Capitalism: The Cancer of the Economics World

Dec 15, 2013, 2:37 AM |

Economy is a study of how human allocated resources in a world of scarcity. This means in a world where everyone can have what they want, economy will not exist. However, logically, such world doesn’t exist as time is also a resource. Economics system on the other hand, according to Wikipedia is “a system for producing, distributing and consuming goods and services, including the combination of the various institutions, agencies, consumers, entities (or even sectors as described by some authors) that comprise the economic structure of a given society or community.” Communism would be a good example of an amazing economics system which is based on the idea of common ownership of the means of production and also centralized government controlled market system. The opposite of communism would be capitalism which is a system based on economic system characterized by private or corporate ownership of capital assets and goods. We can also found a hybrid system which combined both communism and capitalism. Malaysia is one of the countries that use this economics system. However, in this paper we will only focus on capitalism, its characteristics, problems faced and suggestions on how to improve on the system.

To further clarify what is capitalism, we would take a little tour regarding the characteristics of this successful economics system. First and foremost would be the pricing system which we usually takes for granted. According to Wikipedia, pricing system is “any economic system that affects its distribution of goods and services with prices and employing any form of money. Except for possible remote and primitive communities, all modern societies use price systems to allocate resources. However, price systems are not used exclusively for all resource allocation decisions”. It allows easier transaction between individuals or groups which competing interest. For example, in barter system which is employed before money makes it first appearance, it is hard to find an individual with the same interest as you, hence there will be less transaction made. However, the main revolution of the pricing system would be the invention of money which is easier to carry and use. Under monetary system, money is use as a universally accepted token of exchange which increases the number of transactions made which eventually improve the overall economy. Money is believed to be originated from Greece and the whole of the ancient Near East in the late eighth century BCE (Duchrow & Hinkelammert, 2004).

The acquisition of private property is strongly suggested as having the most correlation with the emergence of monetary system in market. Hence, private property would be our second characteristics of a capitalistic economics system. The idea of private property seems to be undeniably the fundamental idea in our modern political and economic system. This notion that we are entitled to own something for our self is however would be open for discussion. According to the great philosopher, David Hume in his book, A Treatise of Human Nature:

Our property is nothing but those goods, whose constant possession is established by the laws of society; that is, by the laws of justice. Those, therefore, who make use of the words property, or right, or obligation, before they have explained the origin of justice, or even make use of them in that explication, are guilty of a very gross fallacy, and can never reason upon any solid foundation. (p.491)

The idea of private property however can be easily understand as soon as we change our perspective and try to see it from manufacturer or corporation point of view. They need someone to consume product that is being produce, hence they start to propose the idea that private property is absolute and for everyone, which shapes our modern world. This private idea, pun intended, is heavily supported by Stephen M. Fjellman when he says, metamessage of our time is that the commodity form is natural and inescapable. Our lives can only be well lived (or lived at all) through the purchase of particular commodities (Fjellman, 1992).  The birth of credit in America also causes major problems in our economics system as we are literally spending money that we don’t have. Bank takes comfort in the notion that when the time come to pay the credit, there will be money. And if they wrongly assess, a high risk debtor to be a low risk , they risked a bank run.

Our last characteristic of capitalism would be that there is no government intervention in the working of market. Market in this sense would be a collection of seller and buyer with a potential of trade. Usually in a free market, resources is distributed efficiently through action of each and every individual involved in the market.In other words, we use greed of everyone to ensure the well-being of almost everyone in the community. Most economist would disagree with the involvement of government in market via price control, subsidy or outright centralised market. This is because government agency won’t be capable of reacting fast enough to the demand or supply fluctuation in market which could cause surplus or shortage. The former Soviet Union which practice communism is incapable of competing with its rival, United State of America when it comes to distributing a large amount of resources such as food and other commodities to a large number of people. Yet, we have to ask ourself why people have to starve in a world of plenty ? This is however is a major flaw in the capitalistic economics system, the ‘invisible hand’ of economy will guide a resources to someone with the capability to pay, but not to someone who really need it. In other word, capitalism is effective but not efficient. This unfortunately  doesn’t happen in a perfect socialist system as everyone is driven by common goods and common goals for everyone well being.

Now, we would try to go further into this economic system and identify the problems faced in its implementation and inner working. The main problem  that can be easily  observed would be market failure. Our first reaction would be, how can a highly acclaimed economic theory went wrong ? However, practice shows that it is possible. For example, Keynesian economist, Paul Krugman shows a scenario in which pursuit of personal interest leads to bad outcomes for the whole society. In his article, Market can be very, very wrong, he described a situation in which externalities  such as pollution causes by coal–generated electricity can be reduced if we just nudge the equilibrium price higher along the Y-axis of  demand and supply graph. Higher price would incur more cost on the consumers part which would means lower consumption if the alternative is better.Another example of market failure would be poor distribution of goods.Frances Moore Lappe noted in her article, "The Myth – Scarcity: The Reality – There Is Enough Food”, that 200 million Indians went hungry in 1995, while the Indian economy was exporting $625 million worth of wheat and $1.3 billion worth of rice that same year. Market failure also can be seen in a model of economics system called information assymmetric model . Information assymmetric model deals with a situations in which someone has a better grasp on the situation than the other party, for example in a second hand car market or insurance market. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure in the worst case. Sometimes, even the market goes extinct as more and more provider of services or resources is driven out of the market.

