Pros and Cons of Capitalism
Capitalism is a general term for an economic system where the means of the manufacture, sale and distribution of goods and services is privately owned and operates with minimal control and oversight from government agencies. Let’s see what benefits capitalism brings. First of all, the basic concept of capitalism is an open system of free competition. It allows multiple suppliers to compete for their share of the market. Anyone can start a business. Under a capitalistic system, a wider range of the population is able start successful businesses. The entrepreneur flourishes best in this environment.
It also provide an open competition in the market. It provides individuals with far better opportunities of raising their income and thus achieving economic growth. Market forces can, and in many cases do direct the evolution of the markets and the products offered. Companies tend to succeed when they excel at providing what the market or customer wants to buy. This self regulation makes it possible for rapid changes in the goods and services available to consumers. Capitalism results in a decentralized economic system. Decentralized system is more stable and dynamic.
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A capitalistic economy is less centralized and less subject to the bad decisions of individuals or small, governing groups. If a market strategy doesn’t work, it may mean bad times for the businesses where it was employed, but there are always more companies waiting to pick up the slack. In a decentralized economy, individuals are open to more number of options in business. They are exposed to competition and have to face different challenges and find solutions to them to stay in competition. It is in a capitalist economy that hard work is rewarded.
Entrepreneurs who pitch well and are able to better their business are the undoubted winners. Capitalism gives rise to an economy where the consumers regulate the market. Many consider this as one of the greatest strengths of a capitalist economy. A competitive market provided by capitalism facilitates the manufacture of a wide variety of products and the formation of a wide range of services. Forces innovation to cut cost and improve products. The competitive nature of a capitalist economy in theory produces lower prices, higher quality and encourages rapid innovation.
Consumers are happier in a capitalist economy. It encourages people to work towards financial freedom. On the other hand, there are different views about capitalism. Some believe in its strengths, while others complain about the unfair distribution of wealth it may lead to. A mixed economy can perhaps serve as the golden mean. Some consider the fierce competition brought about by capitalism as its major drawback. They believe that a capitalist economy can give rise to unfair competition. Capitalism makes an economy money-oriented. Business corporations look at the economy with a materialistic point of view.
Profitability remains their only primary business goal. Business giants take over smaller companies. Employment rights are compensated with the sole aim of higher productivity. Another con of capitalism includes ignorance of social benefit. A free market will ignore externalities. A profit maximising capitalist firm is likely to ignore negative externalities, such as pollution from production. This can harm living standards. Similarly, a free market economy will under-provide goods with positive externalities, such as health, public transport and education.
This leads to an inefficient allocation of resources. Even supporters of capitalism will admit that government provision of certain public goods and public services is essential to maximise the potential of a capitalist society. A capitalist society is based on legal right to private property and the ability to pass on to future generations and hence causes wealth inequality. Capitalists argue that a capitalist society is fair because you gain the rewards of your hard work. But, often people are rich, simply because they inherit wealth or are born into a privileged class.
Therefore, capitalist society not only fails to create equality of outcome, but also fails to provide equality of opportunity. Inequality creates social division. Societies which are highly unequal create resentment and social division. A capitalist society argues it is good if people can earn more leading to income and wealth inequality. However, this ignores the diminishing marginal utility of wealth. A millionaire who gets an extra million sees little increase in economic welfare, but that 1million spent on health care would provide a much bigger increase in social welfare.
The lower levels of regulation can allow for many abuses of the system by individual companies or groups of companies. These abuses can include unfair labor practices. One of the big costs of any operation is the money paid to the employees. Companies have used various means to counter workers demands for a living wage, including banning unions. Beside, some economists believe that capitalism may lead to a depletion of the resources on Earth, as it requires continuous economic growth.
Few companies have voluntarily improved their impact on the environment, although the recent growth of ecological awareness on the part of the consumer may be changing that. The rise of the mega corporation is being viewed as a new form of capitalistic excess with the goal of eliminating the competitive factor that helps protect the consumer from price gouging. Rather than banding together, which is illegal in most countries, the new mega company grows by either buying out its’ competitors or driving them out of the market.
Once the market is dominated by a single, giant supplier, the consumer is faced with buying only the products offered at the set price. Capitalism is also blamed by many as the source of the great disparity in wealth in many capitalistic countries. The amount of money earned by the top management of major corporations dwarfs the pay of their employees. Private ownership of capital enables firms to gain monopoly power in product and labour markets. Firms with monopoly power can exploit their position to charge higher prices