Wednesday, February 18, 2015

Capitalism

Capitalism is characterized by an economic system where means of productions are owned by private firms where goods and services are distributed according to price mechanics rather than govt price controls and there is no intervention on the market by the government.
Capitalist society believes that capitalism expands material well being and technologies.
The reason behind the "economic development" behind Capitalist economy are: 
1. Efficiency : Because of incentives, market pressure, the firms always keep on increasing their efficacy by cutting costs and avoid waste.
2. The market pressure makes firms work hard and be innovative. This increases GDP and improves living standards.
But sometimes that comes with a cost
1. monopoly/monopsony : If monopoly is achieved by a firm in a capitalist economy it will take advantage of its power to fix high prices, low wages to labors, etc.
2. ignorance of social benefits : profit maximizing capitalist firms ignore negative externalities like pollution from production etc.
3. Booms and bust cycles : Capitalist economies are vulnerable to recessions and that causes mass unemployment.
4. Inherited wealth : Wealth can be passed to future generations. This inherited wealth causes wealth inequality and it is a curse to "equality of opportunities"
5.These inequalities cause social divisions.
6. increases the gap between rich and poor.
Capitalist economy helps economic development a lot. in fact, presently there is no suitable alternative to that. But there should be proper government intervention and people friendly economic policies in important fields like health care, transport, education, defense, etc.

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