CAPITALISM- An Unclear Investment?

Posted on August 6, 2011

By Sanchita Gupta:

Capitalism by definition means an economic system where means of production are privately owned and operated for profit. It’s a free market economy that evolved from mercantilism. To put it in simple terms, capitalism is roughly defined as the distribution of goods in order to realize a profit. Goods are bought at one site for a certain price and moved to another site and sold at a higher price. It came into existence in Rome, middle-east in the early middle ages, and since then has been in practice with diversification into many forms.

Capitalism can be characterized on the basis of the level at which it is implemented, be it state capitalism, corporate, free market etc. In a capitalist economy, the prices of goods and services are controlled mainly through supply-demand and competition. By statistics, it can be seen that it has greatly improved world economic growth since its implementation. Pre-implementation growth is six folds in years 1000-1820, whereas fifty folds during post-implementation years. Keeping all this in mind it has its own share of criticism as well.

Unfair distribution of wealth and power, a tendency towards market monopoly and various forms of economic and cultural exploitation like repression of workers and trade unionists, economic inequality and instability. It is also considered to be an inefficient and wasteful practice as products are designed to wear out faster than usual so that new consumption is generated even faster. For better understanding, we have Apple which designed iPods that failed in 18 months.

It has also brought up two major negations- excess and exclusion. To feed its hunger for growth, capitalism, as we know, requires plenty of resources — financial, technological, and natural. But due to limited supply of resources capitalism cannot be sustained. It leads to exclusion as individual interests of people become the main aim rather than rectification of bigger concerns surrounding benefit of others.

In a non-capitalist country the power and means of production fall in the hands of self-centered bureaucrats, and this is largely prevented by capitalism. It gives the power to entrepreneurs who work for their own personal needs. Which makes them do all they can to enhance production for greater profits, which inadvertently means that the economy improves as a whole. This creates an atmosphere of better competition and, in the long run, proves beneficial to all. Also, the consumers get a great variety to choose from and spend their money willingly as and when required, making the society more liberal and bringing up the standard of living. In spite of all these benefits, the major drawback remains the same- the big, rich, materialistic and money-oriented capitalist exploits the less-privileged workers and prevents contemporaries from entering the market, hence monopolizing resources, which in turn is destroying the main advantage of capitalism.

On the whole, we can sum it up by clearly defining its effects and decide accordingly if its cons can be turned into pros and vice-versa. It produces more wealth, encourages hard work and ingenuity. It is more compatible with democracy. Free markets can conduct certain functions that are normally handled by the government, making the capitalist society more efficient. They generally do not have black markets; hence, crime and corruption is reduced. To put more light on these aspects, there are other sides to the above mentioned advantages. When we state that prices and profits are determined by supply-demand in a free market, it implies free operation in all markets. But, in housing and health care, the demand remains constant because of which the supplier gets a market advantage and may continue to increase the prices. Also, in capitalism, it is thought that economic production can be increased indefinitely, which is theoretically impossible and practically devastating as unbound wealth means unquestioned misuse of natural resources, thus causing many environmental hazards. Due to practical limitations we cannot achieve free market where a balance is struck between wealth and supply-demand, which makes capitalism less useful in reality.

The inference cannot be drawn from the facts presented as the society is an imperfect blend of angels and demons. Those who can will take advantage of others, whose who can’t retaliate will be exploited. Some saints may think of overall good. But we can never judge how the witness might turn out to be once in the witness box. So the outcome of its genuineness lies firmly in its embracement in a country.

It is for this reason that many countries are adopting a mixed economy now, where there is a mutually-beneficial co-existence of capitalism and socialism, involving a mix of private economic freedom with government regulation of markets. Hopefully benefiting capitalists, while shielding the poorer classes from exploitation as well.

concise encyclopedia of economics
britannica online encyclopedia

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