For a long time, proponents of capitalism have said that jobs or capital is not lost in a capitalist system, rather it is transferred from one entity or industry to another but why does this principle not work during times of a crisis such as the ongoing coronavirus outbreak?
The beginning and complete history of capitalism is often debated but the consensus is that capitalism started around the 17th century when merchants began to supply products made by workers who were paid wages. Modern-day capitalism began to emerge in the late 18th century when Adam Smith published his theories on economics and capitalism through several books, the most famous one being ‘The Wealth of Nations’. Following this, capitalist revolutions began to occur in Britain and France through the Industrial and French Revolutions, respectively, as other Western nations also started to embrace capitalism.
The basis and foundation of capitalism revolves around the concept of profit or gain. Labourers produce a product or service – in exchange for a salary/wage – which is distributed or supplied by capitalists for a profit. The perceived benefits of such a system is that every individual within the system is motivated to work hard for their gains, while efficiency of production and supply can be maximised to conserve resources (since resources are scarce). The idea is for the system to provide the best and maximum services or products to the largest possible group within society. Most economists in favour of capitalism argue that the system works best when the economy runs on its own within a free market (no government regulations) since even if a crisis does occur, capital and jobs are shifted from one industry to another. For example, as technology continues to be improved, manual jobs such as farming or shop-keeping are being lost but a similar amount of jobs are also being created to manufacture and maintain technology, hence the long-term impact on employment is negligible.
When most people think of the opposite to capitalism, they think of communism – a concept created by Karl Marx and Friedrich Engels. Communism is a socioeconomic theory which is built upon ideas of common ownership (by society), public property instead of private property (as in capitalism) and the removal of social classes. The roots of communism originate from problems Marx noticed within capitalism. One of the major problems he found was that profits of capitalists are inversely proportional to wages of workers, so capitalists will always want to minimise wages to gain maximum profits which creates a repressive and conflicting/tense relation between the two. Another crucial problem Marx foresaw was that capitalist economies would always go through cycles of boom and bust, because the goal of a capitalist economy is to produce more and more to fulfil demand but uncertainties in estimating demand and supply cause overproduction leading to sharp crashes or declines in an economy.
Famous American Economist Milton Friedman argued that cycles of boom and bust can be prevented or at the very least ironed out quickly by allowing the free market to do its job. He advocated for little to no restrictions or regulations, as it would allow capitalism to excel – if jobs were lost in a certain entity, new ones would be created in another entity which gained more capital. He asserted that most countries, including the USA, employ an economic theory referred to as ‘crony capitalism’. Crony capitalism involves the government using its power to help businesses survive such as tax breaks or bailouts after a financial crash. Friedman heavily opposed this, since competition in free market should be used to eliminate inefficient businesses and only let the best businesses survive – increases efficiency and progression of the economy. Moreover, crony capitalism creates rampant corruption and monopolies in business and political, while value added to the economy is reduced since existing businesses are not creating as much value as new innovative businesses.
Alternatively, democratic socialism is a way to iron out the impact of a declining economy by providing income and relief for individuals or organisations. The foundation of democratic socialism is to tax individuals and businesses progressively meaning as the income of a person/organisation increases, a greater percentage of income tax is levied. This allows inequality to be reduced within a society by distribution of wealth to the lower classes. Democratic socialism comes in handy during a crisis as incomes to unemployed people can be provided through large tax reserves, hence many experts currently view it as the most ideal democratic system since democratic capitalism is incompatible with values such as freedom and equality (capitalist societies observe limited freedom due to financial constrictions and mass inequality).
For a crisis such as the SARS-CoV-2 outbreak, even free market capitalism would not be able to save the global economy from a crash since most businesses are shut down. As a result, many experts estimate that nationals of countries like Denmark who implement democratic socialism will fare well during this crisis, as they can receive benefits or an income even if they lose a job due to the COVID-19 crisis. While in countries like Pakistan who do not have a large welfare system due to crony capitalism, there is no way to help individuals who unfortunately lose their jobs. It is impossible for the Pakistani Government to support all or even a majority of unemployed individuals adequately, hence the Governments is trying to reopen some industries such as the construction industry to recreate jobs and allow the Government to fund the small group of individuals who remain unemployed after that.
Whenever a new socioeconomic theory arises, people often say that it will be the last or is the most ideal one. It happened with feudalism, monarchy and communism but will capitalism face a similar fate? In a society as complex as ours today, it is incredibly difficult to implement free market capitalism due to various reasons such as reluctance and opposition by existing big businesses or individuals who want to conserve their power and continue surviving. If the individuals or people in power are unwilling to give up their power for the greater good, a free market capitalist society may never be possible. It is predicted that this could lead to frustration among lower classes causing them to revolt for a better system. Many experts who understand the difficulty of introducing a free market society feel that democratic socialism maybe the best way for capitalism to survive or evolve without conflict.
Renewable energy has emerged as a game-changer in the global energy landscape, offering sustainable and… Read More