Socialism is a system of production wherein all the means or factors of production (except labour) are owned by the government. That is all factories in the secondary sector, all offices in the tertiary sector, and all farmlands in the primary sector are under the ownership of the government. Hence, it is the sole authority of the government to decide what commodity should be produced, what technology would be used, where would the production be carried out, how many labourers will be employed, what salary will be paid to them, at what price the product will be sold, who all are permitted to buy the product and in what quantities, how much will it be exported if at all etc. The government also decides whether how to utilise the profits or the revenue generated from the sale of the product for distribution amongst the poor, or for carrying out investments for the future. The government normally takes these decisions on the basis of its own norms and priorities, such as either for social welfare, or nuclear warfare, space research, with little or no concern for market demand conditions.

By contrast, capitalism is a system of production wherein all the means or factors of production are owned by private individuals. Hence, all the factories in the secondary sector, offices in the tertiary sector and farm lands in the primary sector are under the ownership of private individuals, called entrepreneurs or owners. Therefore, they take decisions on the basis of what commodity to produce, at what price to sell, what technology to use, what quantities to produce, where to sell, what marketing techniques to adopt, from where and how to raise funds, how many labourers to employ, what salary to pay, etc. They are also responsible for taking decisions on the usage of the profits or the revenue from the sales proceeds, either for personal consumption, or for carrying out expansions of the firm. These decisions are normally demand driven and taken with the motive of maximising profits and hence private entrepreneurs try to keep their cost of production at the minimum.

Socialism Merits: Socialism is based on the concept of social, joint or collective and hence state ownership of every factor of production. Therefore, the biggest merit of socialism is that it promotes perfect economic equality in the society, leaving no distinction between the rich and the poor. The equality is maintained by paying an equal amount of wages and salaries to all the individuals on the basis of their needs and contributions to the society, irrespective of their hierarchical status.

Socialism Demerits: Socialism is based on the principle of perfect and complete economic equality. This system of socialism kills and discourages all incentives to innovate, compete, excel and develop individual capabilities, as the remuneration and emoluments are fixed equally for all, irrespective of their competencies. As a results, it compromises the long-term growth rate of the economy. Besides, the system of socialism vests wastes too much power in the hands of the government, which eventually makes it autocratic, dominating, interfering and dictatorial, which curbs personal liberties and freedom.

Capitalism Merits: Capitalism, is based on the notion of individual or private ownership of factors of production. It therefore values and rewards individual capabilities, competencies and excellence. Hence it encourages ever higher pace of innovations, technical development, acquisition of skills, improvements of land and capital, so as to get higher remuneration than the others. Anyone with better skills or better quality of factor of production is rewarded with a higher pay package or profits. This usually keeps a faster growth rate of the economy and much higher per capita incomes. Besides, capitalism is based on a greater celebration of individual freedom and liberties. Hence capitalism promotes a democratic form of government.

Capitalism Demerits: The drawback of capitalism lies in the different remuneration and compensation for different individuals so that some earn many more times than the others. This breeds extremely high income inequalities so much so that, at times the top 10% of the population owns 40 to 50% of the nation’s income, wealth and factors of production.

Industrial Revolution was a phenomenon that occurred around 1740, which involved a sudden spurt in the output of the secondary sector through mass production of commodities in factories. Prior to the Industrial Revolution, the concept of carrying out mass production of commodities in factories by using machines was non-existent in the world. Then, production in any economy took place mainly in the primary sector in cottages and households with the help of human (family members) and animal labour and natural resources as raw materials. However, around 1740 people started inventing small and simple machines and learned the methods of bulk producing commodities with the help of these machines, which worked with the help of an external source of power or fuel such as kerosene, petrol and eventually electricity. This led to the emergence of the secondary sector.

The First phase of the Industrial Revolution was the Cotton phase which lasted from around 1740 to 1840. This was essentially a consumer goods phase and saw the emergence of a number of new consumer goods and their mass production in industries. The Second phase of Industrial Revolution was the Railway phase that lasted from 1842 around 1950. This was essentially a transportation phase which saw the worldwide emergence and expansion of railways and motorised vehicles such as cars, aeroplanes etc which could run on fuel, either coal or petroleum. The Third phase of Industrial Revolution was the digitalization phase from 1950 to 1995, which involved increased adoption of computers the world over. The Fourth and hitherto last phase lasting from 1995 onwards is the phase of Internet, Cloud computing and Artificial Intelligence.

