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Markets

The "free market"

Though many associate the free market concept with capitalism, there are some critics —notably anarchists, mutualists, and free market socialists, who believe that a non-coercive "free market" and capitalism are not only not synonymous, but are often contradictory. They argue that particular aspects of capitalism actually violate the ability of individuals to trade in the absence of coercion. They view capitalist regulations, including the enforcement of property in land and exclusive rights to natural resources, as unjustly enclosing upon what should be owned by all, forcing those without property to sell their labor to capitalists and landlords in a market favorable to the latter, thus forcing them to accept low wages in order to survive.

Similarly, in recent times, most economies have also extended property rights to include such things as patents and copyrights, which the critics also see as coercive against those with few prior resources. They argue that such regulations discourage the sharing of ideas, and encourage nonproductive rent seeking behavior, both of which enact a huge deadweight loss on the economy, and erect a prohibitive barrier to entry into the market. Dismissing the whole idea of "free markets", they thus claim that capitalist markets are exploitative or coercive in essence.

However, proponents of capitalism respond that decreases in wage rates have the same cause as any other commodity in a market - due to either a lower demand or a larger supply. If enough employers compete for labour, then this will prevent arbitrarily low wages. Regarding intellectual property, not all pro-capitalists support the concept, but those who do argue that a compensation to the creator is necessary as an incentive. Those who do not, argue that if compensation is necessary as an incentive to produce, then there are options other than intellectual property that do not prohibit the sharing of ideas. Regarding socialism in general, they point to the problems discussed in criticisms of socialism.

Market failures

Not everyone believes that a free or even a relatively-free market is a good thing. One reason proffered by many to justify economic intervention by government into what would otherwise be a free market is market failure. A market failure is a case in which a market fails to efficiently provide or allocate goods and services (for example, a failure to allocate goods in ways some see as socially or morally preferable). Some believe that the lack of "perfect information" or "perfect competition" in a free market is grounds for government intervention (see perfect competition). Other situations or activities often perceived as problems with a free market may appear, such as monopolies, monopsonies, information inequalities (e.g. insider trading), or price gouging.

Wages determined by a free market mechanism are also commonly seen as a problem by those who would claim that some wages are unjustifiably low or unjustifiably high. Another critique is that free markets usually fail to deal with the problem of externalities, where an action by an agent positively or negatively affects another agent without any compensation taking place. The most widely known externality is pollution. More generally, the free market allocation of resources in areas such as health care, unemployment, wealth inequality, and education are considered market failures by some.

Also, governments overseeing economies typically labeled as capitalist have been known to set mandatory price floors or price ceilings at times, thereby interfering with the free market mechanism. This usually occurred either in times of crises, or relating to goods and services which were viewed as strategically important. Electricity, for example, is a good that was or is subject to price ceilings in many countries. Some economists have analysed market failures, and see governments as having a legitimate role as mitigators of these failures, for example through regulation and compensation schemes.

However, some economists, such as Bank of Sweden Prize-winning economist Milton Friedman as well as those of the Austrian School, oppose intervention into capitalist markets. They argue that government should limit its involvement in economies to protecting absolute private property rights rather than balancing property rights for the sake of remedying "market failure." They tend to regard the notion of market failure as a misguided contrivance wrongly used to justify government action to further various political agendas, such as egalitarian goals. These economists believe that government action in the market creates more problems than it is supposed to solve - as well-meaning as some of these actions may be.

Laissez-faire advocates do not oppose monopolies unless they maintain their existence through coercion to prevent competition (see coercive monopoly), and often assert that monopolies have historically only developed because of government activity rather than due to a lack of it. They may argue that minimum wage laws cause unnecessary unemployment, that laws against insider trading reduce market efficiency and transparency, or that government-enforced price-ceilings cause shortages. While economists tend to offer pragmatic arguments, some individuals put forth moral justifications for opposing government action in favor of free markets.

Market instability

Various critics have argued that capitalism contains contradictions that will lead to its end in the future. Marx and Engels made such a prediction more than 100 years ago. Today it is sometimes argued that a large credit bubble threatens capitalism, at least in the US.

