Capitalism

In common usage capitalism refers to an economic system in which all or most of the means of production are privately owned and operated, and where investment and the production, distribution and prices of commodities (goods and services) are determined privately in a free market, rather than by the state. Those in control of the means of production generally run them for monetary profit. For examples of how capitalism has been defined by various sources, see .

Other approaches

Capitalism in political ideologies

Main article: Capitalism and related political ideologies

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Marxist critique of capitalism

Marxists define capital as "a social, economic relation" between people (rather than between people and things). In this sense they seek to abolish capital. They believe that private ownership of the means of production enriches capitalists (owners of capital) at the expense of workers ("the rich get richer, and the poor get poorer"), and that this is the cause of social ills. Supporters of capitalism counter this criticism by claiming that ownership of productive capacity provides motivation to owners to increase productive capacity and so generally increase the average material wealth ("we all get richer"). Opponents of capitalism counter this by pointing out the unchanged after-tax income of the poorest quintile of the U.S. population during the last two decades. While at the same time the average income and especially the income of the rich have increased. http://www.cbo.gov/showdoc.cfm?index=5324&sequence=0. According to "United for a Fair Economy," in 1982 CEOs of major corporations in the U.S. earned 42 times the annual wages of the average worker; in 2002 the ratio stood at 282:1 http://www.faireconomy.org/press/2004/CEOPayRatio_pr.html. Supporters of capitalism point out that the percentage of people in developing countries living below $1 per day have halved in only twenty years, especially in countries like China that have embraced capitalism http://www.worldbank.org/research/povmonitor/. Life expectancy has almost doubled in the developing world since WWII and the gap to the developed world is starting to close http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=2429. Looking at the world as a whole and not only the U.S. shows that income inequality is in fact diminishing http://www.columbia.edu/~xs23/papers/worldistribution/NYT_november_27.htm.

Related Topics:
Marxists - Capital

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Marxists believe that capitalism allows capitalists — the owners of capital — to exploit workers. The private ownership of the means of production is seen as a restriction on freedom, whereas supporters of capitalism believe that private ownership is essential to enriching society as well as preserving personal freedom. Marxists also argue that capitalism has inherent contradictions that will inevitably lead to its collapse. Capitalism is seen as just one stage in the evolution of the economy of a society.

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Marxists also often argue that the structure of capitalism necessarily leads to unjust exploitation of workers, regardless of whether or not the political system is one of an bourgeois democracy. For this reason Marxists typically emphasise the capitalist economic system of Western countries rather than the democratic political system. A capitalist system is an economic system - although often associated with democratic political systems, they are independent from each other. Capitalist systems have often functioned under unelected governments: the classic case is the United Kingdom, where less than 20% of adult males could vote prior to 1885, and women did not receive the vote until 1918.http://www.electoral-reform.org.uk/diary/historylesson.htm Some recent examples include Hong Kong, Singapore, and Chile under the rule of General Pinochet. It is also argued by Marxists that governments espousing fascist (or "national socialist") rhetoric do not make substantive changes to the capitalist economies when they assume power.

Related Topics:
United Kingdom - 1885 - 1918 - Hong Kong - Singapore - Chile - Pinochet - Fascist - National socialist

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In mainland China differences in terminology sometimes confuse and complicate discussions of Chinese economic reform. Under Chinese Marxism, which is the official state ideology, capitalism refers to a stage of history in which there is a class system in which the proletariat is exploited by the bourgeoisie. In the official Chinese ideology, China is currently in the primary stage of socialism with Chinese characteristics. However, because of Deng Xiaoping's dictum to seek truth from facts, this view does not prevent China from undertaking policies which in the West would be considered capitalistic including employing wage labor, increasing unemployment to motivate those who are still working, transforming state owned enterprises into joint stock companies, and encouraging the growth of the joint venture and private capitalist sectors.

Related Topics:
Mainland China - Chinese economic reform - Chinese Marxism - Socialism with Chinese characteristics - Deng Xiaoping - Seek truth from facts

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"Decline" of capitalism

Citing the ideal of a free market, many consider an economy with lower taxes, smaller government and fewer regulations to be more capitalistic. If government spending is used as a gauge of government expansion, the last century saw a very large increase in the role of government in Western countries. Combined U.S. government spending increased from 3-4% of GDP to 33% flattening somewhat since 1983 when the sharp upward trend was broken during President Ronald Reagan's term. An average for 16 industrial nations jumped from 8% of GDP to 45%. Non-defense spending in the U.S. as a percentage of net income increase from 11.5% in 1945 to 30% in 1983, remaining stable through 2003 (some exclude defense spending when gauging government expansion). Compliance with more regulations is increasingly costly http://mwhodges.home.att.net/intl-spend.htmhttp://mwhodges.home.att.net/regulation.htm. Thus it can be argued that the degree of capitalism has seen a remarkable decline in Western nations. However, since 1983 the percentage of non-defense government spending in the U.S. has stabilised, leading some such as Milton Friedman to express some hope that the tide may reverse toward more capitalism http://www.hooverdigest.org/051/friedman.html.

