The structures of capitalism are relatively new to global societies. Although the roots of this society option are often debated, there is a general consensus that it developed in Britain, the Netherlands, and Belgium as early as the 16th century. Because of its emphasis on collecting capital to influence economic power and wealth, it has become one of the most dominant economic systems in today’s world.
There are several different forms of capitalism used around the globe, from a truly hands-off approach to one that is closely monitored. The United States practices a form of capitalism within a mixed economy where characteristics of socialism are also present. This system protects private property, allows for capital to leverage economic freedom, while allowing the government to intervene for the social good of the public.
Because wealth accumulation is the primary point of emphasis in this society option, most decisions are made by the owner of the wealth. Private ownership of property in any form, from real estate to copyrights, is a point of emphasis with capitalism. Public rights always take a back seat to privatization.
With more than five centuries of development and innovation creating the world we see today, here are the capitalism pros and cons to review.
List of the Pros of Capitalism
1. Capitalism encourages people to achieve through their own potential.
Capitalism offers people an opportunity to use their own skills and talents to create a future for themselves. They are the navigators of their own destiny. Other forms of government or societal structures place the emphasis on the welfare of all to assign careers or force people into specific lines of work. Although some ideas flounder or fail, you can always try taking a new path when a capitalist perspective is in place.
J.K. Rowling is an excellent example of how capitalism transforms lives. She went from being on welfare to having a net worth of $650 million in 2017, according to reporting from Forbes.
2. People are involved in the choices that society makes each day.
Capitalism offers representation to the average person – if they want it. You can choose to be involved in society at any level: all-in, as you feel like it, or not at all. You’re always in control of how far you get involved with the choices being made. This structure makes self-governing feasible at local, regional, and national levels.
Because of capitalism, a person’s vote actually counts for something. You’re also encouraged to become involved in the governing process as another way to ensure the goals or dreams you have can be achievable.
3. There is more innovation available to society under capitalism structures.
People have unique pain points which affect their daily lives. Businesses earn revenues when they make positive impacts on those needs through their expertise and value. Consumers look for the best combination of relief vs. price when shopping within a capitalist environment. That is how businesses grow or fail.
When businesses operate under capitalism, the free-market system controls whether or not they find success. The firms which offer the best value propositions while consumers shop for relief are the ones who will grow. That process encourages innovation to be constantly present in society as it is the foundation of how goods or services are introduced to households.
4. It self-regulates the actions and behaviors of those involved.
Capitalism, in its purest form, encourages everyone to look out for their self-interests first. That means households meet their needs by spending the least amount to get the most value. It also means firms spend the least amount possible to develop the revenue-generating goods or services. If a group of consumers does not like the offerings of a business, then that firm with a slide toward bankruptcy.
That is how capitalism self-regulates itself. When firms act unethically, consumers stop making purchases. The firm is then left with a choice: conform to societal standards or go out-of-business.
5. The structures of capitalism promote equality.
The same rules about self-regulation apply to equality when dealing with a capitalist society. When a business refuses to embrace diversity, or it pays one group of people more than another for the same work, then consumers hold the final say. They can stop working with organizations like this to create leverage against their internal actions.
Capitalism promotes socioeconomic equality at the individual level too. Although it would be fair to say that some groups receive more chances to achieve economic success than others, the goal of this society is to give everyone at least one chance to succeed. With hard work, ingenuity, and a little luck, anyone can make a name for themselves within this type of society.
6. There is more freedom offered to individuals and corporations through capitalism.
The structure of capitalism gives each person the freedom to control their own destiny. There is a constant focus always placed on the individual within this society. Supply and pricing are driven by the demands of each demographic or segmented group. Households can choose to spend or save. People may opt to go into debt to purchase items, or they may decide to set a budget to live within their means.
Businesses often think they drive capitalism forward. That is not true. Consumers are always in control. They make all the decisions, which is why corporations and governments work hard to influence those choices.