One example of such a critic is Ravi Batra, a disciple of P.R. Sarkar. The thesis of his 1984 work, Regular Cycles of Money, Inflation, Regulation and Depression is that growing mal-distribution of wealth engenders a financial speculative mania that can only end in a crash and a drawn-out depression.

Profit and exploitation

Opponents of capitalism often protest that private owners of capital do not remunerate laborers the full value of their production but keep a portion as profit, claiming this to be exploitative.

However, defenders of capitalism argue that when a worker is paid the wage for which he agreed to work, it is not normally exploitative - especially in a competitive free market which puts pressure on employers to meet the demands of employees. Opponents argue that exploitation occurs even if the exploited consents, since the definition of exploitation is independent of consent; and that the employee is usually in an unequal bargaining position to be able to put forward their demands, since they depend on their job for survival, whereas employers don't. Also, they argue, the employees outnumber their employers, so the forces of competition work against them. (Sometimes this is not the case - there have been examples in history where there has been a shortage of labour, with employers unable to attract employees due to rapid economic expansion.) However, defenders of capitalism blame central banks for this instead, as some have been known to intervene in the economy to prevent "full employment" out of fear of driving wages up [1] (which Keynsian economists believe leads to inflation; monetarist economists like Milton Friedman disagree).

Defenders of capitalism also argue that "the full value of a worker's production" is based on his work, not on how much profit is created (which they claim is something that depends almost entirely on factors that are independent of the worker's performance). Opponents argue that profit is a critical measure of how much value is created by the production process, and so any compensation the workers receive in exchange for labour should be based on profit.

Defenders of capitalism argue that private owners are the ones who should decide how much of the profit is to be used to increase the compensation of the workers, since they own the means of production. Opponents argue that ownership of the means of production does not justify owning its derivatives, and that the workers are the ones who do the most.

Psychic exploitation

P.R. Sarkar held that economic and psychic exploitation was intrinsic to capitalism as a large section of a non-motivated population, the working class, as well as the classes of intellectuals and military people fall prey to a class of motivated acquisitors. He says that this social dynamic results in growing inequality and hinders the development of personality and abilities of a underclass of poor and undereducated. His proposed solution was Progressive Utilization Theory.

Unequal distribution of wealth and income

Main article: Economic inequality

It is reasonable to expect that some disparity in wealth and income among individuals would exist in a capitalist system as this is determined through market forces rather than by centralized governmental authority (though it is fallacious to assume that socialism is state ownership/control of the means of production). Some view a significant disparity and concentration of wealth to be a problem and that such is endemic to capitalism, while others do not have such egalitarian concerns. Some opponents of capitalism assert that there should be no inequality in wealth and earnings among individuals commensurate to their inheritance, skills, abilities or efforts. Defenders of capitalism respond that since free market capitalism distributes wealth and earnings among individuals commensurate to their inheritance, skills, abilities and efforts, it provides inherent incentives for human beings to hone their skills, improve their abilities, and make strong efforts to meet the needs of each other, incentives that are missing or significantly less present in any other type of economic/political system.

Excessive inequality

Other critics agree that inequality is necessary but argue that in capitalism, the distribution of wealth and earnings is too unfair, dysfunctional, or immoral. They cite the fact that, in the US, the shares of earnings and wealth of the households in the top 1 percent of the corresponding distributions are 15 percent and 30 percent, respectively [2].

Some critics note that there are very few people who are twice as tall as average, or who can run twice as fast, or have twice as high an IQ. They argue that the fact capitalism doesn't distribute wealth in a similar fashion means that something is fundamentally wrong with the system. Supporters argue that human contributions vary much more than humans vary in height or IQ (as can be illustrated, for example, by comparing the contributions of an arsonist and an inventor/producer of antibiotics).

Critics also note that there are many people who have no wealth. If wealth followed a bell shaped curve (standard normal distribution), as many other human characteristics and it might be surmised people's ability to be productive, then there should be very few people with no wealth. Supporters might argue that human productivity and especially the tendency to save wealth is not bell-shaped.