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One explanation for this is that the Western nations have increasingly averted or regulated various market failures such as pollution, health care, unemployment, wealth inequality, and education. Supporters of less state interference, such as libertarians, neoliberals, and financial conservatives, would instead argue that the regulations restrict competition, that the taxes go to the special interest groups with the most political clout, and that the almost constantly expanding governments do things less efficiently than the private sector.

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Sustainability

An economic system that causes strong economic growth may inevitably have a large effect on the environment. Some question the continued sustainability of this, arguing that many aspects of the environment have been degraded since the industrial revolution. Defenders of capitalism note the many environmental disasters in communist states. Yet this argument constitutes an evasion more than a defense. While it may be true that state-communist governments in economic competition with capitalism tended to mindlessly ape its industrial processes, sometimes producing more environmentally destructive results, it hardly lets capitalism off the hook.

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Some defenders note that many aspects of the environment in developed nations have improved recently, after the dangers of certain pollutants have become known. Examples include greatly reduced emissions of chlorofluorocarbons affecting the ozone layer, removal of lead from gasoline and other products, greatly improved cleaning of emissions from fossil fuel power plants, and much stricter control of emissions into rivers, lakes, and oceans. However, some leading conservation organizations such as the WWF and The United Nations Environment Programme argue that the impact of humanity on Earth is continually increasing. They in 2004 jointly reported that "humanity's Ecological Footprint grew by 150% between 1961 and 2000" and that most of this growth occurred in the 27th wealthiest countries of the world, in other words, the leading capitalist countries http://www.panda.org/news_facts/publications/general/livingplanet/lpr04.cfm]. Critics note that the statistical methods used in calculating Ecological Footprint have been criticized and some find the whole concept of counting how much land is used to be flawed, arguing that there is nothing intrinsically negative about using more land to improve living standards. http://econpapers.repec.org/scripts/redir.pl?u=http%3A%2F%2Fwww.tinbergen.nl%2Fdiscussionpapers%2F98105.pdf;h=repec:dgr:uvatin:19980105http://www-pam.usc.edu/volume1/v1i1a2print.html

Related Topics:
Chlorofluorocarbons - Ozone layer - Lead - Conservation - WWF - United Nations Environment Programme - Ecological Footprint

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Supporters of capitalism argue that in many cases environmental problems are greatest when a common exists and there is no clear owner. See Tragedy of the commons and Free market environmentalism. They also note that world population has greatly expanded due to higher living standards since the industrial revolution. However, this growth is declining due to the demographic transition and the world population is expected to stabilize at nine billion.

Related Topics:
Tragedy of the commons - Free market environmentalism - Demographic transition

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Yet many environmentalists have long argued that the real dangers are due to the world's current social institutions that they claim promote environmentally irresponsible consumption and production. Under what they call the "grow or die" imperative of capitalism, they claim there is little reason to expect hazardous consumption and production practices to change in a timely manner. They also claim that markets and states invariably drag their feet on substantive environmental reform, and are notoriously slow to adopt viable sustainable technologies. http://www.social-ecology.org/article.php?story=20031118113538865http://www.monthlyreview.org/1200jbf.htm. Immanuel Wallerstein, referring to the externalization of costs as the "dirty secret" of capitalism, claims that there are built-in limits to ecological reform, the costs of doing business in the world capitalist economy are ratcheting upward because of deruralization and democratization, he therefore sees no exit from our dilemnas within the framework of the capitalist world-system.http://fbc.binghamton.edu/iwecol.htm

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Strong economic growth also requires increasingly greater amounts of natural resources and energy and some question whether this can continue in the future. Those arguing for continued growth note that numerous past predictions of shortages have failed since new technology has continuously allowed exploitation of previously unavailable resources. That this continues in the future is of critical importance, especially for energy which may face a peak in fossil fuel production. Since 1970, each 1% increase in world GDP has yielded a 0.64% increase in energy consumption. See Future energy development.

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Which economies are "capitalist"?

Some believe that it is inaccurate to call any or some of the major industrialized economies "capitalist" because of the level of government intervention. For example, some assert that the market in the United States of America is significantly less than "free", and that therefore it is more appropriately termed a mixed economy that is merely skewed more toward capitalism than most national economies, rather than being a true representation of capitalism. Still others might say that the U.S. economy is capitalist, but the U.K. economy is a "mixed economy," and so on, depending upon their perception of how much economic freedom exists in those locales.

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A similar classification, associated largely with the Austrian school of economics, regards most present economic systems as a perversion of capitalism, sometimes called crony capitalism, and envisages a de-cronied capitalist ideal. Similarly, some use the phrase "laissez-faire capitalism" to distinguish between ";ordinary capitalism," believing that there is a difference. Others find the phrase "laissez-faire capitalism" redundant, pointing out that the common definition of capitalism explicitly refers to trade occurring in a "free market".

