The definition of capitalism is that it’s an economic system where the initiative of private players calls the shots. When what, how much production is fixed by private enterprises or individuals subject to the market forces of demand and supply.
A capitalist structure lays emphasis on economic liberalism and competitive marketing, borne out of self-interest to meet the needs of both the business and the consumers. Today, liberalism has become the guarantor of socio-economic prosperity, for a nation.
The key ingredient of a capitalist economic system is economic liberty. In terms of ease of doing business, which is facilitated when there are open markets, the following parameters serve as functional identifiers of economic freedom, as per the Fraser Institute:
- Low taxation and government expenditure;
- A sound legal system that safeguards the rights of private property
- A Stable currency for long-term savings
- Promotion of free trade with other nations; and
- Light regulation of its credit markets, labor, and businesses in general.
Socialism vs. Capitalism
Modern economic history has been witness to an ongoing conflict of the economic systems of socialism and capitalism. The key point of contention is the extent of government intervention.
While in capitalism, the market decides the cost, earnings, wealth, and distribution, with socialism, the production, and dispersion of goods and services are made by the public authority, with citizens reliant on the state for nutrition, work, health care, education, and all the other things. It is the government who is the decider and fixer of the measure of yield, supply, and the price of the products and services.
Countries, like China, North Korea, and Cuba, serve as good examples of socialist countries. Western European countries are more inclined towards a liberal economy but several straddle a middle course.
Key points of Contention
- Capitalism – Private businesses owned by private individuals to cater to the demands of the market, which is commanded by the demand of the people.
Socialism –The means of production and every related aspect: pricing, distribution, quantity, etc.
- In Capitalist Economies, since the system works to cater and capture the whims of the market, there is an incentive thing to work hard and make better products and services.
In socialist states, ownership lies with the government; there is no competition as the market is the government which leads to inefficiency because workers and managers lack any real incentive for the betterment of goods and services.
- With Capitalism, prices are set by market forces. There’s a possibility of monopolization, which could lead to arbitrary pricing by a company.
In socialist economies, prices are set by the government which can lead to shortages and surpluses.
- Capitalism argues on behalf of the necessity of inequality as a means to spur innovation and economic development.
Socialism believes in the equitable distribution of resources. In order to ensure equal opportunities and (in some variants of socialism) equal outcomes.
- In capitalist economic systems, the state doesn’t provide jobs. The private companies set the eligibility and pick the candidate most suited for them. But in times of recession, unemployment can reach very high levels.
Employment in socialist economies is the onus of the state. Whether it is something essential or not, the state will provide employment.
Popular Capitalist Countries
The country of Singapore was extremely impoverished when it had got its independence back in the 60s. Now, Singapore’s capitalist economy is vastly developed with a designation as the 3rd least corrupt, most open in the world, most pro-business, has the third-highest per-capita GDP with low tax rates, in terms of the power of purchasing, which has made the scope for economic dynamism.
The manufacturing sector makes up for a quarter of the country’s annual GDP.
Singapore’s manufacturing industries cover electronics, chemicals, biomedical sciences, logistics, and transport engineering.
Switzerland has been a neutral state since the First World War. It has a highly skilled labor force and amongst the highest per capita incomes in the world. The USP of Switzerland’s economy is its highly developed service sector, with financial services at the lead, and a manufacturing industry that builds state-of-the-art technology.
Its stability in terms of economy and politics, minimum corruption, the transparent legal system, exceptional infrastructure, an independent judiciary, efficient capital markets, global trading, and low corporate tax rates also make Switzerland one of the world’s most competitive capitalist countries.
The prosperity of Germany takes a cue from the socialist market economy system followed in West Germany, which was under American, British, and French control after the Second World War. It stressed an economic system, which was a cross between a free market capitalist system and a welfare state.
Since the unification of Germany, industries have prospered because the country has prioritized training the labor force to succeed in various industries. These various systems have worked together to make an efficient capitalistic market for the country. The German model of prosperity encourages and supports local entrepreneurs to bring in new innovations and become key players in the technology industry or to patent technologies to further technology.
For tourists, Luxembourg is the “Green Heart of Europe” but alongside those green pastures lie a highly industrialized and export-intensive existence.
Luxembourg relies on banking, steel, and heavy industries. Its economy is similar to Germany’s and enjoys a position of being one of the top 3 nations in terms of per capita income.
The country is not entirely a capitalist one. It is a mixed economy where there is a high level of promotion of entrepreneurial activities while in tandem with government planning and regulations.
With well-in-place property rights, minimal government expenditure, high concentration of business, labor, and immense freedom on trade, New Zealand is a country with a high degree of economic resilience. This was evident in how it pulled itself together post the 2011 earthquake and preventing the country from going into recession.
The United States of America
A discussion about Capitalism would not be complete without mentioning the country which has, itself, become an exemplar of what is globally understood as Capitalism.
The USA, the land of the free, where anyone can change the course of their life. Capitalism in the USA is all about hard work, innovation, and marketing your innovation to the right audience, in the right fashion. Heredity, lineage, name, all of it takes a back seat. If you have an idea and are dedicated to bringing it to fruition, you can succeed.
Capitalism in the US makes room for private ownership to control the production of goods and keep track of what sells. It is very dedicated to intellectual property rights and patents, to promote entrepreneurial ventures.
Capitalism is widely loved and at the same time widely hated. While some say it creates the scope for socio-economic prosperity, entrepreneurial spirit, innovation it also leads to exploitation and monopolization. Striking the balance between these pros and cons of Capitalism, which is an open market with a level playing field and high respect for human rights, would ensure the optimum benefit.