Drawbacks And Benefits Of Capitalism

• In our discussion of capitalism as an economic ideology
• We explored some of its features
• These collective features give capitalism it’s merits and demerits

Advantages of Capitalism

• The profit motive is a very strong motive
  • It encourages people to be productive
  • Encourages people to be innovative
  • Fosters competition and ultimately the development of society as a whole
  • Leads to efficiently
• Tends to lead to economic growth and boosts the Gross Domestic Product of the resident state/country/society
• By its very nature, the ideology favours an improvement in society’s standards of living
• Resources are allocated efficiently
• Products are sold at the “best” prices that make economic sense
• Encourages the making of high-quality products
• It is an inherently democratic system as people are free to choose economic pursuits
• Favours technological advancements

Disadvantages of capitalism

• Everything is driven by greed masked as self-interest and this can lead to certain problems:
  • The creation of monopolies that will exploit their power by overcharging customers or colluding to raise pricesPreventing new players from entering the field for example by temporarily lowering the prices below viable levels to thwart new playersTempts business to act unethically and do the minimum to obey the law for example there without laws there would be little incentive to provide things like paid maternity leave
• Rich corporates can use their wealth to lobby and influence governments in their favour against society’s interest, for example, Tobacco companies successfully saw off regulations and carried disinformation campaigns against the science that links tobacco to cancer.
• Businesses are doing the same with global warming and gun control in America
• Leads to negative externalities
• Without regulation, society ends up paying for the business community’s negative externalities
• Ultimately leads to unequal distribution of wealth
• Despite claims of it providing a level playing field members of society do not have equal opportunities, for example, those born poor are most likely to remain poor due to lack of access to capital, education etc
• Thus the system reinforces the status quo classes e.g. those in the working class are bound to remain there save for a few who can escape the cycle
• Does not provide or protect those who lack skills and are vulnerable for example children and the elderly
• Reinforces the poverty cycle i.e. the poor will remain poor
• Eventually, lack of diversity cripples innovation leading to painful shakeups in the form of economic depressions
• Most of these problems appear in what is known as late-stage capitalism
• Some of the problems of late-stage capitalism include:
  • Pollution (mentioned as negative externalities above)Depletion of natural resources Economic depressions
  • Stock market bubbles
  • Climate change

To access more topics go to the Advanced Level Business Studies/ Business Enterprise Skills page

To access more topics go to the Advanced Level Business Studies/ Business Enterprise Skills page