CAPITALISM, Its Characteristics, Pros and cons of capitalism, How It Works Compared to Socialism and Capitalism

Capitalism is an economic system where private entities own the factors of production.  Capitalism is defined as an economic system in which a country’s trade, industry, and profits are controlled by private companies, instead of by the people whose time and labor powers those companies. The United States and many other nations around the world are capitalist countries, but capitalism is not the only economic system available; throughout history, other countries have embraced other systems, like socialism or communism. 

    In a capitalist market economy, decision-making and investments are determined by every owner of wealth, property, or production ability in financial and capital markets whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets. The four factors are entrepreneurship, capital goods, natural resources, and labor. The owners of capital goods, natural resources, and entrepreneurship exercise control through companies.

  Economists, sociologists, and historians have adopted different perspectives in their analyses of capitalism and have recognized various forms of it in practice. These include free-market capitalism, welfare capitalism, and state capitalism. Most existing capitalist economies are mixed economies that combine elements of free markets with state intervention and in some cases economic planning.

    Critics of capitalism argue that it establishes power in the hands of a minority capitalist class that exists through the exploitation of the majority working class and their labor. It prioritizes profit over social good, natural resources, and the environment; and it is an engine of inequality, corruption, and economic instabilities.

    During the Industrial Revolution, industrialists replaced merchants as a dominant factor in the capitalist system and affected the decline of the traditional handicraft skills of artisans, journeymen, etc. Also during this period, the surplus generated by the rise of commercial agriculture encouraged increased mechanization of agriculture. Industrial capitalism marked the development of the factory system of manufacturing, characterized by a complex division of labor between and within the work process and the routine of work tasks.

Impact of capitalism on people:

    The kind of impact that capitalism has on your life depends on whether you’re a worker or a boss. For someone who owns a company and employs other workers, capitalism may make sense. The more profits your company brings in, the more resources you have to share with your workers, which theoretically improves everyone’s standard of living. It’s all based on the principle of supply and demand, and in capitalism, consumption is king.  Capitalism takes the position that “greed is good,” which its supporters say is a positive thing — greed drives profits and profits drive innovation and product development, which means there are more choices available for those who can afford them. 

Why do people oppose capitalism?:

Anti-capitalists view capitalism as an Inhuman, Anti-democratic, unsustainable, deeply exploitative system that must be dismantled. They see it as inherently at odds with democracy because of how capitalist bosses hold power over workers in the workplace and the fact that, the more capital one accrues, the more power they have. 

What is the difference between capitalism and socialism?:

Capitalism and socialism are generally seen as polar opposites, and discussions of either system are often framed as in opposition to the other. There are many forms of socialism, but at its root, socialism is an economic system in which a whole community — not just bosses or private companies — control the means of production equally. It assumes that people are naturally cooperative, instead of competitive. Capitalists, critics of socialism, believe that the system slows economic growth, rewards worker laziness. In a capitalist country, the focus is on profits over anything else. In a socialist country, the public is seen to be more important, and social welfare is a major priority. The United States, the U.K., and Germany are examples of modern capitalist countries. In contrast, India, and Cuba are examples of modern socialistic, non-capitalist countries, as was the former Soviet Union. 

Pros of capitalism:

Economic freedom: It helps political freedom. If governments own the means of production and set prices, it invariably leads to a powerful state and creates a large bureaucracy that may extend into other areas of life.

Efficiency:  Firms in a capitalist based society face incentives to be efficient and produce goods that are in demand. These incentives create pressures to cut costs and avoid waste. State-owned firms often tend to be more inefficient.

Innovation: Capitalism has a dynamic where entrepreneurs and firms are seeking to create and develop profitable products. Therefore, they will not be stagnant but invest in new products that may be popular with consumers. This can lead to product development and more choice of goods.

Economic growth: With firms and individuals facing incentives to be innovative and work hard, this creates a climate of innovation and economic expansion. This helps to increase real GDP and lead to improved living standards. This increased wealth enables a higher standard of living.

Cons of capitalism:

Monopoly power:   Private ownership of capital enables firms to gain monopoly power in product and labor markets. Firms with monopoly power can exploit their position to charge higher prices.

Social benefit ignored:   A free market will ignore externalities. A profit-maximizing 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. Even supporters of capitalism will admit that government provision of certain public goods and public services are essential to maximize the potential of a capitalist society.

Boom and bust cycles: Capitalist economies have a tendency to booms and busts with painful recessions and mass unemployment. 

Inherited wealth and wealth inequality:   A capitalist society is based on the legal right to private property and the ability to pass on wealth to future generations. 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.

Shailendra