Critics claim that an untamed capitalist system may have inherent biases favoring those who already possess greater resources. For example, they say, rich people can give their children a better education and inherited wealth. They say that this can create or even increase large differences in wealth between people who do not differ in ability or effort. They cite the examples that in the U.S., 43.35% of the people in the Forbes magazine "400 richest individuals" list were already rich enough at birth to qualify [3], or a study that indicates that in the US wealth, race, and schooling are important to the inheritance of economic status, but IQ is not a major contributor and the genetic transmission of IQ is even less important [4]. On the other hand, at least some of the difference in wealth between people of equal ability may be explained by that some people voluntarily, maybe because they see other things as more valuable, make life choices that make them earn or save less than other people with the same ability. Defenders respond that since 30.1% of the individuals on the Forbes list of the 400 richest did not inherit great wealth (meaning they did not inherit at least $1 million in assets) this shows that even such people can gain the very highest level of wealth in capitalist economies. There are also some data indicating that income inequality for the world as a whole is diminishing (for examples see below in "Marxist critique of capitalism").

Supporters argue that a problem with using "distribution of wealth" as a standard to measure economic systems is that such a standard can produce seemingly irrational judgments. Under the "distribution of wealth" standard, a system where everyone has nothing is judged as equal to a system where everyone has enormous wealth since the distribution of wealth in the two systems is equal. The claim is made that capitalist economics are not zero-sum games and that more wealth for most people is actually "created" through innovation, entrepreneurship and risk-taking. Rewards for this may cause a necessary inequality. Regarding the inheritance of wealth, this may be necessary so that the most productive people continue to do productive work and save money when they get older. Thus, people who see uneven wealth distribution as a lesser or unavoidable problem tend to argue that if inequality leads to higher average wealth and higher wealth and income for most people, then wealth inequality may be acceptable. Several peer-reviewed studies show that the relative income share of the poorest do not decrease with higher economic freedom, but their absolute income increases. For example, one study found that the poorest 10% earn $823 per year in the quintile of nations with the lowest economic freedom, but earn $6877 per year in the quintile of nations with the highest economic freedom. [5][6][7][8].

Some advocates of capitalism may partly agree with the critics but think that the problem can be resolved with solutions like progressive taxation, wealth tax, and inheritance tax. They note that such taxes are already implemented in modern mixed economies. The best extent of such taxes and how much inequality there should be is much discussed and researched, but these variables can be changed without abandoning capitalism. The American Historian David Hackett Fisher, in his 1996 book The Great Wave argues that some characteristics of society commonly blamed on capitalism may in fact be the indirect result of decades-long inflation.

Other points of view on capitalism's unequal wealth distribution include:

