The economic condition wherein private organizations or individuals run the four aspects of production–land, capital, natural resources, and entrepreneurship–is known as capitalism. Moreover, making investments stems typically from an exclusive decision-making process instead of running it through the government. The system responsible for managing the pricing, production, and product allocation is the free market competition.
Characteristics
When society observes capitalism, affluent people and firms own all production aspects. They earn interest, wages, rent, and profit through ownership. This acquisition and privileges compensate the capitalist society for increasing profit. Hence, they exhaust the most efficient utilization of all the resources.
To achieve this objective, the allocation of products and services heavily relies on the supply and demand policy. This has a significant impact on the companies’ pricing methods for their products and services. Because firms aim to maximize their income, they will use the highest and the cheapest prices. If they are unable to keep this pricing scheme, all their profits will go to the competitors.
Capitalism comes in various forms, welfare, state, free-market and more. The differences among these will be according to the types of market freedom, public ownership, social regulations, and several other factors.
Advantages
Encourages Innovation
When there’s capitalism in society, it encourages innovation among people and firms. This is a crucial element for economic development, allowing efficiency and fostering competition. There are more goods created and launched while society continues to progress swiftly.
Promotes Competition
One of the typical features of capitalism is that consumers always get the ideal prices and excellent products. This scenario means the system is operating at its best. Individuals are willing to spend on quality products, and companies aim to maximize their income. This promotes competition and pushes companies to be innovative and efficient. All these benefits heighten the pressure to limit expenditures and reduce waste.
Political Freedom
When the government has full control over all production factors and manages the prices, it builds a stable central government. It can be primarily involved in all elements of the residents’ life. There is minimal political freedom to maintain the strength of a communist state.
Disabled individuals are presumed unskilled in a capitalist society
Disadvantages
Neglects Externalities
Due to capitalism, negative externalities like climate change, health damage, and pollution are neglected. Even if this makes production a lot easier and cheaper, society will incur massive losses over time.
An excellent example is a mining firm that will eliminate land resources, throw out toxic water and cause enormous air pollution. They have no reward when they do the opposite because it will only lead to spending more resources. But all the activities have a considerable impact on the environment and community as a whole.
Introduces Marginalization
There is no place for kids, elderly and disabled people who are presumed as unskilled in such a system in a very competitive capitalist society. Private firms will not gain from serving those who can’t afford their offerings. Due to capitalism, the economy will under-provide products with positive externalities like education, health, and public transport. Thus, government intervention is crucial in a capitalist economy.
