Capitalism is an economic system in which “land and produced means of production (the capital stock) are owned by private individuals or groups of private individuals organized as firms” (Rosser and Rosser, p. 7). Capitalism is based on property ownership, hired labor, market regulation, and income generation and growth. The general idea behind a capitalist economy lies in free-market competition. However, because an uncontrolled economy may fall into crisis, the market still requires regulation. The extent of regulation, in turn, determines the type of capitalism. Today, the majority of countries with capitalist economies use a mixed model in which the free market is watched by the government. Although capitalism is widespread around the world, the economic system has several disadvantages; some countries have created cooperatives to tackle them, while others have implemented alternative economic models such as communism or socialism.
The problem with capitalism lies within the main idea of the system itself. This economic system focuses on goods and property, most of which are owned by a small number of wealthy people. The resulting fact is that wealth is not spread equally among the population. In his book, Thomas Piketty claims that this situation is a direct outcome of capitalism’s inequalities of labor and capital incomes (Piketty, p. 242). Another problem that capitalism is often accused of is generating values that people do not need. These values proclaim consumerism as the model that defines success. People may face discrimination based on income or their ability to buy particular products or services. Consumerism pushes people to spend their time and financial resources to accumulate goods, some of which are undoubtedly unnecessary. Such customer behavior, in its turn, may lead to overproduction and economic crisis as a result.
The fight against the problems of capitalism began a long time ago. Several European countries have seen their citizens stand up against oppression by wealthy individuals throughout the years. For example, in the eighteenth century, the French Revolution overthrew the monarchy and proclaimed, among other things, the equality of all people. This event provided the basis for the rise of liberation talks among people of other nations. Karl Marx, perhaps the most famous philosopher of the nineteenth century, developed the idea of communism, an ideology of creating a society in which all people are equal. Under this philosophical and economic construct, all property owners are viewed as oppressors who use their resources to exploit laborers. Marx divides society into two classes: the bourgeoisie and the proletariat. The latter is seen as a “really revolutionary class” (Marx and Engels, p. 74) and the only force that can change the situation. Indeed, communism states that workers should become the new leading class by overthrowing the bourgeoisie.
Although his ideas were widespread, Marx’s ideas quickly became popular in the Russian empire, where even though farmers were technically free, they did not own their land. Moreover, laborers in cities were forced to work long hours in extreme and dangerous conditions for a small wage. This class of people, known later as the proletariat, blamed rich land and factory owners along with the emperor for all of their hardships. This class strife eventually ended in the Russian Revolution of 1917 and the subsequent creation of the USSR. This newly formed state chose communism as its economic model. This model was accepted by society because it allowed for the sharing of all goods among all people. Income inequality was eliminated, and the land and housing problems were solved by implementing the communist idea of denying ownership of private property.
Similarly, communism became dominant in several other countries as well. This model influenced the economies of such places as China, Vietnam, Cuba, and North Korea, as well as some African countries. The reason for this vast success lies within communism’s primary tenant of sharing goods and finances among the poorest classes of society. The above-mentioned countries consisted mostly of people with low incomes. Moreover, at various points in history, many of these Asian and African countries had suffered under Western colonial policies, which provided a foundation for their people to view capitalism as a tool for exploitation and inequality. Besides, societies of these countries tend to value community over individualism. Asia, for instance, has a long history of decisions made by communities. This cultural tendency partially explains why communism was appealing to this part of the world. Beyond culture, some of these countries, particularly in Africa, were economically supported by the USSR and implemented communism in return for that help. Today, however, only Cuba and China partly use this economic model.
The failure of communism is often explained by the fact that the ideology itself represents an unrealistic utopia. Even though Marx believed that all people as a community would make decisions about the distribution of goods, the reality turned out to be far from that. For instance, the USSR had a typical command-and-control scheme in which one person, the head of state, made nearly all of the decisions. Long-term development plans were written based on the country’s interests and became “directive and indispensable for executors” (Kolbin, p. 5). Moreover, the planned Soviet economy created problems for ordinary citizens. Most of the country’s budget was targeted at heavy industry since there was a strong need for industrialization. The country’s vast territory lacked electricity and roads, especially in the east. This poor distribution of finances resulted in low quality and number of available household items. Citizens were not able to buy nice clothing, furniture, or cars. Besides, the planned economy created a situation in which production was divided by sectors of produced items and set on a particular geographic territory. Because of this division, people of one city would have a significant amount of one product but would have to travel to other cities for the rest of the goods they required.