• Anti-Capitalist:
  • The capitalists gather their wealth by exploiting the workers. A worker is not paid the entire produce of his labor, as the employer retains a portion as profit. Profiting in this way tends to further enrich those with capital while not significantly enhancing the material well-being of workers. This perpetuates concentration of wealth in the hands of a few.
  • Wealth and unequal distribution can create social problems (such as higher crime rates). These problems affect both poor and rich.
  • Government interference in markets can be skewed to benefit the wealthy. In particular, wealthy people have the financial means and incentives to influence or corrupt government officials and to lobby for favourable legislation.
  • Many people have little wealth left over after living expenses, so they can't make it grow quickly. This further deepens the disparity between rich and poor.
  • Persistent long-term inequality of wealth undermines the motivation of the poor to improve their stance. This creates not only direct but perpetual sociological inequity.
  • Wealthy people save relatively more than poor people. Hence some economists believe that an unequal distribution of wealth undermines an economy's mass buying power, effectively leading to lower aggregate sales, reduced wealth production, unemployment and crises. (see Keynes) Economists, however, argue that saving is also necessary in an economy, since it provides the means for investment into new technologies and processes.
  • Wealth is defined and judged incorrectly, in many different ways. In particular, people may attach value to things for seemingly irrational reasons (sentimental value). Some may also value spiritual development more than material wealth. Capitalism's focus on absolute monetary value thus undermines the legitimacy of alternate paradigms.
  • The wealthy may not put their wealth to productive use. For example, they may buy land just to deny access to it to others, for personal or environmental reasons. Other critics of capitalism, however, would ask whether or not capitalistic production narrowly-defined is a good thing, especially if it is seen as damaging the environment, and such an action of denial may be seen as the lesser of two evils.
• Pro-Capitalist:
  • Robert Nozick has argued that no condition of perfect equality could be maintained for very long. If all agents possess the same amount of wealth, they will immediately begin investing it in different ventures which will pay off to varying degrees. But if voluntary economic exchange is seen as leaving both parties (since both would not be trading unless the outcome of the trade was mutually beneficial), even if the resulting distribution is not even, it is better than if there were no trading.
  • Lack of established property rights force the poor to operate in extralegal markets, keeping them from unlocking the capital in their assets. When only the politically privileged can leverage capital, the division between formally and informally owned property is an unbalancing barrier to the benefits of a modern market economy.
  • Wealth tends to be directed toward individuals in proportion to how productive they are in terms of creating and providing goods and services that others value, therefore the possibility of becoming wealthier than others can be seen as an incentive to benefit society. A limit on freedom of individuals to reap a disproportionate amount of wealth would dampen incentive. Technological progress would stagnate, and, as a result, the standard of living would suffer.
  • The inequality of consumption is far less than the inequality in wealth, since there is no way most of the wealthy could consume all their wealth. To the extent that they consume their wealth, they are redistributing it to others. To the extent that they are not consuming it, they are generally either managing it to create more wealth or giving it away.
  • Many rich give significantly to charity (see also philanthropist). Some argue that charity is more efficient than state welfare.
  • The economist Thomas Sowell has attributed factors such as geography, climate, culture, and natural resources as contributing factors to inequality inside of and between nations.
  • The income share of the poorest 10% do not decrease with higher economic freedom but the absolute income of the 10% poorest, prosperity, economic growth, democracy, and freedom from corruption increase, see Economic freedom index.

Employment/unemployment

Since individuals typically earn their incomes from working for companies whose requirements are constantly changing, it is quite possible that at any given time not all members of a country's potential work force will be able to find an employer that needs their labor. This would be less problematic in an economy in which such individuals had unlimited access to resources such as land in order to provide for themselves, but when the ownership of the bulk of its productive capacity resides in relatively few hands, most individuals will be dependent on employment for their economic well-being. It is typical for capitalist economies to have rates of unemployment that fluctuate between 3% and 15%. Some economists have used the term "natural rate of unemployment" to describe this phenomenon.

Depressed or stagnant economies have been known to reach unemployment rates as high as 30%, while events such as military mobilization (a good example is that of World War II) have resulted in just 1-2% unemployment, a level that is often termed "full employment". Typical unemployment rates in Western economies range between 5% and 10%. Some economists consider that a certain level of unemployment is necessary for the proper functioning of capitalist economies. Equally, some politicians have claimed that the "natural rate of unemployment" highlights the inefficiency of a capitalist economy, since not all its resources -- in this case human labor -- are being allocated efficiently.

Some libertarian economists, such as Henry Hazlitt, argue that higher unemployment rates are in part the result of minimum wage laws, as well as in part the result of misguided monetary policy, and are not inevitable in a capitalist economy. In Economics in One Lesson, Hazlitt argues that if the value of the work of some potential employees is lower than the minimum wage, it would penalise the employer to employ them. Accordingly, if the value of the productive capacity of a given employee is worth less to the employer than the minimum wage, that person will become unemployed, and therefore unemployment will exist whenever the legal minimum wage exceeds the true economic value of the least productive members of the labor pool. Likewise, if the amount of money a person can obtain on welfare approaches or equals what they could make by working, that person's incentive to work will be reduced.

Some unemployment is voluntary, such as when a potential job is turned down because the unemployed person is seeking a better job, is voluntarily living on savings, or has a non-wage-earning role, such as in the case of a traditional homemaker. Some measures of employment disregard these categories of unemployment, counting only people who are actively seeking work and have been unable to find any.

Marxist critique of capitalism

Main article: Marxism

Karl Marx saw the existence of capital as the source of social ills

Marxists define capital as "a social, economic relation" between people (rather than between people and things). In this sense they seek to abolish capital. They believe that private ownership of the means of production enriches capitalists (owners of capital) at the expense of workers ("the rich get richer, and the poor get poorer"). In brief, they argue that the owners of capital do not work and therefore steal from or exploit the workers. Gradually, the capitalists will accumulate more and more capital and make the workers continually poorer, in the end causing a revolution. The private ownership of the means of production is therefore seen as a restriction on freedom.

