Capitalism versus Socialism Essay

Budget deficit is just one of the many factors that negatively affect the provision of most of the government projects in the society. Without the sufficient amount of government funds, building of infrastructures and other public goods would be delayed or underprovided. As we can remember, there are some goods and services that can only be provided efficiently if the government is the one who supply it instead of the private firms to protect the rights and welfare of the consumer group. If there exist under provision of these public goods, the societal welfare would negatively be affected. In this regard, there is a question on whether what should prevail in our economy, capitalism or socialism? One may say that this debate between capitalism and socialism is already a cliche, but we cannot set aside the arguments and points of each side which could give us guide us in understanding what is happening in the real world. Let me discuss first capitalism. Capitalism promotes the concentration of the government in the provision of security in the society and not to intervene in the business world. Some capitalists say that, with the intervention of the government, person who wants to establish a business enterprise is being deprived due to the policies that are being implemented by the government. For instance, legal monopoly that was given by the government to some companies hinders other people from starting their own water/electric company. This failure of other people to start their own utility business, as capitalists believe, is a violation to their freedom. Socialism, on the other hand, is extremely the opposite of the capitalists thinking. Here, government intervention is very much welcome and the society is recognizing the ability of the government to efficiently handle companies and to equally distribute whatever the goods or service that they produce to their citizens. One good example to this is the provision of government of medical services and education. Since not all individuals can afford the costs of schooling provided by private firms, what the government does is they establish public schools charging at a minimum amount. As for the medical services, the government establishes public hospitals and clinics that would provide its citizens cheaper medical services and medicines for less capable people. With this, the basic right of human, to have education and access to medical services, is being fulfilled by the government. The reason why government provides efficient goods and services is due to the fact that they are providing the said goods and services at a reasonable price unlike private firms, especially monopolists, that charges above what is socially acceptable price. Now, based from the points of these two ideologies, therefore, it depends on the situation if whether a certain government intervention is good to the society. If the government interferes in the market in order to protect the welfare of its citizens, then, there is no room for capitalists to say that they are being deprived by the government to put their own business. In addition to that, establishing another utility business, like electric company, would be very costly due to the high fixed costs that they must face. This is the reason why it would be efficient if only one would continue ‘monopolize’ the production of electricity in the country. In this regard, if there would be an under provision of public goods like education, electricity, medical services and security due to budget deficit of the government; societal welfare would surely be greatly devastated. More people would be deprived with their basic human rights and might suffer to private firm’s abusing power. Only during instances wherein the private firms abuses their power and charge high to their customer by providing inelastic goods the government initiate actions to regulate the situation. Good Economics versus Good Politics One could say that an act promotes good economics if it aims for the maximization of the satisfaction of the society or market (Sharma, 2007). On the other hand, one could say that an act promotes good politics if it is backed up by a good policy for the welfare of the majority. Most of the analysts say that good economics leads to good politics and vice versa. Others believe that it’s the other way around. The point of the latter is that, making policies that promotes the no personal interest would lead to good economics since promoting the interest of the majority is tantamount to saying that they are maximizing the satisfaction of the society or they are after for the optimal level of societal welfare (Gittins, 2004). In order for each of the said ideals to exists, it must ensure the survival of one another. It seems hard for the politicians to set aside their personal political interest for the public interest but it should be done in order to attain what is really best for the economy and for the country. One way to promote the public interest is to lessen the burdens being imposed to the public like- tax (Gruen, 2007). Minimizing the tax rate would require a long battle and endless debate but the thing is, if all of the politicians would set aside their personal interest everything is possible for the government and they could act efficiently for the betterment of the economy. In this regard, there is no point arguing what is the best for the society- good economics or good politics, since one is needed for the existence of the other. Invisible Hand Principle Advocated by Adam Smith, invisible hand supports capitalist’s view. According to Adam Smith, the government must not intervene in the market and focus only on providing security and justice system to the society. They also believe that government lessens the societal welfare with their imposition of taxes. Taxes just add up to the operational costs of the businesses that in turn being passed to the consumers. In short, the burden of the taxes that are being imposed by the government goes to the end consumers. Adam Smith believes that market systems has its own mechanism to ‘heal’ itself and move back again towards the equilibrium condition even without the intervention of the government. By satisfying the ‘selfish’ motives of producers and consumers, they are unconsciously helping each other. Therefore, increasing the taxes rate collection of the government to cover the budget deficit would be an unwise idea since it would only add up to the burden of the consumers or the public. Government intervention must have the right timing and, as much as possible, impose less burden to the consumers. As what have been cited a while ago, government intervention depends on the situation and the condition between the private firms and the consumer group. Government intervention would only be sufficient if it uplifts the welfare of the consumer group with less negative effects on the private firms. But as for the increasing tax rate scenario, it seems that, although unintentionally, the government negatively affects the welfare of the consumer group while leaving the private firms unharmed since they only pass the taxes to the consumers. In this case, it would be better if the government let the ‘invisible hand’ or the free market system to put back into order the economy. Production Possibilities Curve There are some instances wherein private firms are being restricted in passing the added costs of government intervention to their consumers. Like for instance, the imposition of tariff on importers, tariff is another income generating activities of the government aside from taxation. With the extra expenses of the importers on every unit of goods that they are importing to the country, they can now only afford to buy less of the said imported goods depending on their allotted budget. In this scenario, the business would be producing below its production possibilities curve or PPF. This means that with the existence of higher tariffs on imported goods needed by local industries, the companies could only buy fewer imported raw materials and, therefore, producing fewer number of finished products than with the optimal level of production. This situation is treated to be inefficient, but since tariff is a form of income generation of the government, the only thing that the government could do is to find the efficient level of tariff rate wherein businesses could still produce closely to their PPF. With this, the value of the efficiency that is lost from the private firms would be justified and would return to them in a form of infrastructures in a form of roads and bridges which could alleviate the efficiency of their operation. In reality, it is pretty hard to produce within the PPF due to the existence of various intervening variables and tariff is one of them. The least thing that businesses could do is to produce closer to their PPF or their optimal level of production based on their capacity and capability. Opportunity Costs With the possibility of under provision of important government services, the government cannot afford to make it happen due to the high opportunity costs involved in the case. The government might forego the value of the welfare of its citizens in exchange of the improvement of the welfare of the corporations. If the welfare of the corporations and consumer group is to be calculated, the welfare of the consumer group is surely larger than with the welfare of the corporations in the market; and in the first place, it is the duty of the government to protect and prioritize the safety and welfare of the majority- citizens of their country. Just imagine the number of students that might stop schooling with the cutting of the budget for education; the number of sick and less capable citizens that only relies on the help of the government for cheaper medical services and/or medicines from public hospitals and clinics. To make the situation worst, the government prioritizes the welfare of Iraqis than with its own citizen. It was aired in the news that the government raised the amount of budget for the ‘peace keeping role’ of the government to Iraqi people. It is not bad to help other people, but ‘think first about the welfare of your own people before the others’ since that is the right thing to do. The point here is that, the reason why the government suffers to budget deficit is due to their wrong priorities. The government must not set aside the welfare of its citizen since it would bail them higher opportunity costs.