Question

What is different about modern capitalism and what remains unchanged?

Answer 1

What is Capitalism?

Capitalism is an economic system in which private individuals or corporations own capital goods - i.e. factories, raw materials, the means (tools) of production. The production of goods and services is then based on supply and demand in the general market—known as a market economy—rather than through central planning—known as a planned economy or command economy.

WHY CAPITALISM IS DIFFERNT?

Private Property

The right to private property is a central tenet of capitalism. Citizens cannot accumulate capital if they are not allowed to own anything, if they fear the stuff they own can be easily stolen or confiscated, or if they cannot freely buy or sell the things the own and transfer that ownership to others. As long as the owner stays within the parameters of the law, which generally are broad in capitalist systems, he or she may do what he wants with the property he owns.

Factors of Production

In capitalism, private enterprise controls the factors of production, which include land, labor, and capital. Private companies control deploy a mix of these factors at levels that seek to maximize profit and efficiency.

Accumulation of Capital

The centerpiece of a capitalist system is the accumulation of capital. In a capitalist system, the driving force behind economic activity is to make a profit. Capitalists see amassing profits as a way to provide a powerful incentive to work harder, innovate more and produce things more efficiently than if the government had sole control over citizens' net worth. This financial incentive is the reason capitalist economies see innovation as going hand-in-hand with their market system.

Markets & Competition

Competition is the other vital attribute of a capitalist system. Private businesses compete to provide consumers with goods and services that are better, faster and cheaper. The principle of competition forces businesses to maximize efficiency and offer their products at the lowest prices the market will bear, lest they get put out of business by more efficient and better-priced competitors.

WHAT REMAINS UNCHANGED (PROBLEMS)?

Capitalism, undoubtedly, is a major driver of innovation, wealth, and prosperity in the modern era. Competition and capital accumulation incentivize businesses to maximize efficiency, which allows investors to capitalize on that growth and consumers to enjoy lower prices on a wider range of goods. However, sometimes this doesn't work out as planned. Here, we will just consider just three problems of capitalism: asymmetric information; wealth inequality; and crony capitalism.

Asymmetric Information

For free markets to work the way they are intended as a hallmark of capitalist production, a major assumption must hold: information must be "perfect" (i.e. all knowledge available is freely knowable), and symmetric (i.e. everybody knows everything about everything). In reality this assumption does not hold, and this causes problems.

Crony Capitalism

Crony capitalism refers to a capitalist society that is based on the close relationships between business people and the state. Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the government in the form of tax breaks, government grants, and other incentives.

Wealth Inequality

One recurrent issue with the capitalist system of production is that its competitive markets and private corporations produce a winner-takes-all paradigm that leaves losers in the dust. If two companies both make chairs, and one can do it cheaper or more efficiently, either the laggard will go out of business and lay off its employees, or the successful company can acquire the laggard and lay off many of the employees in that company.

CONCLUSION

In reality, most countries and their economies fall in between capitalism and something akin to socialism/communism. Some countries incorporate both the private sector system of capitalism and the public sector enterprise of socialism to overcome the disadvantages of both systems. These countries are referred to as having mixed economies. In these economies, the government intervenes to prevent any individual or company from having a monopolistic stance and undue concentration of economic power. Resources in these systems may be owned by both state and individuals.