Supporters of capitalism believe that private ownership is essential to preserving personal freedom as well as enriching society. They also argue that the owners of capital do work, since they have to make often complex decisions regarding how to allocate their capital - poor allocation of capital will mean wasted work and resources.

Marx and his followers have proffered various related lines of argument suggesting that capitalism is a contradiction-laden system characterized by recurring crises having a tendency towards increasing severity. They have claimed that this tendency of the system to unravel combined with a socialization process which links workers in a world-wide market are two major factors that create the objective conditions for revolutionary change. Capitalism is seen as just one stage in the evolution of the economy of a society. Pro-capitalists point out that it is now more than 150 years since Marx's predictions and capitalism is still existing. On the other hand, Immanuel Wallerstein approaching matters from a world-systems perspective, cites the intransigence of rising real wages, rising costs of material inputs, and steadily rising tax rates, along with the rise of popular antisystemic movements as the most important global secular trends creating unprecedented limiting pressures on the accumulation of capital. According to Wallerstein, "the capitalist world-economy has now entered its terminal crisis, a crisis that may last up to fifty years. The real question before us is what will happen during this crisis, this transition from the present world-system to some other kind of historical system or systems." (Wallerstein- The Decline of American Power,66).

Supporters of capitalism argue that ownership of productive capacity provides motivation to owners to increase productive capacity and so generally increase the average material wealth ("we all get richer"). Opponents of capitalism counter this by pointing out the unchanged after-tax income of the poorest quintile of the U.S. population during the last two decades. While at the same time the average income and especially the income of the rich have increased. [9]. According to "United for a Fair Economy," in 1982 CEOs of major corporations in the U.S. earned 42 times the annual wages of the average worker; in 2002 the ratio stood at 282:1 [10]. Supporters of capitalism point out that the percentage of people in developing countries living below $1 per day have halved in only twenty years, especially in countries like China that have embraced capitalism [11]. Life expectancy has almost doubled in the developing world since WWII and the gap to the developed world is starting to close [12]. Looking at the world as a whole and not only the U.S. shows that income inequality is in fact diminishing [13].

In mainland China differences in terminology sometimes confuse and complicate discussions of Chinese economic reform. Under Chinese Marxism, which is the official state ideology, capitalism refers to a stage of history in which there is a class system in which the proletariat is exploited by the bourgeoisie. In the official Chinese ideology, China is currently in the primary stage of socialism with Chinese characteristics. However, because of Deng Xiaoping's dictum to seek truth from facts, this view does not prevent China from undertaking policies which in the West would be considered capitalistic including employing wage labor, increasing unemployment to motivate those who are still working, transforming state owned enterprises into joint stock companies, and encouraging the growth of the joint venture and private capitalist sectors. A contrary marxist view would describe China as just another variant of capitalism (state capitalism), much like the former USSR, which was also claiming to be operating on principals of socialism. This is echoed by what Mao Tse-Tung termed "capitalist roaders" who he argued existed within the ruling Party structures and would try to restore the bourgeoisie and thus their class interests to power reflected in new policies, while only keeping the outer appearance of socialism for legitimacy purposes. Deng Xiaoping was idenfitied as one of these "capitalist roaders" during the Chinese Cultural Revolution, when he was placed under house arrest.

Imperialism and human rights violations

Critics argue that the ills caused by capitalism include imperialism, poverty, oppression, exploitation and abuse of human rights. They point systematic violence against political opponents, participation in coups which have placed dictators in power (for example Pinochet in Chile, Argentina with its dirty war); and large scale democide (like in the Congo Free State). Some argue that capitalism thrives on an uneven and exploitative relationship between wealthy nations (see dependency theory) who force regime or system changes in poor countries which are only beneficial to them, often through exploitative wars (like the Opium wars or the Sino-Japanese War). Although some of these violations occurred during a time period and in states sometimes considered being more capitalist than today since the government share of the economy was much smaller, U.S and European support of multinational-friendly capitalist dictatorships in Latin America and Africa lasted until the mid 1980s.