Initial Exploitative Nature of Industrial Revolution: Under Industrial Revolution, all the means or factors of production and hence factories were privately owned by entrepreneurs. Thus, with industrial revolution came capitalism. With the aim of maximising profits, the entrepreneurs resorted to highly exploitative methods of production so that the workers were made to work in multiple shifts for 16 to 17 hours a day with no breaks or holidays, very low wages, no Social Security schemes and compensations in case of on job or on-site injuries, death and job loss, no voting rights, or rights to revolt, strike or unionise etc. Over generations this led to extreme pauperisation of the labour force, which was forced to live in extreme poverty in extremely poor sanitation conditions. However, overtime many of these exploitative features ended as the governments placed restrictions on the working of capitalist enterprises. 

Rise of Socialism: The industrial revolution was responsible for the emergence of the socialist ideology around 1850 as an escape from the exploitative nature of capitalism that prevailed at that time. It was believed that a collective or joint or government ownership of all enterprises would end all exploitation of the workers, as the government and the labour force would work towards their collective welfare. They would collectively take decisions on issues and matters of running the enterprise and also share in all the profits and the revenue that would be generated as a result.

At that time it did not occur to the philosophers that the exploitative nature of capitalism can also be ended, handled and tackled by imposing restrictions on the private entrepreneurs through minimum wage legislations, restrictions on the maximum number of working hours, minimum number of holidays, permitting workers to form unions and hold strikes, etc.

The reasons responsible for the Russian Revolution include the following:

• The first and foremost reason responsible for the Russian Revolution in 1917 was the rise of the learned middle class. By 1900 an increasing section of the population started believing that Russia also needed a revolution similar to the French Revolution. People longed for greater liberties and individual freedom, and the right to decide their own representatives who would form the government and take decisions.
• Secondly, by 1900 the Industrial Revolution which had originally started in Britain around 1740, now started spreading to Russia as well, which changed the Russian society and way of living. The Industrial Revolution came with its own problems of high exploitation of the labourers for profit maximisation. New towns and cities came up which were highly crowded, with immense housing and sanitation problems. Child labour was prevalent, the women and the children were paid half to ¼ wages of adult men, the workers had long working hours with no breaks, emoluments, social Security schemes, voting rights etc.
• Third, almost 85% of the population continued to remain poor, subjugated and heavily taxed by 1900, with very less land to cultivate. They faced similar subsistence crisis as was faced by the Frenchmen before the Russian Revolution.
• Fourth, the ideas of socialism started taking shape in many parts of Europe and especially Germany under the influence of Karl Marx. These gradually started spreading to Russia as well, and the Russian men started aspiring for a society which was based on equality of incomes as a respite from the inequalities bred by capitalism through the Industrial Revolution. As a result, two political parties were formed in Russia namely Social Democratic Workers Party and the Socialist Revolutionary Party
• Fifth, Russia also had an inherent socialist structure of society since centuries. In the villages the farmers practised the system of collectivization wherein after every few years the farmers redistributed their land, tools, implements and other belongings amongst themselves. This practice helped to maintain a greater equality in the countryside, as a bigger share was always given to those in greater need. The farmers the small and marginal farmers also frequently revolted against the atrocities and exploitation by the large estate owners. Similarly in the towns and cities, the industrial workers were overall united and formed strong associations to financially help each other in times of need, such as in case of job loss or on-site injuries etc. They also organised frequent strikes against dismissals and pathetic work conditions.
• Sixth, there was a complete collapse of the domestic economy towards the end of the First World War. Industrial supplies through the Baltic Sea was cut off, as a result of which, the industrial equipment disintegrated, degenerated & depreciated and railway lines broke down. Labour and food shortage emerged everywhere as many men died fighting the War and the able-bodied workers were sent on the front. Besides, all food was diverted to the soldiers, some 8 billion rubbles worth of war debt accumulated, inflation soared, gold reserve depleted, reconstruction cost galloped etc.