Today, Cuba remains formally a communist country. However, this model can be seen only in the government’s political actions. Indeed, Cuba has a private sector that does not comply with the communist ideology. Nevertheless, the economy is mostly planned by the government, and private enterprises make up only a small part of the total number of companies in the country. For many years, Cuba’s economy was heavily affected by the U.S. embargo, which ended only recently. Citizens still don’t have economic freedom. They can buy only certain foreign products approved by the government, such as computers and cell phones. Currency cannot be exchanged by local people; only tourists may do this. Cuba has two types of coins, one for each group. Moreover, the country’s small territory and its lack of natural resources do not allow it to have all sectors of industry represented.
Another communist country, the People’s Republic of China (PRC) has successfully learned the lessons of the USSR. Even though the PRC remains communist today, it uses a mixed type of economy. While the most important industries are still controlled by the government, there are also sectors dominated primarily by private companies. This decision has allowed the Chinese economy to grow rapidly. The PRC is now the largest trade and production center in the world as most Western countries have moved their production lines to China to cut costs. China has become “the world’s largest economy (on a purchasing power parity basis), manufacturer, merchandise trader, and holder of foreign exchange reserves” (Morrison, p. 1). This growth became possible after several decades of economic liberation.
However, ordinary Chinese people are not benefitting enough from the current economic situation. Workers still receive small salaries for long hours, the worst of which can be seen in the textile industry. The enormous demand for clothing in Europe and the United States has created overproduction and cost damping. Western companies often ask Chinese managers for lower prices, and managers have to agree if they want to keep the relationship. This means that companies have to pay even less to their workers. The cost of such labor is around several cents an hour, and the first month’s salary is usually kept by managers as a deposit to ensure employees will not leave the factory immediately. Although foreign delegacies visit Chinese factories on occasion, the communist regime ensures that they do not see anything negative.
Unlike communism, the socialist economic model does not deny private property. It mainly focuses on defending workers’ rights instead of supporting capital owners. Socialism argues for socially owned companies and the distribution of production results among people. While people living in a capitalist economy may “select their political leaders – but not their bosses” (Schweickart 48), socialism solves this issue. This economic model is popular in Europe, where communities are quite small, which allows societies to control economic processes better than large countries can. Socialist governments are interested in the financial stability of each family, which is enforced by economic regulation. Governmental actions concern education, healthcare, labor, and social support sectors. Taxation is strictly regulated, and taxes are usually high to ensure that the national budget has enough income to support a socialist economy.
The so-called Nordic model is a socialist type of economy implemented in the countries of Sweden, Finland, Norway, Denmark, and Iceland. Each of these countries is quite wealthy, which offers a compelling reason to discuss the success of socialism as an economic model. These countries have very high taxes to finance several public sectors. First of all, education is free. Each year the government determines the number of students accepted to certain programs. This step ensures that the country receives a balanced number of specialists within each sector of industry. Secondly, the government offers free healthcare. Finally, even if citizens cannot find a job, the government pays them a certain amount of money to ensure that they have decent living conditions. This initiative also includes cheap housing and food support for low-income families.
Socialism is prevalent in Latin America as well. However, unlike in Europe, this economic model has not had as many positive outcomes there. Venezuela is perhaps the most notable example of such a country. Its former president Hugo Chavez made a set of reforms targeted at fighting the poverty, illiteracy, and poor health of the population. Although several welfare policies were implemented, they did not result in financial stability for the population. These missions included, among other goals, the reform of higher education to make it affordable for poor citizens. While the Venezuelan government was “reinforcing the idea of education as a right” (Duffy, p. 184), it did not focus on efficiency. This lack of effectiveness held for the rest of the reforms as well. The reason for socialism’s failure in Latin America primarily lies in government corruption. As a result of poor economic policies, Venezuela is now facing a serious financial crisis with a population that becomes poorer every day.