Proponents of capitalism argue that these problems have been widespread through all of human history, including in many states characterized as socialist such as in Cambodia under Pol Pot, the Soviet Union under Stalin, and China under Mao. Some claim that these practices are not consistent with the principles of capitalism even though they have existed in nations or in the colonies of nations (commonly or loosely) labeled as capitalist. They deny that many of the colonies had capitalist economic systems and claim that their economies mostly continued to be feudalistic.

Supporters of capitalism emphasize that it was capitalist states that abolished slavery throughout the world and that it was capitalist states who developed the modern democratic system. Critics reply that the major imperialist powers accumulated huge amounts of capital through slavery before it was abolished. Furthermore, they argue, slavery was only abolished after it became less expensive to pay wages in industries like mining and agriculture in the colonies.

Marxists, importantly Lenin, criticize capitalism for needing imperialism in order to survive. The unplanned nature of capitalism, they say, inevitably overproduces commodities and overuses resources, which leads it to expand its markets into and drain the resources out of other, less-developed nations. The wealthy nations, they say, must maintain cheap access to third world natural resources and unfree labor, by force if necessary. They argue that the capitalist countries like England initially were helped by the primitive accumulation of capital through the theft of natural resources and exploitation of slave labor from large parts of Asia, Africa and the Americas which spurred the industrial revolution. They see unjust exploitation, militarily (such as India in 19th century) or economically (e.g. through IMF structural adjustment programs during the 1980s), as part of the nature of capitalism. The constant, capitalist drive to expand markets is viewed by many as the primary cause of globalization.

In his essay, Imperialism: The Highest Stage of Capitalism, Vladimir Lenin advanced the now widespread thesis that the ‘New Imperialism’ of the late 19th and early 20th centuries was an inevitable correlary of monopoly capitalism. According to Lenin, the export of financial capital superseded the export of commodities; banking and industrial capital merged to form large financial cartels and trusts in which production distribution are highly centralized; and monopoly capitalists influenced state policy to carve up the world into spheres of interest (Burnham). These trends led states to defend their capitalist interests abroad through military power.

Most capitalists acknowledge that military exploitation should be condemned, but claim that economic globalization and the introduction of capitalist principles to the developing world is improving the living standards worldwide.

Democracy

Marxists also often argue that the structure of capitalism necessarily leads to this exploitation of workers, regardless of whether or not the political system is one of a bourgeois democracy. For this reason, Marxists typically emphasise the capitalist economic system of Western countries rather than the democratic political system. A capitalist system is an economic system - although often associated with democratic political systems, they are independent from each other. Capitalist systems have often functioned under unelected governments: the classic case is the United Kingdom, where less than 20% of adult males could vote prior to 1885, and women did not receive the vote until 1918.[14] Some recent examples include Hong Kong, Singapore, and Chile under the rule of General Pinochet. It is also argued by Marxists that governments espousing fascist (or "national socialist") rhetoric do not make substantive changes to the capitalist economies when they assume power.

However, many communists reject the Communist states for their lack of democracy, despite their central planning and common ownership of the means of production. Similarly, many pro-capitalists reject states having some characteristics of capitalism but lacking democracy.

A common criticism that Marxists make about capitalism is that it is only democratic to the capitalist class, citing examples such as people not being able to criticize one's boss out of risk of getting fired and not being able to express their opinions due to lack of funds to afford access to the media. Pro-capitalists respond that that in a free market one can always change work or start one's own enterprise. If one has an interesting opinion and there is freedom of speech, there will be a profitable market for this. Critics object that in capitalism, most people are too concerned about their own economic welfare that they have no time for this; and that a profitable market in media tends to distort the media to broadcast profitable media rather than truth. Pro-capitalists respond that there is little evidence that speech would be more easily spread in a non-capitalist system, especially political speech, since it would all have to be filtered through the state. But non-capitalism does not imply state-controlled speech.

Latin American intellectuals like Eduardo Galeano argue that capitalist practices do more to damage democracy in peripheral countries than encourage it. He points to democratically elected leaders like João Goulart, Salvador Allende, and Evita Peron who he believes were forced out of office by U.S. and European capitalist interests and replaced with military dictators during the 1960s and 1970s.

