Capitalism Vs Democracy Differences and Similarities

The capitalism vs democracy essay aims at making comparisons and contrasts between capitalism and democracy. The aim of the article is to explain the two concepts as well as their pros and cons to further facilitate the understanding of their similarities and differences. Before going to capitalism vs democracy, let us look at the two concepts.

Table of Contents


What is Capitalism?

When we talk of capitalism, it means an economic system in which private individuals are in full ownership and control of all means of production (trade and industry). It is one of the major economic systems that exist in most economies of the world. All capital resources or capital goods/ factors of production are owned by private individuals. Here, the determinant of the level of the production of goods and services as well as their prices is the forces of demand and supply.

A capitalist economy is a free market economy, also known as the laissez-faire economy. Private individuals determine the basic economic problems in society under this economy since they own and control all means of production.

Capitalism pros and cons

1. Advantages of capitalism

Efficient resource allocation

Resource allocation is more efficient in the capitalist economy due to the existence of competition. This happens because companies try to utilize their resources such that they increase productivity and quality. They adopt strategies to cut down costs while they increase productivity and competitiveness. This is because a firm will certainly go out of business if it is unproductive.

Utilization of available resources

Capitalism has a great advantage in terms of optimal utilization of available resources. Firms try to engage their scarce resources in an efficient and economical way. By being strategic in this aspect, efficiency minimizes the wastage of resources. Every producing firm gives in its best in maximizing profit while minimizing cost. This result is possible only through the usage of resources in an economic way.

Financial incentives

In capitalism, the incentives to be more creative and innovative exist. Firms get a higher level of motivation to work hard. In this case,  firms embark on research and development With the purpose of facilitating expansion. The essence of this is to avoid going out of business since it is necessary to survive in the competitive market. In capitalism, every firm competes for the consumer’s money and patronage by improving product quality. So, firms take risks in setting up a business. In this economy, large financial rewards follow suit.

Minimal discrimination

This economic system is a tool for bringing people together and this helps to overcome discrimination. This goes further to encourage domestic and international trade. A sensitive outcome of this is that it works towards breaking down trade barriers. The system brings countries together thereby ignoring racial and tribal differences. Capitalism drives haters towards working on their hatred.

Raising the standards of living

Capitalism helps in improving the standard of living through the reduction of poverty. Obviously, economic growth gives rise to an improved standard of living. This is traceable to poverty reduction. When a country’s GDP grows, poverty reduces, and this is the result of production and entrepreneurship.

Consumer choices

There is freedom of choice. By implication, individuals can choose what to buy. Another area of choice is in the area of occupation and employers. Choices give rise to competition which triggers firms to improve in their product quality.

Dynamic efficiency

Capitalists/producers are highly responsive to the changes in consumer behavior, choices, tastes, and preferences. They respond swiftly to new consumer trends, prompt response to the tastes and preferences of consumers.

Minimal government control

In a capitalist economy, there is minimal government control. Here, if the government tries to control a capitalist economy, problems will result. Some of the problems will include corruption, poor information, and a lack of incentives. By implication, a corrupt government is of great hazard to an economy. In this aspect, government control does more harm than good. This has a very high tendency of eroding an economy.


In this economy, individuals can pursue their self-interests and satisfaction. You have the right to do whatever you desire without experiencing any form of civil and political pressure. The emphasis here is on the idea that people’s actions are beneficial to the entire society. Humans are the most productive factors, they earn money which fetches them both political and financial freedom.


As individuals are free to own and control means of production, they can study the demands of consumers. This enables them to produce commodities that satisfy their wants. Businesses in the market compete with one another for consumer patronage and money. This happens through the growth of demand.  The positive impact of competition is that it motivates firms to produce more goods and lower their prices. This then calls for more labor force and better wages for the labor.

Invention and innovation

Through the capitalist idea, firms get more encouragement to come up with new business ideas. Efficiency in the market moves progressively.  Finding new business ideas as well as applying them to its production processes facilitates rapid expansion, greater employment opportunities, and a greater level of income. Firms that are innovative enjoy the benefits of their research as they create things that never existed.

2. Disadvantages of capitalism

Higher-income and wealth inequality

In the capitalist economy, businesses tend to care less about the less privileged and the disadvantaged. The high rate of competition deviates the focus of people from societal benefits. The effect of this is a higher level of income inequality. Here, people’s priority bases on self-interest rather than societal interests. This, in turn, amounts to consumers exploitation by business firms.

Economic instability

It can lead to economic instability. When the economy expands, there is joy while the reverse is the case during economic contraction. This contraction may amount to an economic recession which will increase the unemployment rate. Wealthier people have more immunity to this period because they can go back to their wealth reserve. The system does not always stay on the growth pattern as some segments enjoy growth while others do not.

