Last updated on November 7, 2024
In our everyday lives, we often don’t think twice about grabbing our phones to check notifications, buying the latest must-have toy for a child, or picking up a cup of coffee on the way to work. These small, routine actions have become daily habits, but they also reveal something deeper about the society we live in. Whether it’s the new sleek design of the iPhone, or the new self-transforming toy, each of these items are more than just pleasurable; they are products of modern-day capitalism. Capitalism is an economic and political system whereby a country’s trade and industry are controlled by private shareholders for profit. It places heavy emphasis on capital accumulation, private ownership, competition, and the individualistic doctrine “you get what you work for, not what you wish for.” Those principles were first introduced as a religious sanction during the Protestant Reformation but gained widespread traction due to the Industrial Revolution. However, what started off as a seemingly ethical system birthed in the 16th century violently emerged as a global, imperialist, colonialist framework relying on exploitative labor that primarily focused on surplus value.
Historical Context
The oldest accounts of modern capitalism can be traced back to the Industrial Revolution in Europe, which transformed agrarian economies into industrialized, productive ones. This era was characterized by large-scale factories, machinery, and the creation of the wage-labor workforce. This idea extends further back to mercantilism in the 16th century, where states sought to grow their economies through trade and colonization. In the 18th century, Western ideas of free market and private property began to secularize, which eventually diffused to the Americas, Oceania, and Asia via offshoots. Most societies in western Europe secularized and abandoned feudal structures in favor of private market activities. For example, the enclosure movements in Europe converted communal land into privately owned land, increasing urbanization and poverty. Conversely, non-Western nation states outside of western Europe, other than colonies in the Americas and Oceania, were inherently skeptical and they viewed the new wave of capitalism as a threat to their political legitimacy, maintaining the previous system of serfdom labor.
However, this rejection would be costly to their economic development; the Western European states that embraced these new ideals saw significant economic growth, which created an immense economic disparity between them and non-Western states. Consequently, Western states engaged in direct imperial rule to consolidate their power in nations. Those efforts were successful in Eastern Asian nations like Japan, which underwent the Meiji Restoration under Western military threats, resulting in the most successful capitalist revolution in world history. In contrast, efforts at capitalism in feudal systems would not be as successful—the Chinese, Russian, and Ottoman empires led to instability—and in other cases, nearly collapsed. Economic reforms were either met with resistance from religious conservatives or were unsuited.
This expansion of capitalism has been philosophized by political theorists, most notably Adam Smith and Karl Marx. They agreed on the notion that the primary motivator underlying capitalism was profit, which was generated by labor, but disagreed on the implications of said notion. Smith believed that free-market capitalism was ideal for economic growth, in part due to its ability to foster competition and innovation. On the other hand, Marx critiqued capitalism for its inherent exploitation of labor, arguing that the bourgeoisie (the capitalists) inevitably extracted surplus value from the proletariat (the workers), which would only benefit the bourgeoisie. That said, Marx favored increased government intervention to ensure that everyone benefited. His ideas laid the groundwork for communist movements.
Criticisms of Capitalism
Critics of capitalism argue that its relentless pursuit of profit nurtures economic inequality, a pattern evident in countries like the US, where most of the wealth is overwhelmingly concentrated among the richest. Recent data reveals that the top 10 percent control 67 percent of the total wealth, while the lowest 50 percent only owned 2.5 percent—an increase from 2016, where the bottom 20 percent would own 2 percent. Strikingly, newer studies find that the top one percent alone own more than the entire middle class combined. This trend is not just confined to the US; in Europe, the top 10 percent of earners in the UK and France own 44 and 62 percent of total wealth, respectively. Critics of capitalism argue that beyond wealth inequality, the system inherently exploits workers by keeping wages low in order to maximize profits, allowing business owners and shareholders to accumulate most of the wealth while workers receive only a small fraction of the value they create. This dynamic reinforces economic disparity and limits social mobility. Additionally, capitalism’s emphasis on profit often results in environmental degradation, as corporations prioritize short-term gains over sustainable practices, leading to overexploitation of natural resources and contributing to climate change. Critics also contend that capitalism fosters economic instability, with frequent boom-and-bust cycles disproportionately harming the working class through job losses and financial insecurity.
Advocates for Capitalism
Despite ongoing criticisms, proponents of capitalism have praised capitalism for its emphasis on innovation via competition, which drives efficiency and improves product quality. By allowing businesses to compete freely in the market, they are pushed to innovate, reduce costs, and cater to consumer demands, leading to better goods and services. Data over the past fifty years suggests that capitalist innovation has doubled GDP per capita. It notes that non-agriculture business activity accounts for 71 percent of value added to the US economy excluding non-current assets. Being the heart of the economy, businesses also account for 83 percent of US technology investment, 77 percent of total R&D, and 81 percent of labor productivity growth in the 21st century.
Supporters also highlight that capitalism reduces poverty in the long term. According to the World Bank, the share of people living in extreme poverty has dropped from 36 percent in 1990 to around 10 percent in 2020, with much of this progress attributed to capitalist market reforms in countries like China and India. They also argue that capitalism has improved living conditions by increasing employment, universalizing education, and even creating taller people!
Conclusion
In conclusion, capitalism is a dynamic and influential economic system that has driven significant innovation and economic growth. While it has been praised for spurring technological advancements and reducing global poverty, it also faces criticism for exacerbating economic inequality, exploiting labor, and contributing to environmental degradation.
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