7. Capitalism encourages people to help one another.
Although the structures of capitalism rely on self-motivation for success, it isn’t a society which is based on selfishness. Individuals must rely on one another to create mutual benefits. The employee at a bakery relies on customers for their paycheck, while the consumers who shop at the business rely on the baker to meet their breakfast needs during their commute. Every action taken in a capitalist society works to benefit another person in some way. Even when someone’s perspective is 100% selfish, their actions still benefit someone other than themselves.
8. It provides consistency through predictability.
Winston Churchill may have said it the best. “It has been said that democracy is the worst form of government except for all the others that have been tried.” One could say the same thing about capitalism. The backbone of a capitalist society is consistency. You know what to expect because everyone, including corporations, is focused on the provision of mutually beneficial services. The government does not interfere or dictate production levels for goods and services. Life becomes predictable, which offers safety and security at the individual level, as the emphasis is on growth and opportunity.
List of the Cons of Capitalism
1. Capitalism encourages the rich to hoard their wealth.
The root of capitalism is the accumulation of wealth. When someone purchases real estate, buys items for their home, or shops for groceries, these activities all transfer money from one person to another, or from an individual to a business. The actions in this society may offer mutual benefits, but over time, those opportunities become one-sided.
Wealth eventually accumulates more often in the accounts of those who are already rich. When you own money, it creates more currency over time. People who spend to meet their basic needs have no way to accumulate additional funds on top of their initial transfers. That’s why the long-term outcomes of a capitalist society are always that the rich grow their wealth while the poor struggle to survive.
2. Businesses are encouraged to monopolize in capitalism.
Disruptors in the business world are defined as small companies who create innovative products which compete in value against the goods or services from larger companies. Capitalism encourages disruptors. It also encourages other companies to put those firms out of business in some way as soon as possible.
Through mergers and acquisitions, research and development, or price leveraging, the goal of a business in a capitalist society is to generate the most profits possible by obtaining the most customers. If that process eliminates the competition, then the firm can set its own prices and quality standards to maximize revenues. That structure ultimately reduces consumer choice.
3. People must produce for societal inclusion.
Work is a requirement in capitalism, just as it is in any other societal form. The only difference with this structure is that the society, not the government, hands out the consequences to those who choose not to participate. If you are not physically able to produce goods or services, then your lack of contribution eliminates your importance.
Pure capitalism doesn’t offer safety nets to people for any reason. Even if an employer acts unscrupulously, or an employee is laid-off through no fault of their own, it becomes the responsibility of the individual to correct that situation. The point of focus is always on the outcome instead of the journey to get there.
4. Growth only comes with continuing opportunities in capitalism.
Despite the advantage that everyone gets an initial fair shot in a capitalist structure, actual wealth accumulation occurs when ongoing opportunities are present. That process starts when children are in school receiving their education.
Kids who live in poverty often come to school without enough sleep. The chances are good that they didn’t have an effective breakfast. Low-income homes are at a higher risk of child abuse, family violence, poor clothing, secondhand smoke exposure, and limited experiences. According to The Edvocate, funding to low-income Title I schools has decreased since 2010, even though schools in wealthier areas see funding increases.
5. Governing prioritizes businesses in a capitalist society.
Capitalism focuses on private ownership over public possession of property. That structure requires the government to fund itself through a series of taxes and other sources of income. All wealth, including the funds earned by individuals, is subject to a portion the government declares ownership over.
When a mixed economy is present, like what the U.S. and most nations have, then the collected taxes are also used for social welfare and infrastructure programs. Because labor is the most significant expense the average corporation faces, it is the workers, not the firms or the government, assuming the highest levels of risk within the society.
6. Capitalism only works when consumers are spending.
The structures of capitalism start breaking down when individuals and businesses focus on saving money instead of spending it. Economies grow only when goods and services are bought and sold. Without new purchases, there cannot be new employment. That is why innovation is a top priority in this societal structure. Consumers must have access to continually new products to resolve ongoing pain points. Without it, they stop spending, which causes firms to stop spending, and that cycle eventually creates a recession.