Although many Latin American countries exhibit the most obvious problems with socialism, European socialism has its downsides as well. They are mostly concerned about the amount of financing that governments spend to support their citizens. For example, there is no guarantee that students will work within their specialization after they graduate. The Nordic countries mentioned above have small populations, and a lack of workers in certain industries may lead to an unbalanced economy. However, the biggest problem lies in the financial support for the poor. In some countries, this support is so high that people can live on it instead of looking for work. This situation leads to the discontent of other citizens who are working and paying high taxes to support those who aren’t. Moreover, big cash benefits attract refugees and foreigners from developing countries. They often bring their families along after becoming citizens. The government then has to provide these families with cash benefits since many of them cannot find a job due to the language barrier or a lack of education.
Although many Western countries are capitalistic, particular initiative groups fight to incorporate elements from other economic systems. The socialist ideas of Marx are appealing to ordinary workers because they defend workers’ rights and put their interests above those of the company owners. This struggle has resulted in the creation of various labor unions around the world, which have seen their task “in national policymaking and corporate decision making weakened” (Doellgast vii). Labor unions in capitalistic countries began their history in the Industrial Revolution, a time characterized by technical progress and the substitution of workers with machines. As the human workforce became cheaper, the threat of unemployment became real for many people. Workers began to organize in groups to fight for their rights.
Labor unions in the United States belong to either the American Federation of Labor-Congress of Industrial Organizations (AFL-CIO) or the Change to Win Federation. Most of their work revolves around changing the current legislation to benefit workers. These unions mainly focus on issues of working conditions and wages, and they often serve as workers’ representatives in negotiations with their employers. If a case cannot be solved by negotiation, it will be sent to court. Workers must be union members if they wish to have their rights defended by it. The idea of supporting workers is based on fundamental human rights and living standards.
Today, labor unions are not as popular among workers as they were in the middle of the twentieth century. Recent decades have shown a steady decline in membership in all countries where unions are represented. The major reason for this decline can be explained by the low efficiency of unions in legislative changes. They simply do not have enough power to make significant progress in capitalistic countries. Another problem facing labor unions is globalization. Foreign workers from third-world economies arrive in prosperous capitalistic countries and take away jobs from local workers. While unions work on raising the minimum wage, employers hire immigrants who will work for less money. Besides, as production lines are being transferred to Asia, American and European production workers lose their jobs.
Another way to tackle the issues of capitalism is a so-called minimum guaranteed income (MGI). This system is targeted at the most financially disadvantaged parts of society and aims to fight the inequality in commercial division among people. The target group of the MGI program consists mostly of senior citizens, disabled people, and low-income families. The financing for such programs may be found by changing the economic system. These changes, among others, may include a revision of tax policies and budget divisions, along with the nationalization of companies and resources. Increasing taxes on the wealthy will add more money to the budget. Together with cutting down the expenses on some programs, higher taxation will provide an opportunity to better support the poor. Nationalization of enterprise will help societies manage the goods themselves and raise their levels of financial stability.
In the end, although capitalism is not the ideal economic or philosophical system, it can improve by taking elements from alternative models. None of the current economic models are perfect. Perhaps the correct answer will be found once societies have reached a level of development in which both workers and employees have the same human rights and market interests. Until then, issues like poverty, illiteracy, and inadequate healthcare will continue to rise, especially in third-world economies where populations grow much more rapidly than resources. The fair distribution of these limited resources should become the number one question for every government.
- Doellgast, Virginia. Disintegrating Democracy at Work: Labor Unions and the Future of Good Jobs in the Service Economy, New York: Cornell University Press, 2012. Print.
- Duffy, Maura. “State-Led Education for Democratic Socialism: Venezuela’s Education Missions.” Journal for Critical Education Policy Studies 13.3 (2015): 178-194. Print.
- Kolbin, Viacheslav V. Macromodels of the National Economy of the USSR: Methodological Aspects, Dordrecht, Holland: D. Reidel Publishing Company, 1985.
- Marx, Karl and Friedrich Engels. The Communist Manifesto. Trans. L. M. Findlay. Peterborough, Ontario: Broadview Editions, 2004. Print.
- Morrison, Wayne M. China’s Economic Rise: History, Trends, Challenges, and Implications for the United States. Washington: Congressional Research Service, 2015. Print.
- Piketty, Thomas. Capital in the Twenty-First Century, Cambridge: Harvard University Press, 2014. Print.
- Rosser, John Barkley, and Marina Rosser. Comparative Economics in a Transforming World Economy, Cambridge: The MIT Press, 2004. Print.
- Schweickart, David. After Capitalism, Lanham, MD: Rowman & Littlefield Publishers, Inc., 2011. Print.