Defenders of capitalism contend the opposite, arguing that the strong economic growth during capitalism may encourage democratisation, or vice versa. There were very few democracies before the industrial revolution and the rapid economic growth that followed it. There is debate about whether liberal democracy, in the sense of electoral rights and civil liberties, is a consequence of economic growth[15], a cause of it,[16] or completely unrelated to it.[17] These studies tend to indicate that establishing the rule of law in protecting private property and free markets, rather than mere democratization, is what is most instrumental in generating economic growth.

One of the very few studies simultaneously examining the relationship among economic freedom (see below), economic development (measured with GDP/capita), and political freedom (measured with the Freedom House index) found that high economic freedom increases GDP/capita and a high GDP/capita increases economic freedom. A high GDP/capita also increases political freedom but political freedom did not increase GDP/capita. There was no direct relationship either way between economic freedom and political freedom if keeping GDP/capita constant. ^[18]It should be emphasized, however, that GDP/capita does little to indicate the amount of poverty in a nation if the Gini coefficient, which measures distribution of income, is not taken into account. Countries with the lowest Gini coefficients tend to be social democracies that do not operate on laissez-faire capitalist principles, like the Netherlands. On the other hand, studies show that increasing growth is essential for reducing poverty.[19] If the economic development of a nation is low enough, there is simply very little to share even if there is equality.

There is research suggesting that although economic development itself does not increase the chance for democracy, if a nation becomes democratic, then nations with a higher economic development are more likely to remain democratic - poor and democractic nations have a high chances of returning to dictatorship if they experience a period of declining growth.(Przeworski, Adam (1997). "Modernization: Theories and Facts". World Politics. 49 (2): 155–183.)

Economic freedom

File:Index2006 EconFreedomMAP.jpg

A map of the Heritage Foundation's Index of Economic Freedoms. Various researchers have argued that nations with a higher economic freedom have a higher GDP/capita and less poverty.

There are two Indices of Economic Freedom used in economic research. The publishers are right-wing, business-orientated and funded think tanks. One index is released by the Heritage Foundation and Wall Street Journal, the other by the Fraser Institute. Both attempt to measure of the degree of economic freedom in countries, mostly in regard to rule of law, lack of governmental intervention, private property rights, and free trade. The Index of Economic Freedom defines "economic freedom" [20] as "the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself." (This is otherwise known as laissez-faire).

They use statistics from independent organizations like the United Nations to score countries in various categories like the size of government, degree of taxes, security of property rights, degree of free trade and size of market regulations. Many peer-reviewed papers have been published using this material on the relationship between capitalism and for example poverty, mostly by researchers independent from the think tanks.[21] The Fraser Institute argues that more advanced capitalist countries have much higher average income per person, higher income of the poorest 10%, higher life-expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption. The share of income in percent going to the poorest 10% is the same for both more and less capitalistic countries.[22] Other studies have shown similar results.[23]

Attempts to decide the importance of the subcomponents of the indices have often yielded contradictory results. Strong property rights may be important - the economist Hernando de Soto has argued that weak property rights, especially for the poor, play a major role in poverty and underdevelopment in developing countries [24] [25]. Many developing countries are now trying to strengthen and simplify their property rights system after the successful application of his ideas in Peru [26]. Others have emphasized the importance of a functioning credit system, especially microcredit.

Sustainability

An economic system that causes strong economic growth may have a large effect on the environment. Some question the continued sustainability of this, arguing that many aspects of the environment have been degraded since the industrial revolution. Defenders of capitalism note the many environmental disasters in communist states.