7. Wealth transfers are not equal within capitalism.
People and businesses with more money have additional research and development opportunities and investments. That gives them more chances to create goods or services that consumers will want to purchase in the future. Compared to the household living paycheck to paycheck, it is the former, not the latter, who will have a better opportunity for long-term wealth accumulation.
According to a survey conducted by CareerBuilder, 78% of full-time workers in the United States report they are living paycheck to paycheck. 56% say they save less than $100 per month. Even 10% of households earning $100,000 or more say that can’t make ends meet today. Most workers say they are in debt now and believe they will always be. That is the reality of capitalism.
8. The entire society could fail if the largest corporations become unviable.
During the global recession years of 2007-2009, several systematically important businesses in the United States received “bailouts” from the government because of illiquid assets, many involving mortgage-backed securities.
The bailout list was extensive. Wells Fargo received $25 billion. General Motors received $50.7 billion and still owes the government more than $11 billion. Chrysler received $10 billion and still owes some of that balance as well. AIG received $67.8 billion. Although the government eventually made money from these payouts, without the bailout structure, the entire U.S. society could have collapsed. If the largest employers become unviable, everyone suffers.
9. Capitalism encourages a reduction in wages.
Labor fuels capitalism. It is a market where scarcity encourages higher wages. When there is a worker shortage, then employment offers must include better salaries and benefits to entice acceptance offers. That is the only time when wages increase in capitalism structures: when there is a shortage for a specific skill.
Wage recession is the foundation of this society type because businesses are encouraged to find workers who will accept lower pay while offering the firm similar results. Employees must then either accept the lower wage or find themselves unemployed. It is a principle called the “race to the bottom.”
10. Wealth accumulation is the only point of emphasis for capitalism.
The only reason to protect the environment from a capitalist’s point of view is that doing so guards their ability to accumulate wealth. This rule applies to social protections also. The energy spent in this society is always on earning more or protecting what has already been accumulated.
In the 250 years since the Industrial Revolution changed human societies, stunning changes have come to the planet. Population growth reached 400% in the 20th century, compared to the .001% growth achieved between the 1st century through the 8th century. The oceans reached record acidification levels. Global temperatures are higher. Consumption is at record levels. Some scientists believe these issues are unsustainable as we continue moving forward.
11. It eliminates competition from the market.
Larger businesses seek to consolidate their position by absorbing smaller companies who become disruptors. Employees and workers do the same thing. They firm up their position in society by increasing their skills and experiences to force other people out of the jobs market. Superior skills earn the best wages in capitalism because of their scarcity. That is how socioeconomic gaps begin forming. There is more scarcity in a skillset which can lead a Fortune 500 business when compared to someone who knows how to flip burgers in a quick-service restaurant.
12. Economic cycles tend to become extreme at both ends.
Capitalism creates an all-in boom or an overwhelming bust because of the way it cycles. That forces people to save during the good times so they can survive during the down years. Households and businesses on the edge of survival during the peak periods become the first casualties of a bear market. Even though consumers are still free to choose the goods and services they want, if there is no wealth, then there are no purchases. That is why government intervention often occurs during a strong recession. By artificially changing the market, the positive elements of capitalism can begin encouraging growth once again.
13. Inherited wealth changes the starting point.
When a capitalist society offers inheritance rights within a family, then the socioeconomic structures change. Future generations that come from a wealthy family do not face the same decisions that individuals from poor households face each day. You still gain rewards through wealth accumulation, but for those born into “privilege,” the need for work or innovation reduces or eliminated completely. That shifts the equality of opportunity which is advantageous in capitalism.
These capitalism pros and cons encourage individual development. They promote innovation while offering chances to everyone, from any socioeconomic background, to earn the success they want in life. The structures encourage hard work and dedication. Capitalism also leaves behind those who cannot participate in some way without regard to the reasons behind the lack of inclusion. That is why most capitalism markets are mixed economies which are regulated instead of being a true form of this structure.