Write a brief essay on the advantages of capitalism over centrally planned economy

1. Capitalism offers higher levels of production efficiency than centrally planned economy.

2. Capitalism offers more flexibility in terms of innovation.

Explanation:

Capitalism is a political and economical system where the trade and industry of a country is controlled by the private owners rather than the state. Private owners main objective is to make profits. A centrally planned economy on the other hand is a political and economic system where the economic decisions about trade and industry come from a central authority such as a government. Capitalism and centrally planned economy each have their own advantages and disadvantages, however we will consider the advantages of capitalism over a centrally planned economy. They are as follows;

1. Capitalism ensures high levels of efficiency especially in the quality of the output. Since the motive for capitalism is profits, the companies have to improve on their efficiency in order to beat the competition while in a centrally planned economy, there is no incentive for profit due to price-setting schemes by the government. This leads to production of sub-standard goods and services.

2. Capitalism offers more flexibility in terms of innovation. In a capitalistic market, one might have a better way to improve on something or change it completely. The idea is usually taken up very first, and the founder of the idea is guaranteed a position in the company or some form of payment for his/her idea. Centrally planned economy do not offer much flexibility in terms of innovation since the government might decide not to take up your idea. People with brilliant ideas are therefor discouraged since they do not feel that they are guaranteed that the government might take up their idea or even offer them a position in the company.

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