An economic system in which private entities own the factors of production is known as Capitalism. These four factors are entrepreneurship, capital goods, labour and natural resources.
The owners of these four factors exercise control through companies. The individual owns their labour needs. The only exception left here is slavery, whereas, on the other hand, someone else takes hold of a person’s labour.
As we all know that slavery is illegal throughout the world, but still, it is highly practised. In this article, we will discuss the pros and cons of Capitalism. First we all, we will take a glance at its key components, requirements and also the most capitalist countries.
Table of Contents
Keys of Capitalism:
- In Capitalism, owners usually control the factors of production and derive their income from it.
- It also incentivizes the people so that they can maximize the amount of money they earn through a tough competition.
- Competition is termed as the driving force of innovation as it creates more opportunities for individuals to do tasks more efficiently.
The Requirement of Capitalism:
Capitalism requires a free market economy to make progress. It distributes goods and services according to the fundamental laws of supply and demand. The law of demand states that when the need for a particular product increases, its price also rises. When competitors come to know that they can make a higher profit, in this way, they increase productions.
Most significant supply will only reduce the price to the level where the only best competitors remain.
Component of Capitalism:
Another essential component of Capitalism is the free operation of all the available capital markets. While the law of supply and demand set fair prices for commodities, stocks, brands, currency and derivatives. Moreover, the capital market allows all the business companies to raise their funds to expand.
Capitalist Countries Praising Democracy:
Monetarist economist Milton Friedman suggested that democracy can exist only in capitalist countries such as the U.S. But many countries these days have socialist economic components and democratically elected government.
More, others are communist but having thriving economies but the bundle of thanks to the existing capitalist elements. For example, China and Vietnam. Some other countries are also capitalists, but monarchs or despots govern them.
The United States is the most capitalists of all. One main reason is that the federal government doesn’t own corporations. Another reason is that constitution of U.S protects the free capitalist market.
Top Capitalists Countries:
- Hong Kong
- New Zealand
- United Kingdom
- United Arab Emirates
So, the United States comes at the rank of 12. The reason is massive government spending and poor health conditions. But it also holds strong points such as business freedom, labour freedom and trade freedom.
Characteristics of Capitalistic Systems:
Do you want to learn the concept of Capitalism quickly? Below here are listed some of the characteristics:
- Means of production in Capitalism are privately owned.
- Companies are provided with incentives to increase their profits
- Supply and demand laws run markets.
- Capital markets operate freely without any interruption.
- Laws related to inequality are high.
- Involvement of government in capitalist societies is low.
- The legal system is reliable.
Pros of Capitalism:
How does society look at the overall role of the government? If that society envies a lack of government intervention within various economic systems and production, completely based on marked based competition and demand/supply requirements instead, then that company will envy for Capitalism.
In Capitalism, goods or services are distributed based on mechanisms set by societies, instead of government controls or mandates.
Primary Pros and Cons of Capitalism:
The primary advantage of Capitalism is that every individual has some sort of control over their fortune in life. They can have many choices to choose from; they can own their business, works as a specific employer, work online part-time or as a full-time freelancer or not work at all. Whatever dream they have, they got opportunities to pursue it at some level.
It can also segregate people into socioeconomic classes that will limit the availability of opportunities to them. People who belong to a high class or are rich tend to reinforce their position because they have easy access to societal mechanisms which in turn bring wealth.
Because those are poor who have less access, they have only fewer opportunities available to change their circumstances. This causes rich people to become more prosperous and poor to stay low.
In this article, we are going to elaborate additional key points to consider while looking at the overall pros and cons of Capitalism.
What are the Pros of Capitalism According to you?
These are as follows:
- Capitalism brings innovation
- Creates of society that is based on the services of others
- Also promotes equality
- Encourages freedom
- Controls self-regulation
- Provides us with a broader range of services or goods
- Embraces the presence of smaller world
- Gives the opportunity of being involved in governance
1. Capitalism Brings Innovation:
Capitalism is a system that brings innovation like no other systems of economics because there is a strong need to compete in the market if one wants to remain profitable. It occurs almost at every level. Business owners invest in development and research to create better products.
Moreover, employees also focus on improving their acceptable practices to remain as productive as possible. The quality of services provided by employees is more improved to solve problems.
This is how Capitalism encourages innovation in an increasing era of science and technology.
2. Creation of Society Based on Services of Others:
There exist two ways of how someone can look at Capitalism. First, and most popular these days is that a capitalist society works for their own benefits. Secondly, every job that is available in a company relating to Capitalism serves other needs in some way.
People who manufacture goods and services can easily earn a good paycheck while creating something that solves the problems faced by other people living in the same society. And there is no doubt that in Capitalism, goods and services are designed to help someone live a better life.
