Advantages and Disadvantages of Capitalism
Definition of Capitalism
Capitalism is an economic system that is based on private ownership of the means of production, as well as on the principle of free market, whose objective is the accumulation of capital. The word is formed from the union between the noun capital, which in this context means ‘set of economic goods’, and the Greek suffix ism, which means system.
Therefore, capitalism is a system based on the ownership of the means of production and resources, from whose trade the profits are extracted.
Capitalism proposes market freedom as a basic principle. The market, according to the traditional capitalist model, is regulated by the law of supply and demand, aimed at satisfying consumer needs. In this sense, competitiveness among producers is a key aspect of this economic system.
However, the definition of capitalism is not exact since in each nation, in one way or another, various conditions are established on the production, commercialization, distribution and price of the goods and services produced.
Advantages and Disadvantages of Capitalist Economy
Advantages of Capitalism
There are many inherent advantages in capitalism.
- It allows for free competition.
- The individual has the opportunity to maximize his potentials. The individual can become whatever he wants to become.
- The fundamental human rights of the citizens and the rule of law are expected.
- The system permits unfettered operation of the mass media and freedom of speech.
- It allows efficient allocation of resources.
- Under capitalism, the great majority of workers have far higher standards of living than any other system. Because of regular negotiations between employers and labour, working hours have been much reduced, wages very much raised and conditions of work have improved.
- The worker reserves the right to sell or not to sell his labour. He can even withdral his services if he so desires.
- Capitalism encourages hard work and industry. It requires a lot of hard work to set up a business and make it profitable. You cannot expect to eat when you do not work.
- It promotes the spirit of thrift and saving. A typical capitalist detests ostentatious and flamboyant lifestyle.
- Several capitalist states such as Britain and Sweden have introduced the social security system (i.e. unemployment benefits and old-age payment, etc) which has reduced the financial burden on the people.
- If given a human face as in the welfare states of Britain and the Scandinavian countries, capitalism, is a veritable instrument for promoting social justice.
- The commercialization and privatization of government owned enterprises has lead to efficient and improved service delivery especially in developed countries.
- The collapse of socialism in some countries shows that capitalism is closer to human nature than any other system as human beings are generally individually oriented.
Disadvantages of Capitalism
The major disadvantages of capitalism are:
- The capitalist system makes it possible for the rich to be richer by exploiting the labour of the proletariat. Workers are paid only a small fraction of the value of their labour as wages. The rest is appropriated by the employer as profit.
- Profit maximization is the major objective of the capitalists. The desire of the capitalist to make abnormal profit leads them to concentrate production only on business that are profitable. For example, the railway is generally not a profitable business venture and this partly accounts for its neglect by private businessmen in capitalist states like Nigeria.
- Representative democracy, as practised in capitalist states, is essentially a government by the privileged few. The laws and policies of the government also tend to promote the interests of the rich rather than the poor.
- There is unequal distribution of wealth between lower and upper classes.
- The welfare of the underprivileged is not often accorded a price of place in a capitalist system.
- the reforms of capitalism has implemented by capitalist states like Britain and Sweden are essentially meant to disguise the exploitation of man by man in heroines in the system and making capitalism attractive.
- The concentration of wealth in a few hands, which is the hallmark of capitalism, may hinder the development of a poor country, which may find it difficult to mobilize resources for national development.
- It encouraged the exploitation of the poor and the weak ones.
- It is only few people who gain from the wealth and enormous progress of the country.
- The large-scale rural-urban migration, a problem arising from capitalism leads to the abandonment of agriculture in the rural areas and overcrowding, traffic congestion, insanitary condition and crimes in the urban areas.
- Unemployment and underemployment is a major problem with capitalism. For instance, able-bodied young men and women are found on the streets of Nigeria’s selling useless products like toothpicks, gala, sachet water and even animals.
- There is constant tension and conflict in the system. For example, many of the religious and ethnic conflicts in Nigeria are primarily caused by poverty, unemployment and uneven distribution of wealth often associated with capitalism.
- There is primitive accumulation of wealth. Public officials, for example, steal public funds with impunity, and often go scot-free.