The capitalism economy works on the profit motive. Non-interference by the government in the economic life of the economy made the capitalist economic system as the unplanned economy.
It is the oldest form of economic organization: The Industrial Revolution of England led to took place during the industrial revolution in England the birth of the capitalist economy has to produce and where the distribution should be done for.
With the passage of time, many changes took place for sustainable growth and pure capitalism is not present in the world.
Today with the changed scenario, capitalism economy is present in the leading countries like America, Canada, England, France, Japan and western countries of the world.
Now, in the world economy, different nations have different economic systems. Russia and China have socialism economic system and America, France, England have capitalism Economic system where India is a Mixed economy.
The Economic upsurge in the USA provoked by war needs served to accelerate the process of concentration production and capital which is generally typical of capitalism.
Means of production are privately owned and utilization is done for profit Motive.
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Advantages or Pros of Capitalism Economy
In capitalism economy, all-round growth is possible where free enterprise, competition and private ownership of property takes place.
Some common benefits of capitalism economy are as follows:
1. Efficient Production
The tough competition among producers to increase profit, market shift and maximum ownership of private property compel them to do maximum production at minimum cost.
They also require:
- The best possible combination of resources
- Minimization of wastage
- Freedom for using the best mechanisms for increasing production.
Related: 19 Advantages and Disadvantages of Socialism Economy.
2. Personality Development
In capitalism economy, only the survival of the fittest is possible due to the presence of competition.
So, every employee working in the capitalism economy tries to increase his/her qualification for future benefits.
3. Efficient Utilisation of Resources
Every producer tries to use the different factors of production to the best possible level so that maximum production at the minimum cost is done to stand in the competition.
4. Automatic Balancing in System
Price mechanism acts as The Invisible force for running the economy.
With the increase in demand for the product the price rises which in turn attracts new producers for entering the market and hence increasing the supply.
Both the demand and supply in-balances can be reduced by the price mechanism.
Related: 7 Scope and Types of Microeconomics Analysis (With Examples).
5. Technological Progress
Capitalisation and technological progress are linked together.
Research and development should be carried out continuously so that new development and technological change may take place at a faster rate.
6. Capacity for Progressive Changes
The existence of capitalism is depended on the capacity of progressive changes that are needed by the capitalist economies of the world.
7. High Living standard with Maximum Satisfaction
The capitalist countries have become wealthy and so the people of those countries enjoy higher living standard.
This is due to the presence of competition.
Manufacturers want more profits and so they increase production leading to economic prosperity.
8. Efficiency is Rewarded Properly
Producers and labourers work hard and gain efficiency in production.
The ultimate goal of the producers is to get maximum profit and that labourers are to earn more wages and both are satisfied by efficient production.
Related: 10 Important Objectives of Demand Forecasting (With Examples).
9. Expansion in State Control
Business is connected to society in various forms and Thus they should fulfil the obligation towards social responsibility.
Disadvantages or Cons of Capitalism Economy
After looking at the advantages just of the capitalism economy we now should be taken into the defects present in it.
Socialism was born only due to the defects of the capitalism economy.
Following are the key cons of capitalism economy:
1. Lack of coordination of Economic Activities
Under capitalism, there are large numbers of independent producers, distributions and Consumers and all try to maximize their own profit.
There is no Centre plan to coordinates the efforts of all.
Capitalism economy is compared with the bus without steering and each passenger tries to take the bus according to his direction.
Related: What is Centralization and Decentralization in Management (Explained).
2. Class Struggle
The capitalism economy is divided into two classes: first rich and poor or owners and labours or have and have-nots.
There are clashes in the interests as labours demand high wages while owners do not want to pay them leading to strikes and lockouts.
3. Economic Instability
Unequal distribution of the wealth, fewer opportunities, an unequal division of income lead to economic instability in the country.
Business Cycle takes place in capitalism.
The consumers suffer both in periods of inflation and deflation.
4. Unemployment and Social Insecurity
Vicious circle present in the business leads to unemployment.
Labour is always depended on the factors of production and entrepreneurs.
Unequal distribution of wealth has compelled them to live an unsecured life even the old age, accident, death and illness condition.
Related: 12 Importance of Effective Communication in Business (Explained).
5. Competition Leads to Wastage
Wastage of resources takes place in the cut-throat competition.
Resources are wasted on advertisement and salesmanship but the burden falls on the poor consumers who finally consume the product.
6. Monopolistic Nature
Tough competition is present among the producers but due to the nature of cut-throat competition either they give up or leave the market.
The Monopoly concerns try to capture the whole market which leads to the path of hoarding and explanations.
7. Misutilisation and Misallocation of Resources
In the capitalism economic system, the present is valuable rather than the future.
Long term planning is not given due attention in capitalism economy.
For example, lack of education, health, road, and irrigation facilities may act as the biggest hurdles for economic growth.
8. Inequality of Wealth
An unplanned capitalism economy leads to unequal distribution of wealth and ownership in the economy.
So some people get income without doing me any work.
For example, revenue to landlords, interest to money lenders and rent to the owner are given.
Related:12 Methods to Correct Disequilibrium in Balance of Payments (Step-by-Step).
9. Utilization of Factors of Production
Socialism help in increasing production, consumption and income pattern whereas in the capitalism importance is given to luxurious.
10. Equal Opportunities
In socialism, No class struggle in present, Thus people enjoy economic, social, political opportunities freely.
Whereas in capitalism only the rich class enjoys leaving the poor class
11. Quick Economic Stability
Rapid economic development takes place in socialism where economic stability and best utilization of resources as possible.
Whereas in capitalism, individual centralization leads to miss utilization of resources and factors of production resulting in deceleration of the economy. 13 Advantages and Disadvantages of a Mixed Economy.
12. Economic Prosperity
In the socialism economy- economic equality, full employment, and Rapid economic development lead to an increase in the living standard of the people whereas in capitalism speculative practices become a part of the system.
13. Minimum Social Benefit
In the socialism economy means of production are owned by the government which is used to derive maximum benefits to the society.
While in the capitalism economy private ownership and maximum profits lead to exploitation.
Related: 8 Major Types of Decision Making (Business Management).
Examples of Capitalism Countries
- America
- Canada
- Singapore
- England
- France
- Ireland
- Japan
- United Arab Emirates
- New Zealand
- Switzerland
- Hong Kong
Conclusion
The history of the developed countries of the world states that the growth rate of the capitalism countries has always been higher.
As it is based on the motive of profit, The rate of investment and capital formation is also higher in this capitalism system.
The producer class bears risks and develops new techniques.
Thereby the rate of development becomes high. To project the social and economic interests in the modern capitalist economy, state control and ownership should be present.
Thus, now you know the major pros and cons of capitalism economy.
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Thanks, it is very informative
Every economic system has prons and cons as every coin has two sides. Capitalism has some limitations but when it comes to development, it is the best form and adopted by most of the developed economies.