The Cold War between the U.S. and U.S.S.R was not just a battle for military supriority but also the clash of ideas. U.S. victory in the Cold War helped promote capitalism around the world because capitalism proved itself the best economic system. Capitalism is better than centrally-planned economy because it is more efficient and innovative.
Capitalism is the best economic system for the well-being of the country because it ensures more efficient allocation of scarce resources as compared to centrally-planned economy. The forces of demand and supply send signals to the market participants that help them allocate the resources to their most productive use. As a result, capitalism is more productive than centrally-planned economy because it achieves greater output from a given set of resources as compared to centrally-planned economy.
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"The Advantages of Capitalism".
Capitalism is also superior to the alternatives because it creates incentive for hard work and innovation. The private sector can own and utilize factors of production in capitalism. There is no upper limit to the rewards so there is greater tendency to take risks and pursue nonconventional ideas. Moreover, the pay system in capitalism is usually determined by the fruits of one labor so hard work and risk-taking are rewarded. The lack of incentives in the alternatives such as centrally-planned economy do a poor job of motivating workers because there is little upside to working harder than the peers. The incentive to work harder is also lower due to higher job security in a centrally-planned economies because performance accountability is lower in a centrally-planned economy than it is in capitalism.
Capitalism is better than the alternatives because of the decentralized nature of decision making process. The government makes the allocation decisions in a centrally-planned economy where as the private sector makes the allocation decisions in capitalism. The government can function efficiently to only a certain extent, and this is even true of big corporations. Once corporations become big, the upper management often decentralizes the operations of the company due to the growing size and complexity of the organization because of higher risk of diseconomies of scale. If it is so difficult to run a big corporation, it should be even more difficult to manage the economy of the entire country. As a result, centrally-planned economy lags behind capitalism in terms of economic productivity.
Capitalism performs better than the alternatives because of higher degree of competition. The firms in the private sector compete with each other to win customers. As a result, they face pressure to offer high quality of products and services at competitive prices. This benefits the customers through both choices and good values. In contrast, the firms in centrally-planned economy are often government-owned and protected from competition. This eliminates the incentive to improve and hold themselves to higher standards of quality and customer service. The customers may also hurt due to higher prices because lack of competition gives greater negotiation power to the firms.
Capitalism is better for the economic well-being of a country than the alternatives because it is better at attracting foreign direct investments (FDI). The capitalism allows the foreign investors to own and operate factors of production. In addition, the rules and regulations are favorable to the foreign investors, hence, lowering the default risk for them. In contrast, foreign investors have fewer, if any, protections in a centrally-planned economy. There is also a higher risk of nationalization of private assets, which dissuades many foreign investors from investing in centrally-planned economies.
It is clear that capitalism is the best economic system for the economic well-being of the country because it results in more efficient allocation of the scarce resources of the country. Capitalism also does a better job of creating incentives for hard work. In addition, it is better suited to innovation and risk-taking. Capitalism promotes competition, which benefits consumers through greater choices and better prices. Moreover, capitalism attracts more FDI than the alternative economic systems because it offers more protection to foreign investors.