Yes, Capitalism creates a society based on the needs of others.
3. Promotes Equality:
Although the rich tend to become richer and the poor tend to stay low, everyone that is residing in a society focused on Capitalism does have an initial chance to find out success in many ways.
Some may work even harder than others as everyone is surely going to get an opportunity at some level. However, the rewards are not always mandatory. There is one golden principle that if you work hard in your life, you have somehow a chance of reaching your definition of success
4. Encourages Freedom among People:
Governments that intervene in an economic market are doing so for their advantage, not for an individual of capitalist society. While on the other hand, in Capitalism, our primary focus is on the individual. So, Pricing and supply of the goods or services are driven by demand.
People have the freedom to choose their goods and services that best meet their needs instead of being given only a certain amount of goods or services. Also, due to the interference of government, all goods are intended to preserve the structure of the ruling body.
These are some of the most discussed pros and cons of Capitalism. We have some more pros to discuss Capitalism.
5. Capitalism Promotes Self-regulation:
It is a truth universally acknowledged that only businesses in a capitalist society have this power of self-regulation because consumers want them to have this as essential. If potential buyers are not interested in buying goods or services that are being offered by the organization, then that business will no longer continue to exist.
This also means that the company should create goods or services that are being desired by people living in society. This serves them to meet the needs of the individuals and also households.
6. Wide Range of Goods or Services:
People living in the same society may suffer from different sort of problems. This wide array of needs allows for businesses to find out a particular niche so that they can exist.
If there is a value in goods and services being offered by the organization and also they can solve problems of society, then the business will continue to operate. That results in a wide range of goods or services offered than those that generally operate with government interference or mandate.
7. The Opportunity for Involvement in Governance:
Capitalist society encourages people to get involved in all possible aspects of society to create the best outcome for themselves. That usually means it is a system that promotes the involvement of individuals with their governance.
From voting to serving local boards or running for a national office, people quickly get involved with government so that they can create their outcome being preferred.
8. Embraces Presence of Smaller World:
There are people with tremendous skills in this world that are not adequately utilized. Global Capitalism allows businesses to tap into these resources so that they can innovate.
These innovations also create improving chances to continue for this developing world, which will undoubtedly end towards hunger, water scarcity, and other potentially life-threatening conditions.
Overall Benefits of Capitalism:
The main benefit of Capitalism is that it provides strong incentive and motivation to grow, produce, innovate, improve and move forward constructively.
Those who believe in the notion of a free market system argue that free markets and competition result in superior business and thus would get better products or services.
These motivators for business operations and benefits for consumers combine to form more positive feedback loop or virtuous cycle where consumers invest more money and companies innovate more.
In addition to the above, capitalist society lets the market decide on how to allocate resources. This means that capital, labour and natural resources are distributed somewhere they can make high profit, and thus economy lies on self-organizing techniques.
1. Political Freedom:
Economic freedom helps to promote political independence. If the government takes charge of the means of production and set prices, it invariably leads to a more robust and powerful state. It creates a large bureaucracy which may usually extend into other areas of life.
2. Product Development and Innovation:
Capitalism environment has a dynamic where entrepreneurs and firms are seeking to develop and create profitable products. Thus, in this way, they will not be stagnant but invest in new products which may be famous among consumers. This can lead to product development and an even better choice of goods.
3. Incredible, Extraordinary Growth:
With firms and individuals facing incentives to be innovative and work hard, this develops a climate of innovation and economic expansion. This helps to increase real GDP and also lead to improved living standards of individuals.
This increased wealth enables a higher standard of living, and according to an economist theory, everyone can take benefit from this increased wealth.
Firms in a capitalist society face incentives to be efficient and produce goods or services which are in high demand these days. These incentives create pressures to cut the cost and avoid ourselves from waste.
State-owned firms often tend to become more inefficient.
Capitalism brings us the best results in the best prices. The fact is that consumers will pay more for what they want the most. Also, businesses offer goods or services which customers wish to even at the highest prices they will pay.
Prices of offered goods or services are usually kept low by competition among the businesses. They try their best to make products as efficient as they can to maximize their profits.
An essential part is an economic growth, that is the reward of innovation for a capitalist society. This includes innovation process in different development methods. It also brings out the design of new goods or services in Capitalism.
As the founder of Apple Steve Jobs said in an interview that you just can’t ask the customer what they want but also try to provide them with what they are looking for. As time pass, they will indeed get the desired one. These are the pros and cons of Capitalism.
Does Capitalism have some drawbacks? To overweigh the argument, Capitalism also has many disadvantages over benefits.
Let’s take a look at the most discussed cons of Capitalism.
