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S. Wyatt Shely

Ms. Caruso

UWRT 1103-037

6 October 2015

Using Socialism and Capitalism to Reduce Poverty

Poverty is an issue that affects humanity on every continent of the globe. It is an

international problem that strips people of their dignity, deprives them of basic necessities, and

cripples their ability to flourish in society. Even in the twenty-first century "poverty remains a

global problem of huge proportions. Of the world’s 6 billion people, 2.8 billion live on less than

$2 a day, and 1.2 billion on less than $1 a day" (Wolfensohn VI). Although it would be ideal to

totally eradicate poverty’s existence, the first step is to identify the most effective and efficient

ways it can be reduced. Scandinavian countries such as Finland, Denmark, and Sweden are

examples of nations effectively reducing poverty through the employment of capitalist and

socialist principles within their economic and political system. In fact, they are noted for some

of the lowest poverty rates in the world (Miller par.1). In order to cause a considerable reduction

of impoverished populations, there needs to be a complementary utilization of capitalist and

socialist principles.

The majority of countries in today’s society contain a combination of political and

economic systems: In the modern era, a solely capitalist or socialist nation does not exist. The

United States, thought to be a capitalist nation, has socialist aspects such as welfare, a publicly

governed military, and the Federal Drug Administration. Alternatively, predominately socialist

nations, such as Denmark and Finland, have transitioned their tax policies with more capitalist

tendencies. The primary distinction between these two political and economic systems is the

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ownership of the production and distribution of goods and services. Capitalism is “based on the

private ownership of capital and production inputs, and on the production of goods and services

for profit” (“Definition of Capitalism”). A capitalist society develops entrepreneurs and breeds

innovation. “Theory on Capitalism” furthers “Definition of Capitalism” by specifying that

capitalism is “open to new ideas, new firms and new owners” (“Theory on Capitalism”).

Socialism is antonymic to capitalism. Rather than promoting competition, socialism promotes

communal equality through a “system of collective or government ownership and management

of the means of production and distribution of goods” (“Socialist Ideologies”). Socialist society

stresses the need for free education, free universal healthcare, and other programs that help meet

the needs of the people in society (Maass par. 2). Capitalism runs through private ownership and

action, while socialism runs through governmental ownership and action. These two contrasting

political and economic systems develop opposing ideals of how to approach the issue of reducing

poverty within their societies.

When assessing strategies to decrease poverty, capitalists do not believe that it is

effective to distribute money as handouts to those in need, hence their critical attitude toward

“top-down government funding as a strategy” (Shirima 2). John Stossel has witnessed proof of

Dr. Shirima’s claim that government funding is ineffective. Stossel remembers when President

Johnson was in office, there was an incredible amount of money being spent on government

programs aiding the poor, “and the poor stayed poor” (Stossel par. 3). Perhaps a more successful

method would be to utilize privately owned charities that are locally based. The privately owned

charities are more acquainted with the problems connected to poverty in their specific regions,

and therefore, will be able to address the problems more productively.

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In a capitalist society, economic growth is created from the private sector through the

formation of new businesses that provide jobs and stimulate the economy. In an experiment to

determine the relationship between the increase in entrepreneurship and the decrease in poverty,

Dr. Shirima concluded that policy efforts should be directed “towards promoting innovation and

entrepreneurship” (Shirima 10). When people feel as though they can create businesses, the urge

to work and climb out of poverty is stimulated. Two missionaries, Marc and Craig Kielburger,

have experienced Dr. Shirima’s conclusion on many visits to developing countries. One

experience in particular involved meeting an impoverished 13-year-old boy on a visit to India.

The boy was asking for money to purchase a carom board (similar to an air hockey table), in

order to create a business where renting the table to people. This was his plan to escape the

shackles of poverty. This boy knew he had to take initiative to rescue himself from poverty

instead of begging on the streets for the rest of his life. Contrary to the non-profit sector’s belief,

“entrepreneurship is a key player in ending global poverty by reversing the cycle of dependency

with a cycle of self-sufficiency and employment” (M. Kielburger, C. Kielburger 13). This

entrepreneurial notion aligns with what an old Chinese Proverb says, ‘Give a man a fish and you

feed him for a day; teach a man to fish and you feed him for a lifetime.’ Entrepreneurs that

create businesses, “enhance economic growth by generating incomes, creating employment

opportunities, paying state taxes and making available varieties of goods and services at

competitive prices” (Shirima 3). Capitalists believe that entrepreneurial economies are vital for

the reduction of poverty. The constant filtration of non-beneficial businesses along with the birth

of new innovative businesses adds a sense of competition to pro entrepreneurial economies

(Oghojafor 8). The capitalist strategy for minimizing poverty is to promote entrepreneurial

efforts that create positive economic activity such as creating jobs, and to keep the government

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out of the private sector – including privately owned charities – in order to support the more

effective private sector.

