What Is Capitalism?

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POLITICS | 7 minute read

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Capitalism

Capitalism is the political and economic system of choice for many countries. It has been the driving force behind our strongest economies, the motivator for many of our successful leaders and the system that has helped make the iphone and the automobile possible. So why does capitalism seem to be gaining ever increasing critics?

Capitalism Basics

In its most basic form, capitalism is a system in which the means of production and services are privately owned and not owned by the state or government. This, combined with the free market in which the price of goods and services are determined by how much a customer is willing to pay and how much the seller is willing to sell for, creates a system where prices, control and assets are open for anyone to own and make decisions upon.

In theory this gives the people in society the freedom to work in a role of their own choosing whilst being rewarded financially for the effort they put in. Therefore, the harder you work and the more demand there is for your products or services, the more you earn and the richer you become.

This reward based system encourages people to work harder and smarter, outwit their competition, lower production costs, work more efficiently, take risks and/or create something new for market. Which results in innovation, exploration and creativity, benefitting the state and each individual within.

Supply and demand

At the heart of capitalism is supply and demand. This is where the price of a product or service naturally finds a balance between how available the service/product is and how much a customer wants it. Usually, the rare or more exclusive a product or service is, the more expensive it is.

This simple system sounds great in theory as the price settles at a level where both the buyer and the seller are happy. The downside however is that supply and demand can be manipulated, and used against the buyer, if the product, service or asset is under private ownership. This is done by simply restricting the supply of an otherwise common item and increasing the demand, if it isn’t already there.

Capitalism in a Social Democracy

Social Democracy is a socialist based system which aims to improve the quality of life through equal rights and opportunities.  This is made possible through a state run welfare system that provides access to high quality education and healthcare to everyone. To achieve this, countries such as Finland, Switzerland and Denmark use elements of socialism alongside a capitalist economy for support, bringing together the best of both systems.

What are the pros and cons of capitalism?

Capitalism has provided individuals and societies with everything they desire. Products, services, property, technology, food and even water have been improved or made accessible for millions, making their lives safer and more comfortable.

Capitalism however, does not come without its drawbacks. Most of which appears to be the result of ignorance and ever increasing demand from the consumer or the disregard for ethics by corporations when their only desire is to win a game in which profit is used to keep the score.

Pros

  • Capitalism encourages innovation, hard work and creativity.
  • Privately owning and making decisions on production and services takes the power away from the government and removes bureaucracy.
  • The harder you work the more you earn (in theory).
  • You are free to earn money as you wish.
  • You are free to invest and purchase assets for yourself and your family.
  • Living standards are raised due to the theoretical trickle down from the rich to the poor.
  • Products, food and other consumables are more readily available.
  • Individual health can benefit from the access to fitness equipment, gyms and private healthcare.
  • It fits with human nature. Greed and power.
  • Each person, in their quest for wealth, contributes to society in some way or the other.
  • No matter where you start in life you can have the opportunity to have success.
  • Capitalism works hand in hand with democracy.
  • There are currently no better alternatives.
  • It can work alongside other political and economic systems.

Cons

  • The constant drive for efficiency and cost cutting can result in zero hour contracts, poor working conditions and disregard for workers.
  • Private ownership enables companies to gain a monopoly, allowing them to charge higher prices.
  • Laws and regulations at home can be bypassed by sending work abroad, in some cases exploiting the workers in poorer countries, reducing wage expenses and lowering work conditions.
  • If a product is not commercially viable it can be dropped. Even if it is a life saving medicine or service.
  • Benefits to society can be ignored. Education, healthcare, public transport and housing can be negatively affected and under provided.
  • When one firm is the only employer in the area they can exploit workers and set lower wages (monopsony).
  • The gap between the rich and the power continues to widen causing social divisions, inequality and resentment
  • Capitalist economies historically have patterns on boom and bust. Causing recessions and mass unemployment.
  • It can encourage high quantity, low quality products and the wasteful throwaway mindset.
  • Diets are affected by the production of cost cutting, processed foods.
  • There is no end to what companies attempt to gain ownership. Natural asset such as crops are modified and become assets. Leaving consumers, farmers and communities at the mercy of companies.
  • The environment and the use of natural resources are often abused to keep up with demands.
  • Profit can be prioritised over the environment, animal welfare and people’s health.
  • People and communities can be priced out of an area due to raised property prices and rent.
  • Capitalism can even benefit from war.

Power to the people

What we tend to forget is that the very thing that makes capitalism a powerful system for banks and big business also applies to the consumer. Without demand, a service provider or business can’t function. This means that If we don’t like the way a company behaves we have the choice not to deal with them. A single person wouldn't make much difference of course, but a collective mindset would ultimately lower the demand and force the business to change the way they do things or ultimately collapse. This is what makes capitalism great. If we don’t like the way something is done, we can send our money towards those that will do it the right way.

Maybe, as consumers, the problem lies more in our hands than we like to admit. Taking a little more responsibility, refusing to do business with companies that have unethical practices and putting the environment and welfare of others before jumping on the latest trend might be the answer.

What are your thoughts? Is capitalism the cause of problems or are the associated problems an inevitable by-product of society, economics and politics in general? Or are consumers the problem? Let us know below.

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