Some defenders note that many aspects of the environment in developed nations have improved recently, after the dangers of certain pollutants have become known. Examples include greatly reduced emissions of chlorofluorocarbons affecting the ozone layer, removal of lead from gasoline and other products, greatly improved cleaning of emissions from fossil fuel power plants, and much stricter control of emissions into rivers, lakes, and oceans. However, some leading conservation organizations such as the WWF and The United Nations Environment Programme argue that the impact of humanity on Earth is continually increasing. In 2004 they jointly reported that "humanity's Ecological Footprint grew by 150% between 1961 and 2000" and that most of this growth occurred in the 27 wealthiest countries of the world, in other words, the leading capitalist countries [27]. Critics note that the statistical methods used in calculating Ecological Footprint have been criticized and some find the whole concept of counting how much land is used to be flawed, arguing that there is nothing intrinsically negative about using more land to improve living standards. [28][29]

Supporters of capitalism argue that in many cases environmental problems are greatest when a common exists and there is no clear owner. See Tragedy of the commons, Free market environmentalism, and a proposal to have natural resource wealth owned by all people equally. Defenders of capitalism also note that world population has greatly expanded due to higher living standards since the industrial revolution. However, this growth is declining due to the demographic transition and the world population is expected to stabilize at nine billion.

Yet many environmentalists have long argued that the real dangers are due to the world's current social institutions that they claim promote environmentally irresponsible consumption and production. Under what they call the "grow or die" imperative of capitalism, they say, there is little reason to expect hazardous consumption and production practices to change in a timely manner. They also claim that markets and states invariably drag their feet on substantive environmental reform, and are notoriously slow to adopt viable sustainable technologies. [30][31]. Immanuel Wallerstein, referring to the externalization of costs as the "dirty secret" of capitalism, claims that there are built-in limits to ecological reform, the costs of doing business in the world capitalist economy are ratcheting upward because of deruralization and democratization, he therefore sees no exit from our dilemmas within the framework of the capitalist world-system.[32]

Some critics claim that strong economic growth also requires increasingly greater amounts of natural resources and energy and they question whether this can continue in the future. Those arguing for continued growth note that numerous past predictions of shortages have failed since new technology has continuously allowed exploitation of previously unavailable resources. That this continues in the future is considered to be of critical importance, especially for world energy markets, which may face a peak in fossil fuel production. Since 1970, each 1% increase in world GDP has yielded a 0.64% increase in energy consumption. See Future energy development. On the other hand, it is accepted by the oil industry that world production will peak or has already. See peak oil

Religious criticism

Some religions criticize or outright reject capitalism. For example, Judaism and Islam forbid usury (lending money at an interest), which is an important aspect of capitalism. Christianity has been the source of many other criticisms of capitalism, particularly its materialist aspects. The first socialists drew many of their principles from Christian values (see Christian socialism), against the "bourgeois values" of profiteering, greed, selfishness and hoarding. Many Christians (especially Catholics) do not oppose capitalism entirely but support a mixed economy in order to ensure "decent" labour standards and relations, as well as economic justice. Nevertheless, there are also many Protestant denominations (particularly in the United States) who are reconciled or ardently in favour of capitalism, particularly in opposition to secular socialism.

See also

• Anarchism
• Anti-capitalism
• Anti-globalisation
• Capitalism and related political ideologies
• Capitalism
• Capitalist mode of production
• Colonialism
• Communism
• Democratic Socialism
• Economic calculation problem
• Exploitation
• Imperialism
• Labor theory of value
• Localism
• Marxism
• Marxian economics
• Socialism
• Social democracy
• The Black Book of Capitalism
• Wage labour
• Wage slavery
• Wealth distribution

Notes

1. ^ Ken Farr, Richard A. Lord, and J. Larry Wolfenbarger (1998). "Economic Freedom, Political Freedom, and Economic Well-Being: A Causality Analysis". Cato Journal. 18 (2): 247–262. {{cite journal}}: External link in |title= (help)CS1 maint: multiple names: authors list (link)

External links

• How The Miners Were Robbed 1907 anti-capitalist pamphlet.
• Infoshop.org - Anarchists opposed to capitalism.
• Marxists Internet Archive - Archive of Marxist and anti-capitalist literature.
• Information and Economics: A Critique of Hayek by Allin F. Cottrell and W. Paul Cockshott
• Value, Price and Profit - Karl Marx on the basic features of capitalism.
• Social economy: A Market Economy without Capitalism
• A Reconsideration of the Theory of Entrepreneurship: a participatory approach - Critique of capitalism
• Cartoon by Fred Wright critical of capitalism