According to the Socialist Labor Party of America, socialist society promotes “freedom

and opportunity” to everyone, through the collective ownership of factories and production

(“Socialism—Its Meaning and Promise” sec. 6 par. 1). This allows for everyone in society to

share the benefits of production, rather than the private owners of industry in a capitalist society

reaping the profits (“Socialism—Its Meaning and Promise” sec. 5 par. 4). Nations that are

predominately socialist in today’s society do not mandate collective ownership of factories and

production to the extent at which socialism is usually defined. Socialist leaning nations apply the

principle of communal sharing of the benefits of production by constituting higher taxation rates

that pay for socialist services. These services include free healthcare, free education, and

substantial welfare systems for all citizens (Peerform sec. 4-7). There is evidence of many

countries utilizing these socialist principles to improve the standard of living of their people,

while also having a profitable economy. For example, Norway provides free healthcare to all its

citizens, but also maintains a prosperous economy (Gilbert 2-3). To go along with this previous

example, Christopher Helman noted that many of the most prosperous countries in the world are

Scandinavian countries (Norway, Denmark, Finland, and Sweden) with socialist style

governments that focus on “generous welfare benefits and lots of redistribution of wealth,” yet

they maintain civil liberties (Helman sec. 2 par. 9). People have two polarizing points of view

regarding which political and economic system is the best for reducing poverty. Socialist

supporters give a large amount of faith and control over to the government, while capitalist

supporters have little faith in the government’s effectiveness.

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The reduction of poverty in socialist leaning Scandinavian countries, noted by Helman

and Gilbert, contradicts Dr. Shirima’s and John Stossel’s notion that government funding is

ineffective. Through the point of view of Shirima and Stossel, it seems as though the

government is siphoning money out of the private sector through taxes, which can slow

entrepreneurship and innovation. Marc and Craig Kielburger concur with this idea having

witnessed the relationship between entrepreneurial motive and poverty. So how are these

Scandinavian countries reducing poverty with the provision of socialist services, and without a

reduction of entrepreneurship?

The Scandinavian countries (Finland, Denmark, Sweden, and Norway), with the lowest

poverty rates in the world, have combined the “best of capitalism and socialism” in order to

reduce poverty to a record low (Miller par. 5). The use of socialist principles is exemplified

through the governments’ provision of all the components needed to flourish in society such as

“equal rights and access to healthcare, social services, education and culture” (Miller par. 3).

Capitalism is symbolized by the Scandinavian countries’ motive to promote entrepreneurial

efforts through education and policy changes. The common denominator of all countries with

low poverty rates is their proficiency of “fostering entrepreneurship and opportunity” (Helman

sec. 3 par. 9). The best method to reduce poverty is to use the capitalist principle of promoting

entrepreneurship and innovation into society to strengthen economic development, while

simultaneously providing socialist principles such as free healthcare, free education, and a strong

welfare system, in order to provide for citizens’ basic needs. This creates a sense of security and

inspiration within a society that promotes growth and decreases poverty.

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Works Cited

"Definition of Capitalism." Investopedia. Investopedia LLC, 18 Nov. 2015. Web. 01 Oct. 2015.

Gilbert, Sarah. "Norway's Success in Socialism Has Me Turning Red with Envy."

DailyFinance.com. AOL Inc., 14 May 2009. Web. 30 Sept. 2015.

Helman, Christopher. "The World's Happiest Countries." Forbes. Forbes Magazine, 19 Jan.

2011. Web. 30 Sept. 2015.

Kielburger, Marc, and Craig Kielburger. "How Entrepreneurship Fights Global Poverty."

Marketplace July 2014: 13. The Marketplace. Mennonite Economic Development

Associates. Web. 3 Oct. 2015.

Maass, Alan. "The Case for Socialism." ISO. International Socialist Organization, 2001. Web. 01

Oct. 2015.

Miller, Ryan. "The Nordic Welfare Model: Why There Is Less Poverty in Scandinavia."

BORGEN Magazine. The Borgen Project, 06 Feb. 2014. Web. 30 Sept. 2015.

Oghojafor, Akpoyomare, Olayemi, Olabode, Okonji, Sunday, and Olaywola. “Entrepreneurship

as a Intervention Strategy to Poverty Alleviation in Developing Economy.” International

Entrepreneurship Forum. University of Essex, Jan. 2011. Web. 30 Sept. 2015. PDF file.

Shirima, Ludovick. "Alleviating Poverty Through Innovation and Entrepreneurship." Web. 29

Sept. 2015. PDF file.

"Socialism—Its Meaning and Promise." Socialist Labor Party of America. Socialist Labor Party

of America, 2006. Web. 26 Sept. 2015.

"Socialist Ideologies." Collins English Dictionary – Complete and Unabridged. 1991, 1994,

1998, 2000, 2003. HarperCollins Publishers 1 Oct. 2015

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Stossel, John. "Capitalism Does Much More for Poor People Than Government Playing Santa

Claus." Reason.com. Reason Foundation, 17 Dec. 2014. Web. 26 Sept. 2015.

"Theory of Capitalism." Theory of Capitalism. Columbia University, n.d. Web. 01 Oct. 2015.

"Top 10 Most Socialist Countries in the World." Web log post. Peerform. Peerform, 6 Dec.

2012. Web. 30 Sept. 2015.

Wolfensohn, James D. Foreword. World Development Report 2000/2001: Attacking Poverty.

Oxford: Oxford UP, 2001. VI. World Development Report 2000/2001 - Attacking

Poverty. Oxford University Press. Web. 30 Sept. 2015.

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