Capitalism and socialism both aim to improve living conditions and society as a whole, but they differ significantly in how they seek to achieve this. In this video, we’ll break down the theories behind each system and examine real-world data to uncover which approach delivers the best results in terms of wealth creation, happiness, and equality.
capitalism vs socialism
There are two ways in which we can organize ourselves in a society: Capitalism and Socialism.
Capitalism is a system in which people own stuff and run things. You decide which goods to make, who to work with, what services to offer, and how much to charge. To do this effectively, we form groups, call them companies, and compete with each other. Capitalists believe that these groups create lots of wealth for their founders, their partners, their employees, and society as a whole.
Socialism relies on government officials to get things done. There are different ideas about how to create such a system, but most socialists agree that the state should own some property, regulate what we can or can’t do, and offer social services. Socialists believe that political leaders can establish rules to share a nation’s wealth fairly which then makes all people better off.
So both, the socialist and the capitalist, want to maximize wellbeing for all of us, but have inherently different ideas of how to do that—and are afraid of each other.
capitalist utopia
To maximize wellbeing, capitalists support the freedom of the individual. They want a world where Simple Joe can sell his own apples, in front of his house, at the price he chooses, hire anyone interested to help for the money he is willing to pay, and keep most of his profits.
In an anarcho-capitalist utopia, there would not even be a state, all schools would be private, and police, courts and military would only exist if they could be formed on a voluntary basis.
The capitalist fears the socialist, because they have reason to believe that once we transfer money, property and power to the collective, it will be those who control us who will first help themselves, then limit individual freedoms and make us dependent on welfare programs, and finally impoverish society.
socialist utopia
Socialists want to maximize well being by regulating our behavior. They prefer a world in which Simple Joe only sells apples of a certain type, does so only in designated areas, pays his helpers a minimum wage, charges affordable prices, and shares most of his profits with those who have less.
In a socialist utopia all of us would get to have equal access to education, enjoy the same standard of living, and benefit from plenty of state-funded services, including an unconditional basic income.
The socialist fears the capitalist, because they have reason to believe that if people are allowed to keep all their money, property and liberties, they would act immoral, pollute the environment, or abuse their power and eventually make living conditions worse for everyone—except the very rich.
their similarities
What most people don’t know is that both socialists and capitalists fear big business. Capitalists fear big companies because they use their power to influence the government to create laws that make it hard for smaller companies to compete. Capitalists are hence not pro-business, they are pro-market. Socialists fear large corporations, because they use their power to establish regulations that benefit themselves but make everyone else worse off. Socialists are not pro-business, they are pro-state.
Which one is better?
Now to understand which of the two is better, we can study people who live along a spectrum of the two extremes by looking at wealth, the key promise of capitalists, equality, the main promises of socialists, and – levels of happiness.
Let’s first examine Economic Freedom Around The World. Capitalist countries have higher levels of economic freedom. When countries offer less freedom it’s often due to socialism, but may also be thanks to religious fanaticism, civil war, or other factors.If we look at 15 specific states, we see that Singapore ranks top in economic freedom, Switzerland 2nd, the US ranks 25th, and North Korea is last.
If we plot the data from 177 countries ranging from low to high levels of freedom, we see that we can divide them into three types: highly free, more mixed, and not so free societies—and can then make the following observations.
freedom observations
There is no pure capitalist country. The Swiss restrict some forms of voluntary exchange, offer some public services, and collect taxes to pay for all of that. And 5% of all people in Singapore, the most capitalist place of all, work for the government, the state builds public housing, and if you take the liberty to chew gum, you might get fined.
Mixed market economies are normal. In the United States, businesses are privately owned, which is clearly capitalist. However, the government controls education and health care, and hands out subsidies to specific groups, such as chip makers, bankers, and farmers. And around 15% of all Americans work in the public sector. In Russia 1 out of 4 people serve the state. The rest are working in private firms, many of which however are highly regulated by the government.
Highly socialist states are rare. In Venezuela, which is one, state officials control what people can and cannot charge for their products, which tends to lead to notoriously long queues. In North Korea, a socialist dictatorship, private property is illegal and 9 out of 10 citizens work for the state. So how do people in these countries compare when we look at wealth, happiness, and equality?
If we look at GDP per capita, as a measure of wealth, we see that again Singapore ranks top, Switzerland 7th, the US 14th, and North Korea is again last. Note that GDP figures usually include public services, such as free schooling and public healthcare.
A comparison of GDP with economic freedom shows that countries with higher freedom are also richer, with some reaching a gross domestic product of close to $200,000 per person. Looking at this distribution, it’s important to note that wealth and freedom correlate with better education and longer life expectancy. They might however not cause it. Natural resources, conflicts, a history of colonialism, and the prevalence of natural disasters can reduce wealth and restrict certain freedoms—independent of people’s political ideology.
Happiness around the world looks alot like the previous maps, with the difference that quite a few rather poor countries also show a decent level of self-reported well being. Switzerland, which is economically free and rich, ranks 4th. Singapore, which is even richer, only 27th. And people in Brazil, which is relatively poor, are surprisingly happy. Lithuania is the country where young people say they are the happiest. The most miserable place for those below age 30 seems to be Afghanistan, which is extremely restrictive.