Our second problem would be unequal income distribution and social unequality. Some critics argue that capitalism in its nature indirectly influence unfair distribution of wealth and power. This can be seen in the action of monopoly and oligopoly in market, unfair treatment of workers and trade union members, rising cost of living and various form of economics and cultural oppression. Rave Batra in his best-selling books, The Downfall of Capitalism and Communism,claims that the fact that huge share of wealth is held by richest 1% shows a major determinant of depression and inequality among our society. Inequality isn’t actually evil, however it posed a considerable problems as it seems to cause stagnation and volatility to a nation. This in turn, will suppress to ability of a nation to compete successfully in global economy. Unequal income distribution if not remedied will eventually create political and social unrest in the country and sometimes are able to tear the country apart or thrown the country into civil war.

Capitalism also seems to promote inefficiency and waste as some critics perceive a shift from pre-industrial reuse and thriftiness before capitalism to a consumer-based economy in which "ready-made" materials is essential. It is argued that a sanitation industry develop under capitalism that considered trash as of no value; a quantum leap from the past when much "waste" was used and reused almost indefinitely. In the process, critics say, capitalism is heavily based on making as much product as possible to sell. This trend introduces another problem where we have more garbage than we are capable of recycling which would heavily affect the environment. Major example of uneconomical practice under unattended capitalism would be planned obsolescence. According to Wikipedia, planned obsolescence is a policy of designing a product which would be obsolete, limited in functional life time or would quickly go out of fashion after the next release is made. We can clearly see this happening in the case of the North Korea giant phone company, Samsung which would release a new phone almost every quarter. In this case, fashion plays a major part in moulding the customer’s mind to follow with the trend.

Now, we will be acquainted with waste with a different meaning and that is pollution. With the ever increasing number of multinational companies, we can see that environment is at risk. In order to reduce cost and increase profit, companies tend to get rid of industrial toxic residue with the not so proper way. We have to realise that pollution is not an unavoidable side-effect of modern industry. Methods exist or can readily be developed to safely neutralize, recycle or contain most industrial wastes. Less polluting forms of transportation and energy can be built. Adequate supplies of food can be grown without deadly pesticides. However, under capitalism we are powerless to stop this as we don’t have to ability to make any kind of decision regarding this matter. The power is distributed among a few wealthy people who control the framework in which the system works, making conservation of environment difficult.

Now, let’s go on with formulating solutions to eradicate or reduce some impacts of the aforementioned problems. When economy is being discussed or mentioned, we would have to be aware of its close cousin, politics or should we say government. Most classical economist would disagree with the notion of government getting involved or in some part even controlling the market activity. However, after the event of America’s Great Depression in 1920’s most economists would agree that we should allow the government to run some of the shows. Good government should be able to carry out certain economics function such as price control, competition laws which prohibit formation of monopolistic system or the action of banks such as lending money or giving credits. A good government policy in this matter would reduce the likelihood of market failure or even stock market crash. Although the main belief of capitalism is ‘rationality’ of everyone in the community when making choice, it is still open for debate. For example, in The Economics of Rationality, Bill Gerrard argued that if everyone is rational when making decision in a stock market, every stock/share will eventually reach its equilibrium price. However, practically this doesn’t happen as stock or share will always be under or over-valued as crash in stock market shows.

Income and social inequality which puts a brake on a country economics development should be remedied in one way or another. Firstly, pathetically uncompetitive education system must be improved or abolished all together. Instead of mass producing theoretically-savvy academic zombie we should aimed to improve or increase student skills to better equip them with something that will help them in working environment. This can range from communication to technical skills. Higher taxes, particularly for the upper-middle class and up, will help even things out, thus improving a country economics growth potential in a justifiable way. Government’s intervention is justified in this case. They should limit the tax breaks, subsidies, and loopholes allowed to the major energy, agri-business, pharmaceutical, and financial companies. They can also ensure that companies and individual who investment is their major source of income pays taxes which are proportionate with their benefits of citizenry.

The third problems posed major problems to overcome as the intervention of government in the policy and action of major or multinational company could be disastrous to a small or developing country. Raise of taxes or the enactment of new law to protect the environment which would reduce the company profit would cause them to consider relocation to another country with less stringent law. This can only be remedied if the law is honoured globally and every country assiduously upholds it. The conversion of capitalistic system to another system such as socialism in which workers become their own collective board of director should also be considered. A self-directed company wouldn’t try to relocate production, distribute profit unequally among the workers and obviously install a new technology which would destroy the environment where they and their families live. Further, we can also consider a revolution where we reorganized the economics systems so that they produce far lower inequalities of wealth and income and far less waste of resources than are associated with capitalism. With huge saving resulting from this action we might be able to support a new economics evolution among third world countries.

In this paper, we have studied the characteristics of capitalism such as the inactivity of government in matter relating to market, the idea of pricing and monetary system, and finally the philosophy of private property which is prevalent in our modern society. Then we try to discover the problems faced in the implementation and inner working of capitalistic economics system. Waste and inefficiency in capitalism posed the resistance to changes as it is hard to force stringent regulation on multinational companies that control politician and also the flow of a country’s economic progress. However, in order to improve not only our standard of living, but also our wellbeing as a human, inequality causes by amok capitalism must be reduce if not eradicate all together. This is to ensure that our grandchildren would not only inherit an economically stable country but also a good environment to live in. As it doesn’t matter how scientifically advance our civilization or society is, if environment isn’t being preserved. Later in this decade, we might have to choose between going back to socialism or getting the best of both world with the neo-capitalism.


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