Fewer advantages for the low-skilled people

People who do not have sufficient skills will have no place to exist in a capitalist economy. This system requires firms and individuals to remain competitive. Based on this theory, social welfare and security programs do not seem to exist. This implies that any individual who is not able to contribute will face so many life-threatening experiences. Everyone pursues their own interests above others.

Requirements for successful consumption

Without consumers spending their money, the capitalist economy will not be effective. People will struggle to survive if consumers decide to save for future purposes. For capitalism to survive, it requires successful consumption.

Consumerism and environmental costs

For a capitalist economy to be successful, there has to be endless production. This production has led to environmental disasters thereby raising questions pertaining to sustainability. The long-term effect of capitalism is environmental pollution as well as climatic changes in production processes. The depletion of natural resources takes place in the long run thereby lowering the overall quality of life in society.

Greed while seeking profit

The profit comes first before every other thing. The emphasis and focus on profit cause producers to compete among themselves. The focus and emphasis on this subject matter make companies sell their products at the highest possible price. As they do this, they try to keep their costs low. Obsession with profit heightens the level of income inequality. The masses seem not to enjoy equal opportunity. The greed factor amounts to a high level of consumer exploitation. Also, some firms dominate the market thereby eliminating smaller firms. They charge the price they wish to thereby exploiting consumers.

Workforce limitations

In theory, factor inputs should be able to transit from unprofitable to profitable businesses. Unfortunately, this does not work for the labor force. Business fluctuations have a more negative impact on the labor force and this gives rise to a high unemployment rate. It is usually difficult for people to secure full-time jobs unless during an economic boom.

Neglect of social benefits

The system ignores the provision of social benefits since it yields no profit to capitalists. As a major feature of capitalism, the profit motive is the main factor. The government usually steps in to provide social benefits due to this deficiency.

Class struggle

Under capitalism, class struggles and conflicts are inevitable. Labor unrests such as strikes and riots exist in the system. Conflicts usually exist between employers and employees especially when wage earners face exploitation from capitalists.


What is democracy?

Democracy is a system of government in which the entire citizens or eligible ones have the right to carry out direct votes on issues or elect someone to decide on their behalf. In other words, democracy is the government of the people, for the people, and by the people. Due to the fact that everyone cannot have a hand in the running of a country, the masses vote for a representative that will take action on their behalfs such as the members of the house of representatives and councilors.

Almost everyone believes that democracy is the best available system of government. This is because everyone is free to have a voice and air out their opinions. A democratic government is not coercive and dictatorial in nature. In this governmental system,  public opinions are present. Under this form of government, the abuse of human rights is unacceptable.

Democracy pros and cons

1) Advantages of democracy

Personal involvement with the government

Democracy provides people with the opportunity of having personal involvement with their government. Individuals can decide their fate since a democratic government is under the control of the people. This means that people have the right to choose to vote in the manner in which their morality dictates. Every cast of votes is a chance to express personal opinions. An agreement exists in a democratic government.

Minimizes the issue of exploitation

Democratic structures work towards reducing the issues of exploitation. This is because of the individuals that gain votes into powerful positions. Under democracy, there is an equal distribution of authorities in the system. Checks and balances exist to make sure that no single person gains supremacy over legislation. it does not allow officials from ignoring the needs of the people. Everyone has the opportunity to pursue their personal gains.

Positive equality

A democratic system of government encourages equality in a positive manner, it offers every vote an equal amount of weight in the course of an election. Every individual has the opportunity to cast a ballot without any form of judgment while registering for this process. This provides an opinion regardless of one’s economic and social status. In essence, every YES or NO counts as one whether you are rich or poor, possess an asset or not. One word that democracy and socialism have in common is equality.

Faster economic growth

A  democratic government tends to grow an economy faster than other systems of government. The general public can pursue whatever they want.  There are legal barriers to prevent one individual from hurting another even as freedom exists. Democracy influences everyone’s work with regard to fruitfulness as everyone employs their strengths.

2) Disadvantages of democracy

May be ineffective

If voters do not take time to educate themselves on decisions regarding government, democracy will not be effective. There is usually no direction regarding how voters are to approach their responsibility.

Dependent upon the will of the majority

Democracy tends to be unfair to the minority as the majority carries the vote. The majority are better off while the minority are worse off. Minorities tend to feel as though their votes do not really count for something.

