Capitalism, also known as the free-enterprise or free-market system, is
the economic structure that permits people to use their
private property however they see fit, with minimal interference from
the government. Under capitalism, people are free to work at jobs of
their own choosing, to
try to sell their products or services at whatever prices they wish, and
to select
from among various product- and service-providers for the best value.
In "managed" socialist or communist economies, by contrast, central
governmental authorities exercise much greater control over the life of
the people. These authorities may determine, for instance, what jobs
people are permitted to have; what the prices for various goods and
services should be; and what the nation's import and export quotas
should be. In the socialist/communist economic model, private-property
ownership is severely restricted; the state confiscates virtually
everything, ostensibly for the benefit of “the people.” Such a system
invariably involves the wholesale redistribution of wealth, overseen and
enforced entirely by government bureaucrats. For a more detailed
discussion of communism and socialism, click here.
It should be noted that "pure" capitalism, unencumbered in any way by
government, exists neither in the United States nor anywhere else in the
world. Moreover, the capitalist system of present-day America differs
in significant ways from other capitalist systems around the globe, just
as it differs from the capitalism that existed in the U.S. at the turn
of the 20th century. While private-property rights and certain amounts
of economic freedom have always been part of American life since that
time, those rights and freedoms have become increasingly weighted down
by heavy
governmental regulation.
Critics of capitalism believe it is imprudent to allow an unregulated
market to run its course, and to permit private citizens to make their
own economic decisions based on self-interest. Asserting that such
systems are inherently chaotic and inefficient, these critics propose
that government regulators and bureaucrats -- "experts" presumably
unencumbered by the greed or the impulse for self-interest that
motivates private citizens -- should be empowered to "manage" economies
authoritatively. In response to these positions, the Ludwig von Mises
Institute scholar Robert P. Murphy writes:
"This view is flawed in two
major respects. First it is impossible for a central authority to plan
an economy. New technologies (if entrepreneurs have freedom to create
new technologies), changes in consumer taste (if consumers have freedom to pursue their tastes), and innumerable variables
that can affect production, distribution, and consumption of everything
from newspapers to lawnmowers on national or international scale are
simply not 'manageable' in the way socialist planners like to think they
are. Second, the planning bias completely misunderstands
the role of profit and loss in a market economy. Far from being
arbitrary, a company's 'bottom line' indicates whether an entrepreneur is
doing what makes sense: if his product is one that people want and if he
is using his resources in the best possible way."
Perhaps the most common objection to
capitalism is the claim that it exploits the poor in order to serve the
interests of the
rich. History shows, however, that this is precisely the antithesis of
the truth. In pre-capitalist, medieval Europe, for example, most people
either toiled in the
fields to which they were bound or they worked at crafts that were
heavily
regulated by various guilds. The elite aristocracy, meanwhile, acquired a
virtual
monopoly on luxury goods.
The rise of modern
capitalism changed all this. The fortunes of the big businessmen who
emerged under capitalism no longer depended upon the patronage of a few
wealthy clients. Rather, these entrepreneurs began catering to the needs
and desires of a newly empowered working class consisting of millions
of people. By meeting those needs and desires, businessmen greatly
increased their own wealth and influence. And in the process, they
helped improve the lives of people in every social stratum. For example,
the transition into the capitalist era brought a dramatic decrease in
infant-mortality rates and a significant rise in life expectancy.
Moreover, the average
blue-collar worker under capitalism was far wealthier than even the
kings of the feudal period had been.
After the Bolshevik revolution of 1917, communist true-believers
expected that their system would prove to offer the average person a
better standard of living than capitalism ever could. But instead, the
masses in the United States lived far better under capitalism than their
counterparts in the Soviet Union under communism -- to say nothing of
the fact that
the repressive Soviet government in effect murdered more than 60 million
of its subjects between 1917 and 1987. Wherever communism was tried, it
resulted not only in economic deprivation but also in political tyranny
and oppression. Moreover, it brought about an immense wealth disparity
between the common people on the one hand, and government authorities
and their bureaucratic operatives (the nomenklatura) on the other.