If we look at happiness vs economic freedom we can see that countries with higher freedom tend to have higher levels of happiness, while those with lower freedom generally report lower levels—although people in Venezuela seem relatively content. Comparing economic freedom, GDP, and happiness, it looks as if freedom correlates with wealth but neither necessarily coincides with wellbeing.
Lastly, let’s look at inequality around the world with data from the Gini index, which measures how much wealth belongs to the richest people in a country. Doing so we see that the picture looks mixed. Rich, capitalist countries, like Singapore and the United States, seem quite unequal. But so do socialist societies, like Venezuela and China. The country where wealth is distributed most equally is Slovakia, which is moderately free. The most unequal society is South Africa–a place that is rather unfree, but also has a history of racial segregation.
And if we plot both inequality and economic freedom on the same chart, we can’t see a clear trend. It seems as if neither socialism or capitalism is very good at creating equality.
which one do you prefer?
But now you tell us which system you prefer—and where you are from. And if you can’t make up your mind, consider looking at more data, like, the Human Development Index, the PISA ranking on education, or the World Migration Report—to learn where people actually want to live. All sources with links to the raw data sets are in the descriptions below.
Sources
- Capitalism – Wikipedia.org
- Socialism – Wikipedia.org
- Socialism – Kids.britannica.com
- Capitalism – Kids.britannica.com
- Anarcho capitalism – Wikipedia.org
- List of countries by GDP (PPP) per capita – Wikipedia.org
- Index of Economic Freedom – Heritage.org
- Global Freedom Scores – Freedomhouse.org
- Helliwell, J. F., Layard, R., Sachs, J. D., De Neve, J. -E., Aknin, L.B., & Wang, S. (Eds.). (2024). World Happiness Report 2024. University of Oxford: Wellbeing Research Centre.
- GDP per capita from the World Bank Organization – Worldbank.org
- GDP per capita from the International Monetary Fund – Imf.org
- Gini Index from the World Bank Organization – Worldbank.org
- Gini Index from the CIA – Cia.gov
- List of countries by unemployment rate – Wikipedia.org
- List of countries by income equality – Wikipedia.org
- Government at a Glance (2021 edition) – Oecd.org
- Employment in government as share of total employment in OECD countries – Statista.com
Dig deeper!
- Understand the world and how countries do when it comes to all sorts of other data, from crime, to sport, education, health and much more.
- Learn which countries are the most popular among migrants around the world.
- Look at the Human Development Index and see if it correlates with measures of GDP and freedom.
- Watch the lecture of Prof. Dr. Yanis Varoufakis on Economics or Markets without Capitalism
Classroom activity
Objective:
Students will critically analyze capitalism and socialism by examining real-world data, discussing their impacts on wealth creation, happiness, and equality, and debating which system they believe is more effective.
Materials Needed:
- Real-world data sets or case studies illustrating outcomes under capitalism and socialism (e.g., income inequality, GDP, happiness indexes).
- Whiteboard or large post-it notes for group brainstorming.
- Access to online resources or printed data packets.
Duration:
60 minutes
Steps:
- Introduction (10 minutes):
Briefly introduce the key concepts of capitalism and socialism, highlighting their different approaches to improving welfare, wealth, and equality. Divide the class into two groups: one focusing on capitalism and the other on socialism. - Data Exploration and Analysis (15 minutes):
Provide each group with a set of data related to their assigned system. Ask them to analyze the data and identify trends that illustrate how their system impacts:- Wealth creation (e.g., GDP, income levels)
- Happiness (e.g., happiness index scores)
- Equality (e.g., income inequality, access to healthcare and education)
- Encourage students to discuss how the data supports or challenges the effectiveness of their assigned system.
- Group Presentation and Defense (15 minutes):
Each group presents their findings to the class, explaining how the data either supports or challenges the effectiveness of their economic system. They should address wealth, happiness, and equality specifically and be prepared to defend their position with data points and examples. - Class Debate (15 minutes):
After presentations, lead a structured class debate. Pose questions like:- Which system seems to foster a better quality of life overall?
- How do these systems address inequality?
- What trade-offs exist in each system, and are they justified?
- Encourage students to ask questions of each other, challenging or supporting arguments based on the data.
- Reflection (5 minutes):
Conclude with a brief reflection. Ask students to write down or share:- One insight they gained about the complexity of economic systems.
- Whether their initial viewpoint changed and why.
Assessment:
Evaluate students based on their participation in discussions, ability to analyze and interpret data, and how well they defended their system’s approach in the debate.
This activity encourages critical thinking, data analysis, and respectful debate, aligning well with active learning strategies.
Collaborators
- Script: Jonas Koblin and Ludovico Saint Amour di Chanaz, PhD
- Cartoon artist: Pascal Gaggelli
- Infographics: Victor Muñoz
- Producer: Selina Bador
- Voice artist: Matt Abbott
- Coloring: Nalin
- Editing: Peera Lertsukittipongsa
- Sound Design: Miguel Ojeda
- Publishing: Vijyada Songrienchai