The cost of democracy unrealized

One of the least cost-efficient systems of government that exist today is the democratic government. The high cost involved is a factor that many people have not realized that it exists. The time and finances required in conducting an election are so costly. Even local and regional elections cost a lot. It is important for people to have power in their voices even as the government uses the taxes they pay for this opportunity.

More time to implement changes

Democracy requires more time for a change to take place. The processes of implementing changes tend to slow down such that it can take many years. This is because a referendum must go to the voters. All decisions must undergo a review potentially. Because of this, there is a certain level of uncertainty.

The risk of empty promises

The goal of every politician is to receive the highest number of votes. This gives rise to empty promises. An election candidate can make so many promises that will never be fulfilled once he gets into office. Under this system of government, empty promises are common.

Voters must accept an entire mandate for single issues

Unless a direct structure of democracy is in place, voters will always face compulsion to accept an entire manifesto to carry out votes on issues that are critical to their needs. Instead of the people/voters having a candidate who will truly represent them, they have no other choice than to pick the platform closest to their stance.

Capitalism vs democracy

Capitalism vs democracy similarities

The capitalism vs democracy similarities explains the areas in which capitalism and democracy are similar. Though they represent two different concepts, it is important to note some similarities that exist.


Both capitalism and democracy provide for the freedom to make choices between alternatives. Capitalism empowers members by giving them the freedom to make choices with regard to what to produce or purchase. Also, democracy offers freedom of expression to the people. Freedom to make choices is a high moral principle.


Competition exists in both capitalism and democracy. Capitalist firms compete for the consumer’s money and patronage. Also, election candidates compete for the votes of the masses and the masses compete for their personal interests through their votes.

Tendency of immorality

Under capitalism and democracy, immorality tends to exist. While capitalists abuse monopoly power leading to exploitation, candidates abuse their power through some acts like corruption and lies. Election rigging is another form of immorality under the democratic form of government.

Effect on the economy

Both capitalism and democracy have effects on a country’s economy. These effects can take different forms, either positive or negative

Differences between capitalism and democracy

Capitalism vs democracy chart

The capitalism vs democracy chart summarizes the differences that exist between capitalism and democracy.

Table illustrating the differences between capitalism vs democracy
Basis for comparison
An economic system in which private individuals own and control trade and industry as well as all means of production.
 A system of government in which the entire citizens or eligible ones have the right to vote directly on issues or elect someone to make these decisions on their behalf.
An economic concept.
A political concept.
Private sector.
Public sector.
Divides society into rich and poor.
Does not divide society into classes
Individual growth.
Public and government combined growth
Economic growth
Economic growth of the state is absent.
The economic growth of the state is present.
Benefits of capital
It benefits only the business owner
Benefits both society and the public
Priority on societal needs
individual freedom is prioritized above society.
Society has more priority than individual interests.

Key differences between capitalism and democracy

Let us look at capitalism vs democracy differences in the areas below;


Capitalism refers to an economic system in which private individuals own and control trade and industry as well as all means of production. Democracy on the other hand is a system of government in which the entire citizens or eligible ones have the right to vote directly on issues or elect someone to make these decisions on their behalf.


While capitalism is an economic concept that emphasizes private ownership and control of all means of production, democracy on the other hand is a political concept that emphasizes equal rights of the masses to involve in political participation through the casting of votes.


While capitalism has to do with the private sector, democracy basically has to do with the public sector.


Capitalism is characterized by class distinctions where we have the rich and the poor. On the other hand, democracy has the feature of equal rights. The system of government does not divide the class of people into rich and poor. In other words, democracy does not divide society into classes as it is in the case of capitalism.


Capitalism focuses on individual growth while democracy focuses on the growth of the public as well as the combined growth of the government and society.

Economic growth

Under capitalism, the economic growth of the state is absent while it is present under the democratic system of government.

Benefits of capital

Under socialism, the benefits of capital are to the business owner while under democracy, capital is meant to benefit the public and society.

Priority on societal needs

The capitalist system places more priority on the freedom of individuals. Democracy places more priority on the interests of society above individual interests.

Frequently asked questions

What is the difference between capitalism and democracy?

Firstly, capitalism is an economic concept while democracy is a political concept. Also, while capitalism is a private sector, democracy is a public sector. Capitalism focuses on individual growth while democracy focuses on public and societal growth. While capitalism benefits the business owner only, democracy benefits the general public/society. Capitalism places more priority on individual needs than societal needs while the reverse is the case under democracy.

Is the United States a democracy or a capitalist country?

The united states s a capitalist country, highly entrepreneurial with large industries.

Is capitalism a form of government?

Capitalism is an economic system, not a form of government. It is an economic system in which private individuals are in full ownership and control of all means of production.