Notwithstanding this historical track record, modern-day Western
intellectual elites continue to despise capitalism, blaming it for
virtually every social ill that can be identified. Indeed, feminists
blame capitalism for the inequitable treatment to which women were
historically subjected. Civil rights leaders blame capitalism for having
created the psychological conditions and the economic incentives that
made the slave trade and racial discrimination possible.
Environmentalists blame free-market industrial pursuits for poisoning
the air and water, and for triggering the "climate change" that
allegedly threatens the well-being of every form of life on earth. Peace
activists blame war on greedy capitalists and their insatiable thirst
for wealth and empire. Consumer-advocacy groups allege that capitalism
encourages business to put "profits over people," and thus to be
inattentive to the needs and the safety of consumers. Moralists
decry the commercialization associated with capitalism. And Luddites who
yearn for the simple agrarian
society of the past blame capitalism for drawing the curtain on
mankind's proverbial age of innocence.
United in the belief that only government is capable of addressing such
weighty concerns, all of these groups invariably call for government to
be given more money and greater authority over the economic life of the
people.
Globalization
Globalization refers to the worldwide phenomenon of increased
technological, economic, and cultural interconnectedness between
nations. It is essentially capitalism on a global, rather than a
national, scale. In a globalized economy, the world’s markets and
businesses are not isolated entities whose activities are confined
within the borders of individual nations. Rather, those markets and
businesses are connected to counterparts in other countries all across
the globe; economic activity is unrestricted by time zones or national
boundaries. There is an international exchange of labor forces, ideas,
knowledge, products, and services. This trend has accelerated
dramatically since the 1980s, as technological advances (most notably
the rise of the Internet and advances in telecommunications
infrastructure) have made it easier for people to travel, communicate,
and do business internationally.
The expansion of international trade and foreign investment was sparked
not only by technological progress, but also by two major sociopolitical
developments of the 1980s. One of these was the collapse of global
communism. The fall of the Berlin Wall and the subsequent dissolution of
the Soviet empire freed some 400 million people from the shackles of
closed, centrally commanded economic systems. The second development was
the demise of the Third World’s reliance upon import substitution -- a
trade and economic policy founded on the idea that a developing country
can increase its wealth by importing as few goods as possible and
relying instead on locally produced substitutes. When import
substitution proved to be a colossal failure, struggling countries all
over the world -- starting with Chile in the mid-1970s and China later
that decade -- began opening their markets and welcoming foreign
investment.
Opponents of globalization characterize the phenomenon as a form of
Western expansionism and cultural imperialism, claiming that it will
merely increase the opportunities for wealthier nations (and their
multinational corporations) to take advantage of poorer ones. This
happens, the critics say, because multinational corporations can exploit
the cheap labor and lax regulations typical of developing countries
where there are no labor unions. Believing that a planned economy
ensures the greatest economic benefit to the poor, the
anti-globalization movement tends to favor socialism over capitalism. It
also warns that globalization could eradicate regional diversity and
lead to a homogenized world culture where “native” cultures are
swallowed up by Western traditions.
Supporters of globalization respond by pointing out that since the
1980s, every nation that has experienced an increase in its
manufacturing output has also seen its per capita income rise; that
nations open to trade tend to be much more prosperous than nations with
closed economies; and that the increased wages spawned by globalization
correlate with reduced poverty and improved living conditions for all.
The most impressive gains in this regard have been realized in East
Asia.
Advocates of globalization also assert that free trade, by raising a
society’s general standard of living, helps people achieve higher levels
of education, thereby fostering the growth of a larger and more
independent-minded middle class that can lead a movement toward more
representative forms of government. Examples of such developments can be
seen in Taiwan and South Korea, which were essentially dictatorships as
recently as the 1980s but are now governed by presidents and elected
legislatures, and are now characterized by civil-liberties protections
and free political debate. Likewise, the movement toward economic
liberalization in Latin America has helped usher in an era of
representative governments in that region.
The two most prominent pro-globalization entities today are the World
Trade Organization and the World Economic Forum. The former, consisting
of 144 members, was created to establish a set of rules to govern global
trade through the process of member consensus. The latter is a private
foundation that does not possess decision-making power but is a powerful
networking forum for many of the world’s business, government, and
not-profit leaders.
Source for the Capitalism section: The Politically Incorrect Guide to Capitalism, by Robert P. Murphy (Washington, DC: 2007).
