Does Capitalism matter?!
“The inherent vice of capitalism is the unequal sharing of blessings; The inherent virtue of socialism is the equal sharing of miseries.”
-Winston Churchill
Capitalism is probably one of the most misunderstood concepts related to Business & Economics. A lot of people hate this word without even understanding what it really means. People simply assume that Capitalism is all about Poverty & creating Inequality in society. The main purpose of this blog is to make you realize how important role capitalism has played in your life in an easy way without using too many technical terms to make it long & boring. So if you consider yourself a Socialist, let me try to change your mind…
“It’s not because of the benevolence of the baker that we eat fresh bread every morning but because of his desire to make money.”
-Raghuram Rajan
What exactly is Capitalism?
An economic and political system in which a country’s trade, industry, production and distribution are controlled by private owners for profit, rather than by the state.
Simplifying the definition, Capitalism is about the private ownership of the business rather than the government.
Since it’s inception Capitalism has given us Globalization, Free trade, Property Rights and Entrepreneurship which is not possible in any other system. Even every major technological invention was possible because of Capitalism, from Electricity to the modern AR/VR technology.
Also, the percentage of people living in starvation level poverty has fallen 80% since 1970. Before that, more than 1 in 4 people were living on a dollar a day or less, today it's 1 in 20. All these are the gains of the Capitalist system.
Capitalism is all about Meritocracy (achieving through merit) & Survival of the fittest.
But even with all these gains, the support for Capitalism is at an all-time low. In the 2019 American Gallup Polls only 45% of Americans aged 18–29 viewed Capitalism positively compared with 68% in 2010. In contrast 51% viewed Socialism positively. (even though it’s a Capitalist country)
So why are people attracted to Socialism or even Communism to some extent when Capitalism has so many benefits? Let’s try to understand it.
“Most people aren't arguing against Capitalism, they are arguing against Inequality they just don't understand it.”
-Jordan Peterson
So what is Communism & Socialism?
Socialism: Means of Production, Distribution, and Exchange will be owned & regulated by the government for an equal share of Profit & Property.
Communism: Abolishment of Government, Money, Companies & Private Property and each person will receive according to his need, not according to the contribution towards the society. People themselves decide how to best use resources.
Even by just reading their definition we can assume how bad these 2 Entitlement based systems are. Like Government will decide how much resources we receive for consumption no matter how much we contribute to the Economy.
The reason why young people are attracted towards Socialism or Communism is because it draws its fundamental motivation based on Compassion & Sympathy by talking about stuff like Equality & Poverty.
Also if people are afraid of competition at a young age, they tend to believe there is some other way to move forward, this makes them believe in Socialism or Communism.
(If you are not doing very well in life it’s easy to believe that the system is rigged.)
There is not even proper history taught in school that can make students realize the bad things of Communism, thus a lot of people hate Capitalism.
“Those who proclaim themselves ‘socialists’ are usually depressing, have no sense of humor & attended an expensive college. Fate loves irony.”
-Elon Musk
Why Communism & Socialism won’t work?
Even though Communism states that any profit generated by the worker & gone to the business owner creates inequality and is unethical, no country has succeeded by following the ideas of Karl Marx.
In the history of the modern world, there has never been a Communist country.
USSR is an example of the failure of Communism.
Systems based on Communist philosophy have done more harm than good
Communism & Socialism both exist to limit worker exploitation & economic inequality but they simply won’t work as they remove incentives for people to work harder,
it looks great in theory but disastrous in practice.
Even the Senior communists in the Soviet Union had a rich lifestyle which they would hide.
(Because it’s only human nature to be attracted to Materialism.)
And also, to give away the free stuff that Communist & Socialist societies mention, People need to have sufficient wealth that can generate tax revenues so the government can give away resources for free.
“If you measure by things like GDP growth and lifespan, life is better for more people around the world than it has ever been. And yet many people are questioning the capitalist system that produced those gains.”
-Bill Gates
Is Capitalism helping the world in any way?
Well, Capitalism is contributing to the world in every aspect possible,
Capitalism works like this:
People pay high taxes, the government invests that revenue in public welfare, people get educated & learn different skills, they innovate & create new products and services for people, people use those products & services, they get rich & pay taxes and the cycle goes on!
Due to this system, the rich are becoming the richest & the poor are getting rich faster.
Things like literacy, calorie intake, longevity have increased & mortality, infant mortality has drastically decreased.
The process of capitalism that has increased inequality is the same process that has lifted billions out of poverty,
Obesity has probably killed more people in the past decade than Starvation.
Capitalism makes everyone rich by making products cheaper because gaining minimum profit from hundreds of millions of people is a bigger pile of cash than offering products just to a few billionaires.
Also, In communism, if you are born poor you will die poor but in capitalism, if you are born poor you might die rich
And even the Industrial Revolution happened because of Capitalism & every major invention today is a by-product of the Industrial Revolution.
So yes, Capitalism is helping the world in every way possible!
“Anyone who makes an effort to move forward in life produces inequality, you are trying to rise above mediocrity so everytime you make an effort at anything you create more inequality”
-Jordan Peterson
What about Income Inequality & Poverty that it creates?
Many people say Capitalism is bad because of creating Poverty & Inequality in society, but that’s only half true. Capitalism does create Inequality but is also responsible for reducing global poverty.
Blaming Capitalism for a crisis is like blaming gravity for crashing a plane, it’s always going to be there doesn’t mean we will stop the planes from flying. Also, Capitalism gives equal opportunities to everyone. The beauty of capitalism is that how much someone else has in the bank doesn’t affect your ability to generate wealth of your own, The Rich don't get Richer by taking money from the Poor.
eg: If one woodworker makes 5 chairs and another makes none, the second woodworker will have less money, but not because anyone took anything from him. Thus this outcome inequality comes from effort inequality.
