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Capitalism: A Road Ahead

“Capitalism Is A Cancer To Society”

We know that most of the world’s most powerful and successful economies are capitalistic at their heart and core. Then, why do we criticise this system with all our might? The sociologist Thomas Cushman has stated: “Anti-capitalism has become, in some ways, the central pillar of the secular religion of intellectuals, the habitus of modern critical intellectuals as a status group.”[1] Over the centuries, we have failed to understand the spontaneous evolution and advantage of capitalism over the other economic systems. Through this article I would like to take the readers through a journey of embracing the much denounced capitalist system.

Capitalism can be defined as an economic system where the means of production are owned, controlled and operated by the private sector. Production is done mainly to earn and boost profits. The production of goods and services is based on the supply and demand of the market economy. The purest form of capitalism known to mankind is the laissez-faire system, commonly known as the free market. In this system, private individuals exercise the power to make decisions of where to invest, what to produce and at what price to sell without any intervention by the government. Thus, the laissez-faire marketplace operates without any checks or controls. In the 21st century, most countries practice a mixed economic system (capitalism+socialism) which includes some degree of government regulation of business and ownership of select industries.

In order to understand why so many intellectuals hold anti-capitalist views. We need to understand why capitalism has developed such resentment and opposition from the public. Capitalism has grown out of classic feudalism. In ancient times skilled workers didn’t receive any real wages but an upkeep from their feudal lords. Mercantilism gradually replaced the feudal economic system. Colonialism flourished but the nations couldn’t improve trade. Most colonies were set up with an economic system that smacked of feudalism, with their raw material going back to the motherland of the colonisers. In the British Colonies, the colonies were also forced to purchase the British manufactured finished goods at exorbitant prices, thereby preventing the colonies to trade with any other nation.[2] It was Adam Smith who realised that mercantilism was not a force of development and change, but a regressive system that was creating trade imbalances amongst nations and keeping them from advancing. It was his idea for a free market that opened the world to capitalism.

“Contrary to the popular belief, Karl Marx did not coin the term ‘capitalism’, although he certainly contributed to the rise of its use.”

The economic freedom of capitalism matured along with democratic and political freedoms, liberalisation and the rise of human rights. A massive expansion of the financial sector accompanied the rise of capitalism. By creating incentives for entrepreneurs to reallocate their resources from unprofitable channels into areas where the consumers valued them more, capitalism has proven to be a highly effective vehicle for economic growth. But this rapid economic growth occurred at the expense and conquest of natural resources. In a capitalist economy, the state doesn’t directly employ the labour force. This lack of government run employment can lead to unemployment during economic downturns.

Some of the major drawbacks of capitalism are as follows:

  • Inequality- The cliche “anyone can be rich if they work hard enough” is a ruse as there is not much room on the top. In order to mint money, you’ll have to take it from someone else, i.e. through selling, taxation, etc. This implies that the rich cannot exist without the poor and there can never be true equality in capitalism.

  • Undemocratic- In a capitalist economy, the rights of people are more likely to be overlooked by the government to please the big business because they fund their election campaigns and influence their public image.

  • Pollution- Capitalist enterprises tend to exploit the environment and cause pollution. The big businessmen couldn’t care less about the long term effects of their actions as long as they make profit.

  • Anti-Social- In a capitalist system, the profit motive is far greater than altruism. If people are worried about their own pockets, they’ll avoid helping their fellow beings. People feel the need to put themselves first because they think that no one will be there to help them if they lose all their money.

  • Poverty- It is quite clear that if some people have an excess of resources in a society, there will be others who wouldn’t have much. In third world countries, many people are starving because they cannot afford to feed themselves, while those in western countries fatten themselves and indulge in wasteful consumption.[3]

  • Blinded by the above disadvantages, we fail to realise how capitalism saved the world. Capitalism is the world’s greatest economic success story. It is the most effective way to provide for the needs of people and foster the democratic and moral values of a free society. Yet the worst recession in decades has widely and understandably shaken people’s faith in this system. Even before the current crisis, capitalism received a “bad rap” from a culture ambivalent about free markets and wealth creation. This crisis of confidence is preventing a full recognition of how we got into the mess we are in today- and why capitalism continues to be the best route to prosperity.[4]

    “If you hate poverty, you should love capitalism.”

    The next time you hear someone bad-mouth capitalism, think about this: the percentage of people living at starvation level poverty has fallen from 80% to 20% since the 1970’s. Before that, one in four people around the world lived on a dollar or less a day. Today, it’s about one in twenty. This is one of the greatest achievements in the long list of failed attempts to reduce poverty. So, how did this remarkable transformation come to pass? Was it the exceptional success of the United Nations? The generosity of the U.S. Foreign Aid? The brilliant policies of the I.M.F. and the World Bank? Stimulus spending? Government redistribution? No, it was none of those things. It was capitalism. Billions of souls around the globe have been able to pull themselves out of poverty thanks to some of mankind’s greatest innovations: globalisation, free trade, property rights, the rule of the law and entrepreneurship.

    The ideals of the free market and global leadership, central to capitalism, are responsible for the greatest reduction in human misery since mankind began its long climb from the swamp to the stars. But capitalism is struggling to attract new followers; some even believe that it’s destined to fade away. According to a Harvard study- only 42 per cent of young Americans have a favourable view of capitalism. What explains the discrepancy between the incredible results of capitalism and its popularity? Why does capitalism get such bad rap? The answer is simple: the propagators of free enterprise have done a terrible job of telling the people how efficient the system is. Capitalism has served a billion people and yet we have treated this miracle like some state secret.

    What is the alternative?

    Churchill’s quote states that:

    “It has been said that democracy is the worst form of government except all the others that have been tried.”

    The same can be said for a free market. When the government tries to control the economy, we are left with problems like corruption, lack of incentives and poor information.[5]

    Creative Destruction

    If firms become outdated and inefficient, they go out of business. This often leads to short term problems like unemployment. However this lets resources and capital to shift to new, more innovative and efficient industries. Old jobs are destroyed, but millions of new jobs are created.

    Financial Incentives

    It is well known that people work harder towards their jobs if there is a financial incentive attached to it. Entrepreneurs only take risks in setting up businesses because of the potential for large financial reward. If this scope for private profit is absent then new firms won’t be set up.

    Efficient Production & Allocation of Resources

    Capitalism acts as the invisible hand of the market and makes sure that resources are distributed efficiently. Firms are not rewarded for producing goods that people don’t want. Firms also tend to cut costs to improve competitiveness and production so they don’t go out of business.

    Rising Living Standards

    Capitalism has contributed to rising standards of living and fall in poverty levels. When economies adopt the free market mechanism, they see a rise in living standards.

    Overcoming Discrimination

    One of the great virtues of a free market is that it doesn’t care what colour people are, what is their religion; it only cares whether they can produce something that people want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another.[6]

    I conclude in the words of Ralph Waldo Emerson, “Doing well is the result of doing good and that’s what capitalism is all about”

    By Prisha Verma
    Senior Secondary Student, Bhatnagar International School



    References:

    [1]https://www.adamsmith.org/intellectuals-dont-like-capitalism

    [2]https://www.investopedia.com/terms/c/captitalism.asp

    [3] https://www.google.co.in/amp/s/listverse.com/2012/01/16/top-10-disadvantages-to-capitalism/amp/

    [4]How Capitalism Will Save Us: Why Free People and Free Markets Are the Best Answer in Today’s Economy. —By Steve Forbes and Elizabeth Ames

    [5]https://www.economicshelp.org/blog/1259/economics/advantages-of-capitalism/

    [6] Milton Friedman

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