Related Topics:
Austrian school - Crony capitalism - Laissez-faire capitalism

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Many Greens, Marxists and anti-Globalists agree that the governments in capitalist societies, that is to say; societies where a capitalist class is the ruling class, are not serving in the role of protecting "the free market", but would go on to say that these governments are, in fact, acting to protect the owners of capital and corporations as their first priority. Voluble leftist Noam Chomsky says that "There's nothing remotely like capitalism in existence. To the extent there ever was, it had disappeared by the 1920s or '30s." (interview with Detroit Metro Times). Libertarians and other free-market advocates may also share this opinion regarding some or all of the major economies. However, in the 18th century in America, production and distribution of goods were regulated by government ministries. Also, government subsidies were granted to agriculture. Economic intervention continued throughout the 19th century.

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Proponents of the world-system perspective suggest that the whole globe has been incorporated into a single capitalist world-economy. Even though a state (such as Cuba) may be socialist, it works in relation to a much larger, overarching capitalist world-economy.

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Mainstream economists, for their part, admit that the present economic systems have diverged from earlier forms labeled "capitalism", but many believe that some of the modern economies are still best described as being "capitalism".

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Human rights violations, imperialism, and democracy

Detractors claim that ills caused by capitalism include imperialism, poverty, oppression exploitation and abuse of human rights. They point to lack of democracy and systematic violence against political opponents (like in Chile under the regime of Pinochet or China today); exploitative wars (like the Opium wars or the Sino-Japanese War); and large scale democide (like in the Congo Free State). Many of these violations occurred during a time period and in states sometimes considered being more capitalist than today since the government share of the economy was much smaller.

Related Topics:
Imperialism - Poverty - Oppression - Exploitation - Human rights - Democracy - Chile - Pinochet - China - Opium wars - Sino-Japanese War - Democide - Congo Free State

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Proponents of capitalism point out that these problems have been widespread through all of human history, including in states characterized as socialist such as in Cambodia under Pol Pot. Some assert that these practices are not consistent with principles of capitalism even though they have existed in nations or in the colonies of nations commonly, or loosely, labeled as capitalist. They deny that many of the colonies had capitalist economic systems and claim that their economies mostly continued to be feudalistic. Instead they emphasize that it was capitalist states that abolished slavery throughout the world and that it was capitalist states who developed the modern democratic system. The strong economic growth during capitalism may encourage democratization, or vice versa. There is debate about whether liberal democracy, in the sense of electoral rights and civil liberties, is a consequence of economic growth http://www.heritage.org/research/features/index/ChapterPDFs/2000_Chapter_2.pdf, a cause of it http://64.233.161.104/search?q=cache:WPTnHhUTq5IJ:econwpa.wustl.edu:8089/eps/dev/papers/0212/0212002.pdf, or completely unrelated to it http://64.233.161.104/search?q=cache:UxJlj8TGKuoJ:www.be.udel.edu/economics/WorkingPapers/papers/paper2004-03.pdf. These studies tend to indicate that establishing the rule of law in protecting private property and free markets, rather than mere democratization, is what is most instrumental in generating economic growth.

Related Topics:
Cambodia - Slavery - Democratic - Democratization - Liberal democracy

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One of the very few studies simultaneously examining the relationship among economic freedom (see below), economic development (measured with GDP/capita), and political freedom (measured with the Freedom House index) found that high economic freedom increases GDP/capita and a high GDP/capita increases economic freedom. A high GDP/capita also increases political freedom but political freedom did not increase GDP/capita. There was no direct relationship either way between economic freedom and political freedom if keeping GDP/capita constant. {{ref|note1}}

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Indices of economic freedom

There are two Indices of Economic Freedom used in economic research, one published by the Heritage Foundation (a neoliberal thinktank) and the Wall Street Journal, another published by the Fraser Institute. Both attempt to measure of the degree of economic freedom in countries, mostly in regard to lack of governmental intervention and private property rights. They use statistics from independent organizations like the United Nations to score countries in various categories like the size of government, degree of taxes, security of property rights, degree of free trade and size of market regulations. Many peer-reviewed papers have been published using this material on the relationship between capitalism and for example poverty http://www.freetheworld.com/papers.html. The more advanced capitalist countries have much higher average income per person, higher income of the poorest 10%, higher life-expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption. The share of income in percent going to the poorest 10% is the same for both more and less capitalistic countries. http://www.freetheworld.com/2004/efw2004ch1.pdf. Other studies have shown similar results http://www.cato.org/research/articles/vas-0109.html.

Related Topics:
Indices of Economic Freedom - Heritage Foundation - Neoliberal - Wall Street Journal - Fraser Institute - United Nations

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Attempts to decide the importance of the subcomponents of the indices have often yielded contradictory results. However, strong property rights may be particularly important. The economist Hernando de Soto has argued that weak property rights, especially for the poor, play a major role in poverty and underdevelopment in developing countries http://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm

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http://www.carnegiecouncil.org/viewMedia.php/prmTemplateID/8/prmID/100. Many developing countries are now trying to strengthen and simplify their property rights system after the successful application of his ideas in Peru http://www.ild.org.pe/eng/facts.htm.

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