In simple terms, capitalism or the capitalist system is
.....a condition of possessing and using capital - funds or principal of an individual, company, or corporation - to enable financial and economic operations.
Such a definition is essentially neutral. It stresses economic transactions not social power or social implications of wealth distribution. Yet, we can define "capitalism" from several other perspectives. World variations of "capitalism" range from state capitalism in China to social democratic capitalism in Sweden and anti-trust but flexible market capitalism in the USA. Even the British Conservative party would be seen by far-right politicians as communitarian and socialist because of its support for the National Health Service (state-funded welfare for all).
"Capitalism" is not a neutral, homogenuous concept. It reflects various operational and ideological perspectives. These, to a greater or lesser extent, allow and encourage capitalists to do what capitalists do - accumulate capital which they then further make available for investment in commercial, wealth creating enterprise. The term describes
Privately owned, productive enterprises compete for profit opportunities derived from sales to buyers. Buyers and suppliers come together in a market place motivated in pursuit of wealth creation and profit - a surplus of sales income over costs.
...may conflict with
Those with strong views on the claim rights of personal liberty and individual choice will hold a different philopsophical position to those who voice strong beliefs about social equality and responsibilities within a community. These views may indeed be voiced as political ideologies for example libertarianism or egalitarianism and communitarianism. Both are relevant when discussing whether those who engage in business carry a greater responsibility and the question of how far business activity should be regulated by government.
At the extreme egalitarian end, we would find those who are committed to sharing in community wealth (over individual property) through equal re-distribution. A more limited and selected position would seek to emphasise a general responsibility to "the community" and to reduce harmful inequalities rather that physical distribution of equal shares.
This reflects much of the spirit of European social democratic politics. We might conclude from experience that systems of justice do benefit weaker members who are on or outside the margin of participation. Yet - the libertarian tendency - we might also note that incentives are needed for individuals to support the mobilisation of individual effort and hence bring about economic success. Natural inequalities arise from opportunity (time and place) and differences in individual personal qualities.
I may have been a baby like you - but my family, my genetic make-up, my personal orientation to life is quite different to yours. We are not equal - except under the law which ensures access to equal justice.
I work hard and I am most reluctant to give you what I have succeeded in achieving. I will in all probability share this with my immediate friends and those I hold in high regard - but this is my choice. You have not made the same effort. Luck comes into it - yes - I was at the right place at the right time, even born into the family that gave me a head start. Not everyone could be there or be born into my family.
As an individual my sense of charity means that I am willing to support what I regard as a worthy cause. I do not want "the state" - an inefficient group of representatives - telling me that they know better than me who I should be giving my wealth to. It is up to me to distribute my wealth not a group of appointees who say they represent "the community" - members of which are anonymous.
If the cost of living is the same for everyone, is Idelia or Shareonmerit the fairer and more just society?
The problem of course is defining and measuring fairness and justice in the achievement of incentive rewards? We debate what is "felt-fair" and at best we may form a general (subjective) consensus about various criteria delineating fairness. We may also agree on mechanisms for implementing these criteria.
Libertarians would be critical of such interventions and the idealised concept of "community". This is reflected in Margaret Thatcher exclaimed "There is no such thing as society". Is it then merely a loose association of individuals.
Communitarians would argue that separated, unfettered individualism in pursuit of private purposes is damaging. Total pursuit of disparate, self interest isolates and alienates people separating winners/losers, haves/have nots, powerful/the powerless. Individual interest and opportunism "should not" have priority over social and shared needs and benefits. People after all would not exist without the society they live in indeed personal nature and identity is itself shaped by participation. We both create, benefit from and need to share many social and common goals. Sharing and participation is essential to achievement of "the good life".
"Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.
This is a fundamentally subversive doctrine. If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know what it is? Can self-elected private individuals decide what the social interest is? Can they decide how great a burden they are justified placing on themselves or their stockholders to serve that social interest?"
Capitalism and Freedom, Milton Friedman, p. 134
Friedman (US economist) famously wrote that "the Business of Business is Business" i.e. a business's obligation is to its shareholders notwithstanding that it is business's social obligation to be law abiding and to support the formulation and application of sound principles and systems of justice.
Given Friedman's concerns, why might this act be irresponsible - of dubious ethical value?
Various criticisms of Friedman's position are can be made including the argument that the law may limit the social obligation of firms yet business people strongly influence law-making processes. There are close personal links between senior business people and senior politicians. They frequently come from the same socal classes and have similar backgrounds. Contributions to parties are made. Business associations (IoD, CBI etc) and firms are consulted on legislation impingeing on business. Business representatives feature on quasi governmental bodies
Very often such is the scale and potential consequence of many business decision e.g. in investment and staffing matters - these may have enormous social and economic impact and this will call for a political reaction.
In practice government intervention beyond a "minimum" can be seen. Governments manage interest and tax rates, public expenditure and borrowing (macroeconomics). They intervene by
All these serve the national stock and guide the development of industry and the market. The problem is that governments readily invest in projects which are not necessarily profitable. Government investment is like any other investment - there is an opportunity cost. Invest billions in Concorde, the Channel Tunnel. new weapons systems, coal mining, new car plants in Northern Ireland (de Lorean), the establishment of Training and Enterprise Councils and so on. These are as subject to failure or poor retruns on investment as anything else - particularly if set up for non-commercial reasons and from a dominant political perspective.
Businesses obtain benefit from government infrastructure development e.g. improve the motorways and businesses benefit. Government may also limit the freedom of action of e.g. employers in relation to employees.
Intervention may regulate the market through its processes and institutions and business activities within it e.g. incomes policies. Intervention may also be in the form of policies of de-regulation or privatisation and anti-monopoly regulation to ensure that certain interests do not so dominate a market that they control it
Thus a pure capitalist model would
This compares to state controlled economies which - as demonstrated by former communist states - discourage private ownership prefering state control over industries with central planning, price controls and allocations to a labour market.
Adam Smith's "laissez-faire" represents a principle of individual independence. Axcting for oneself is a better general maxim than for being dependent on the protection and intervention of others. Competition for Smith was not a physical conflict but a positive interest in self-improvement and a realtion against the protections and monoploies of mercantilism and physiocratic reliance on agriculture as the foundation of economic processes and wealth.
The doctrine of laissez faire sought to free and stimulate enterprising people. In presenting his theory of labor as the origin of value, he referenced productive labour which included making things, and the production of capital or wealth by exchange of commodities in the marketplace. Commodities ranged from physical to money based commodities as well as services.
Few people in a capitalist market are enterpreneurs in the direct sense. A large group are employees - workers, managers and directors of companies. Another large group are owners of property and equity enjoying their rents and dividends but not actually creating anything.
However the gainful occupation of all depends on the business organisations that entrepreneurs, at some point in time, have founded. They plant the seed corn. All participants buy and sell assets and labour and contribute to enterprise exchange activity. In a sense, the business in a competitive market place needs the independent, individualistic qualities of the entrepreneur rather than become conformist and dependent members of safe, passive rather than adaptive organisations. The latter in a difficult, competitive environment is not likely to succeed for too long.
Generally any Tom, Dick or Harry in a capitalist economy can become an entrepreneur. Much depends on their inclination, skills and ability not only to get started but also to keep going and enable their organisations to grow. The entrepreneur has the problems of succession - who will keep the business going when the entrepreneur runs out of steam?
