Ethiopian Review

Americans are much better off than, say, Cubans. Why? Because of their economies. Americans use capitalism, and Cubans use a command economy. Both are forms of economies; both distribute produced goods to individuals; both involve producers and consumers. So then why are most Americans
wealthier and more satisfied than Cubans are (or, for that matter, any command economy)?

Capitalism, when you simmer it down to one basic point, is this: Consumers decide what they want. In a command economy, however, a body called “the government” decides what consumers want. Somewhere, a decision needs to be made in the company what to produce, how to produce it, and for whom it should be produced. In a command economy, however, the government decides. Therefore, consumers are happy in capitalist economies, because they get what they want. This isn’t the case for command economies.

Capitalism also involves the most effective allocation of resources, because to stay in business, firms need to be efficient, and cater to consumers. Competition inevitably makes the prices lower or the quality better, so that consumers are happy. When the government decides the allocation of resources, resources can be squandered. Competition is usually a good thing, though it doesn’t exist in command economies.

Specialization refers to each person doing one task, and becoming good at it. Specialization increases productivity, which produces wealth (for some). This works in a capitalist economy, but in a command economy, productivity doesn’t matter. Why? Because of the key difference between the two: in capitalism, people have incentives to do well. The harder one works, the more goods and services he/she will in turn receive. In a command economy, you don’t get rewarded for your efforts.

So capitalist economies are generally more well off than command economies. Though command economies argue that poverty is practically eliminated, that isn’t the practical case. Theoretically it should work, but it doesn’t practically. Instead, the whole country becomes poorer. In
capitalist economies, though some are poor, the general country is much more well off.

(by Robert Zirinsky | AC)