others, whereas in socialism everyone is in an equally bad economic state.

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Capitalism is an economic system under which private individuals own the means of production. These "private individuals" may take the form of Corporations, individuals, or even partnerships. Fundamental elements of Capitalism are free market operation, competition and no (or at least limited) government intervention. Workers may be capitalists themselves, such as self employed Carpenters, professionals, etc. or they may be employed by those who do, such as factory workers. Under Socialism, the workers themselves own the means of production. Quite often this form of ownership is by the state itself; which is controlled by the workers. Under a socialist system, competition is practically non-existent; and markets are somewhat limited. A big drawback of Socialism is that lack of competition often results in inferior production and shortages.

Socialism was somewhat re-defined during the Communist Era; although that system was hardly a true Socialist one. In every instance, there was actually a state Dictatorship which forced a socialist system on the workers, largely against their will.  

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