Cons of Capitalism:
These are as follows:
- Creates an economy based on consumption
- Gives more importance to the needs of business above the needs of individual
- Equal opportunities provided by the government can be unique
- People having the inability to prove them productive are neglected
- Unregulated Capitalism leads to consolidation
- No Incentives Available to Pay the Workers Fairly
- Competition is dragged out of the market
- No environmental or social point of focus is left behind
- Governance serves as best in Capitalism
1. Creation of Economy Based on Principles of Consumption:
In Capitalism, there is no specific focus on money in society. Here you will only need money to consume those items that are being produced. Also, you need to earn enough money so that you can quickly finish the things that you want.
This means that now a day more people are preferring to work as an employer than working for themselves. So, the employer has a choice of work but choosing not to do makes it difficult for the participant to be an active part of Capitalism.
2. More Emphasis Is Laid on the Needs of the Business over the Individual:
Businesses can take the place of government in a strong capitalist society. If companies want to remain operational, then they must introduce innovation in goods or services they offer and should also try to reduce costs.
Because as we all know that the most considerable expense of most businesses is labour, they need to produce goods or services. So, strong emphasis is laid to eliminate the needs of workers in Capitalism instead of creating more for them. Self-checkout stands at restaurants, and grocery stores are a fine example of this new evolution.
3. Brief Equal Opportunities by the Government:
Everyone should get opportunities to succeed in their lives, but without some extent of government interference, those opportunities can be too brief. People who have access to more and the latest resources can easily create more opportunities and achieve in life.
Similarly, people with limited access to resources focus their efforts and use their potential on self-perseverance than building wealth. This usually creates two groups of people who have or have not’s. Everyone in life gets opportunities in life to proceed well in the future, but it depends on the person how they use them.
4. People with Inabilities to Prove Them Productive Are Neglected:
The main focus of Capitalism is too non-disabled individuals. If someone is unable to be productive, no matter what either because of injury or disability, they no longer have the ability to contribute.
Ultimately, these individuals are left behind and are discarded because they no longer participate virtually in the survival of society. The primary focus of Capitalism is a competitive supply and demand. So, if you can’t provide a pool and also no longer part of the demand chain, then obviously you are not needed.
5. Unregulated Capitalism Finally Leads to Consolidation:
Businesses will finally consolidate in a pure form of Capitalism until when only one provider is available in the market. Hence the ultimate goal is to limit the competition so that most of the profits can be gained by goods or services that are being offered.
This is sometimes termed as a monopoly. When such kind of circumstances occurs, all the power in business to consumer- relationships lies within the roots of the company. Moreover, they can change any price of goods or services, and the customer must have to pay it without question.
Capitalism is an economic system that brings us both pros and cons of Capitalism. But it has more pros than cons as observed till now.
6. No Incentives Available to Pay the Workers Fairly:
Capitalism in its purest form is a race to all its available competitors. If businesses envy to retain their workers, they are encouraged to pay the least possible amount. On the other hand, they are allowed to charge the highest possible prices for their productive capability.
There will always be workers available even to work at low wages which in turn means that workers either should accept or reject to work at low salaries or even without any wages.
7. Competition Is Forcefully Dragged out of the Market:
Capitalism only pays to heed to provide the only best. This means that larger businesses with more capital work to force smaller companies that lie out of their niches. It also means that workers with superior skills are forced out to workers that usually may have e average based skillset.
That’s why Capitalism tends to create differences between different socioeconomic groups. At the same time, people and businesses either manage themselves to learn new creative ideas and trending skills. In this way, they will be able to find out new ways to compete or become discarded in society.
8. No Environmental or Social Point of Focus There:
The primary goal of Capitalism is based mainly on consumption, so almost all of the energy is spent on that particular purpose alone. There is no consideration given to the environmental and social structures of the society, and no responsibility is shown so whatever harm may be done in another area.
If actions are profitable, then they are indeed worth pursuing. This, in turn, creates a natural outcome of more individualistic and corporate greed.
9. Governance Serves Best and Neglects Worst in Capitalism:
The government indeed supports the best businesses and wealthy individuals as they contribute most towards the infrastructure of society. The poor also get the same services, but their contribution is less as compared to others.
The overall discussion of the pros and cons of Capitalism reveals that it strongly encourages development in capitalist societies. They also suggest that people should pair themselves with likeminded people in order to contribute to the fullest in their capacity. It can be significantly beneficial.
Capitalism is a notion that is highly practised these days. People and businesses should work hard to bring innovation, economic stability, and also pay heed to better governance principles.
In my opinion, capitalist societies can lead to a polarized society where the needs of a few overweigh the needs of many.