In 2007-08, western capitalism was on the brink of collapsing which still shows deficient signs of recovery. The global financial crash led to the deepest and the longest recession in modern history. Certainly, mainstream economic thinking gives us inadequate resources to understand multiple crises which new economies confront. Is the market economy possible without Capitalism?
Capitalism is an economic system that refers to the private ownership of capital goods, by investments that are determined by private decision, prices, production and distribution of goods determined predominantly by competition in the free-market.
Characteristics Of Capitalism
- The capitalist society is divided into two classes – the capitalist class which operates companies and makes decisions regarding the use of resources and the working class which sell their labor in exchange for wages.
- The law of supply and demand guards the efficient use of resources.
- Companies try to maximize their profits by selling the goods at the highest prices and lowest cost else competitors will undermine their profits.
- In such an economy, government’s intervention is least unless companies get unfair advantage in the form of monopolies.
- This economic structure allows change and adaptability of societies.
- Any intervention that decreases the profit-making is eliminated by the market.
Rise Of Capitalism
Increase in foreign trade caused the end of the feudal era and gave birth to capitalism between the 16th and 17th century. Merchants began to bring goods cheaply overseas which were sold at high margins in their countries. Owing to garnering a massive amount of wealth from taxes, the countries tried to maximize their share of trade. It was further preceded by colonization and setup of trading monopolies. Foreign merchants were banished as the colonized countries were exploited for an enormous amount of profitable resources they had. Capital was making more capital. Later, merchants started to dominate the producers and change the production process. Now merchants who were the link first began to pay in advance and provided raw materials for production. This generated bigger profits and capitalism was the hallmark of the economy now.
Benefits Of Capitalism
- Capitalism, in general, produces more wealth,
- Consumers are willing to pay for the best products at the best prices and businesses want to increase their profits which eventually increases competition among businesses to be innovative and efficient.
- Capitalism is more compatible with democracy as compared to other systems.
- Capitalist societies are free from government control.
- Productivity in the workplace elevates the rate of technological innovation leading to the advancement of societies while reducing the costs of goods and services.
- Capitalist nations cooperatively work together which promotes economic liberty through free trade.
Ideally, Capitalism was believed to be the best system ever, today it has become necrotic. Around 4.3 billion of the world’s population still live in poverty and the number has significantly risen over the past few decades. Capitalism’s unending need for resources has driven half of the people above the poverty line over the brink of climate change and ecological collapse.
Undesirable Effects Of Capitalism
- Vulnerability To Crises
Truly, the economic system has generated inequalities of wealth and income, the rising threat of resource meagerness and catastrophic climate change, under investment in infrastructure, science and innovation, public services, growing private debt and falling living standards. In the face of such deep-seated systemic failures, a different understanding of the key capitalist institution is to be developed to reform capitalism.
- Crony Capitalism
Biased of favoritism, crony capitalism opened the rooms for dealings between government and big businesses which obstructs entrepreneurs to compete honestly among each other. When political cronyism overpowers the business world, their self seeking behavior influences the society to such an extent that it deteriorates public-serving political and economic ideals.
- Mindless Consumerism
Unrestrained development is ruining the world. We are consuming resources much quicker than our planet is able to regenerate. This has severely caused an ever-widening gap between rich and poor. The fact is we have very limited real needs. As the desire for material possessions rises, the room for empathy and a sense of purpose gets shortened. Is hyper consumerism a lifestyle or a trap of capitalism? Can we think we are free to buy whatever we want when our choices are actually made for us ahead of time?
- Global Inequality
With its dis-proportionality of power and wealth, capitalism fosters economic inequality alongside equality under the law. The deleterious outcome of it is psycho-social disturbances in an unequal society. What are the drivers that inflame imbalances of income and wealth? Some inequalities result from individual differences in talent or skill and much of it result from inequalities of inheritance. The process is additive that leads to differences in income, education as well as economic power.
A completely capitalist economy is highly competitive which leaves no room for elderly, children, disabled or downtrodden women who would seemingly have little or no skills. Private organizations are not incentivized to provide services or opportunities to them in such cases.
- Jobless Future
Jobs in the future will require specialized and creative skills with high levels of education which most people don’t have. While the future looks promising with the advent of technology which will dramatically increase productivity, the process of reaching there raises many critical questions about the changing nature of work and income disparity. Human labor and judgment will be undervalued relative to machine learning technology.
One of the drastic consequences of capitalism is negative externalities such as pollution and damage to health. A mining company, for example, strips of land of its resources contaminating air and water. Capitalists have no incentives to repair the abrasion. Such activities have a threatening impact on the community and ecology or planet as a whole .
Ways To Redesign Capitalism
- Compassionate Capitalism: It means that the organizations must practice capitalism which is more humane and just. This entails a changed mindset and deviation from the dominant philosophy of degrading the environment and denying to pay for the cleanup, and increasing pay for those who occupy the top of the management hierarchy. It is about treating all employees with kindness, not compromising on safety and quality of their products and services and being transparent about their dealings with regulators and government agencies.
- Control Over Business Monopoly: Government can create regulatory bodies to limit price increase above competitive equilibrium and examine the quality of service to guard consumer welfare. Also, the government can investigate mergers if they create a firm exceeding 25% of the market share to break up monopoly power.
- Engagement Of Businesses In Social Responsibility: The idea of philanthropy goes beyond money making. Business must consider themselves as a constitutive part of society. While money is pivotal for the sustainability of a business, it is not the primary reason for its existence. Higher purposes in businesses such as supporting education and well-being of the underprivileged, taking green initiatives etc. can inspire, energize and engage its stakeholders.
- Wealth Redistribution: Startlingly, 20% of the world’s population consumes more than 80% of the earth’s resources whereas the rest 80% consumes less than 20%. Uneven distribution of capitalism is the cause of unequal distribution of wealth in the world. Adoption of economic policies and strategies like progressive taxation system to level the distribution of wealth in the society via direct or indirect transfer of income from rich to poor.
- Corporate And Political Watchdogs: Establishment of watchdog organizations who work as activists in mobilizing public support in critically monitoring the activities of government and industries will alert the public if any action goes against their interest.
- Universal Law Of Income: It’s quite apparent that the elimination of bureaucracies and declining costs make it possible for the government to provide basic necessities to citizens with adequate income. This could be achieved by providing everyone a stipend covering living cost and thus keeping the government from selecting what social benefits people should have. This will give people the liberty to decide how much they want to work and under what conditions. Individual initiative in the work in fields like philosophy, arts, and science, invention etc. will cause enrichment of their culture in surprising ways we can’t anticipate.
An Ethical Transition In Capitalism If capitalism has to remain as the primary operating system of the world, then it makes sense to write ethics and values in its source code. Conscious capitalism is a better way to exercise capitalism while creating long-term socio-economic and environmental values. Ethical or responsible capitalism is a business model where businesses can develop trust-based relationships with their customers, workers, suppliers, investors, and society. The ideal concept of capitalism based on the public good and public trust can be regained by emerging aspirations and goals towards values-driven capitalism which is the need of an hour.