Some inequality stats like,
CEO compensation has grown 940% whereas for a typical employee only 12% since 1970.
The richest 10 percent of people worldwide own 85 percent of global wealth, according to Credit Suisse’s 2018 Global Wealth Report.
These stats are definitely a bit shocking, but after all, they took a bigger risk than an average person & thus are rewarded better than an average person. And as Capitalism increases the size of the economic pie, total global wealth also increases.
And also of all the Multi-Millionaires & Billionaires, 68% are self-made. (Again Capitalism!)
“Capitalism is about adventurers who get harmed by their mistakes, not people who harm others with their mistakes.”
-Nassim N. Taleb
Do people deserve to be billionaires?
Does Mark Zuckerberg deserves to earn something for connecting the world through Facebook, Instagram & Whatsapp?
Does Jeff Bezos deserves a reward for delivering your phone in 2-4 days, from which you are probably reading this?
You think of the above answers!
Well First, the billionaires are targeted, then the rich. Soon, it will be the middle class. After a while, there will be no one left to tax.
Anyone who questions the right to earn whatever sum one can legally acquire doesn’t believe in the fundamental principles of democracy.
Why do you want to penalize people for being successful? If innovators become immensely rich, it is probably because their innovation was immensely valuable — in which case, their wealth is deserved.
Also complaining that they don’t deserve so much wealth, just think of the fact that capitalists innovate & gain resources. So as they are good at managing them, it might be good to give them more resources to manage for the benefit of society.
And Billionaires contribute a lot to the society, for example, Warren Buffet & Bill Gates have combinedly donated more than 82 Billion Dollars till date for charity.
Becoming Billionaire is an incentive, and removing incentives would kill Capitalism. Just because some people are poor that doesn’t mean we don’t need billionaires.
“The most important question is whether giving poor people the free money to make their own choices is better than putting money into directed programs targeted to help their well-being.” (like better funding for educating the poor, school lunch programs, support services, etc.)
-Ray Dalio
So what about Universal Basic Income as a solution?
With some people getting super-rich, some don’t even have money to put food on the table, thus Universal Basic Income (UBI) is considered as a good solution towards poverty or inequality.
It means giving people free money every month so they don’t have to focus on necessities & more time can be spent on creative tasks. Even many Billionaires like Jeff Bezos, Elon Musk support this.
But there is no evidence that Ubi will work in the long run. Also, the biggest question is how much money the government can print to distribute for free & still avoid inflation because it can only collect a limited amount in taxes.
Many even say that ‘give people free money every month to keep them above the poverty line so they don’t have to focus on necessities and they will probably spend it on booze & get less work done.’
But money needs to be transferred not printed, and people won't stop & keep demanding more every year.
“The correct criticism of capitalism is that it does not provide equal opportunities but people confuse that with equal outcome which can be enforced only through voilence, because when people have freedom they make different choices that results in different outcome.”
-Naval Ravikant
Are there no flaws in Capitalism?
Spoke a lot of good stuff about capitalism for so long, but are there no flaws to it?
Unfortunately, there are some flaws! but people benefit even when they exist and the positives are so many that they simply outnumber the negatives.
- Crony Capitalism: Capitalists can grow so big that they can influence the government (eg: by paying for their election campaigns, etc) to do things for them that is crony capitalism.
eg: Rafale Deal with Anil Ambani - Monopoly: Some companies grow so big that they establish a monopoly of their own.
eg: Nearly 90% of all searches made are from Google.
Out of the top 5 social media apps, 4 are owned by Facebook. - Opportunity Gap: Even if we just consider business opportunities, currently there is a massive opportunity gap.
eg: Top 5 Tech firms like Facebook, Amazon, Google, Apple and Microsoft have acquired more than 500 firms in the last decade, reducing their competition & by stopping new firms from emerging. - Climate Change: There are too many factors responsible for climate change & unfortunately Capitalism is one of them. Capitalism encourages businesses to expand their production, this results in emitting harmful gasses in the environment.
But capitalism is also responsible for technological innovation which helps tackle this environmental impact.
“Let’s attack poverty, and if necessary damage wealth in the process. That’s much more likely to work than attacking wealth in the hope that you will thereby fix poverty.”
-Paul Graham
But what would happen without it?
Capitalism is a moral economic system as it focuses on opportunity, not outcome.
But what would happen without capitalism? well, Capitalism is all about making money but if no one did anything to make money we would still be caveman.
Without Capitalism, there will be insufficient distribution, as In socialism or communism production won’t increase but demand increases due to a growing population which will create a massive shortage of resources. (Venezuela is an example)
Yes, capitalism does create some inequalities but it needs to be managed not eliminated.
A good example is the ‘Dark Knight Rises’ movie, where we saw what might happen if we abandon Capitalism & opt Communism!
The achievement for capitalism is not to provide more silk stockings for princesses, but to bring them within the reach of the shop girl.
-Anonymous
Conclusion
Well, the main purpose of writing this blog was to show people how ignorant they are towards Capitalism and to prove the fact that blaming rich people for having too much money doesn’t make any sense. People are trolling Jeff Bezos because he is a billionaire from the phone they ordered on Amazon, like this needs to stop!
Capitalism is a positive-sum game because the economic pie keeps growing as the rich keep investing more money thus generating more opportunities for all, creating a win-win situation.
In the 17th century, the most powerful man on the planet had 40 dishes prepared for his dinner for him to choose from, now local receptionists have more options available on their phones which are even fresher, healthier & will be delivered within 30 mins.
Middle-class people in the 21st century have more luxuries that even the richest kings of the past didn't have!
All these are the gains of the Capitalist system, and people still question “is capitalism even necessary?”