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Why capitalism doesn't work in the medium to longer term

Updated on July 17, 2015
TessSchlesinger profile image

Growing up in a political family, Tessa joined her first political party at 14. Her interest in progressive politics & economics continues.

Definition of an economic system

During the Cold War, especially in the 50s, many propaganda films were made about how wonderful capitalism was. This was in order to stave off communism. However it is far from a perfect system...

There are many types of economic systems, e.g. feudalism, socialism, communism, capitalism, agrarian economies, mercantilism, etc. Capitalism made its advent about three hundred years ago. An economic system has two basic components – the way goods are produced (production) and the way goods arrive at their destination (distribution). An efficient economic system produces the right goods in the right numbers and is able to distribute the goods where they are needed and desired.

50s Propaganda Video on Capitalism

Production and Distribution - Myths about Capitalsim

Capitalism is said to be the most efficient and effective system we have ever had. That may or may not be true. However, capitalism produces goods regardless of whether they are needed or desired. In order to get goods to be bought, the population has to be brainwashed or indoctrinated (advertising and marketing) otherwise they won’t buy them.

One of the causes of the Great Depression was that too many good were produced. People simply didn’t want them. Advertising was the brainchild of Freud’s nephew – Edward Bernays. He recognized that if people were told the same thing over and over again, they would believe it, even if it wasn’t true.

Nor is capitalism effective in distributing goods to where they are needed or desired. They are only distributed to those who can afford them. Thus medical services, roads, transport, etc. are often not available to people who cannot afford them. A good economic system would enable goods that are needed to be produced and to be distributed to all areas.

One of the side effects of inefficient production is that many goods find their way to landfills and endless storage. Inefficient distribution means that the people who most need the goods often don’t get them while people who don’t need the goods are brainwashed to buy them.

Paul Mason wrote in the Guardian as follows. "As with the end of feudalism 500 years ago, capitalism’s replacement by postcapitalism will be accelerated by external shocks and shaped by the emergence of a new kind of human being. And it has started."

The Trickle Down Myth vs the Upward Blast

Wealth does not trickle down without assistance. In the 50s and 60s, wealth did trickle down. This was due to strong regulation, Union activity, and the fulfilling of the social contract by the rich of those times. As Union activity was killed (Reagan and Thatcher), the trickle down effect slowed and the blast up effect began. There is no longer any trickle down effect.

The idea that laws should be legislated to support business at the expense of the citizen (consumer) is mistakenly based on the idea that all business results in the trickle down effect and that, therefore, any and all business is good for everybody. That simply isn’t true. Without strong Unions and without strong regulation forbidding harmful practice, business tends to cause more harm than good. It results in a ‘robber baron’ society.

Capitalism has outlived its usefulness. Martin Luther King

Martin Luther King said that Capitalism had outlived its usefulness.
Martin Luther King said that Capitalism had outlived its usefulness. | Source

Pollution of the Environment and Poisoning of People - Business Ethics

For some decades, business students have been taught that the business of business is profit, and that business is run for the good of the owners and not for the good of general population. Business ethics are rules that are good for the business not good for the population. Ergo, business policies benefit the owners not the buyers.

As a result, in the medium to longer term, any harm that business does to the environment and the medium to long term health of human beings and animals is not considered profitable.

Over production of goods that land up in landfills is a form of pollution. Many products require a thousand times the amount of water that one person requires to drink (consider the production of denim). The product is not worth the waste in water resources, especially in a time when potable water is becoming more and more scarce. Most water on the earth is sea water – not suitable for drinking. Other forms of pollution include the dirtying of our air supply, the toxic injection of chemicals into our soil (fracking), and toxic waste produced as a side effect of some products, e.g. Viscose (Rayon).

Waste of Resources

Yet another inefficiency of capitalism is the waste of resources in the name of innovation. It’s not necessary to constantly innovate. At a certain point, innovation is just an excuse to make more money. It is not contributing anything to the human species (or any other species) in the medium to longer term. In fact, all it does is waste resources (like metals) of which the earth only has a limited supply. It is not necessary to replace a cell phone every year or two and it is not necessary to constantly have bigger and bigger houses. Capitalism is a pyramid structure which is driven by increasing needs to produce more and more in order to make bigger and bigger profits. The ‘common good’ creed would look at what is required and desired by all people and would consider factors like the environment, natural resources, lack of pollution, etc.

Capitalism in crises

Increasing inequality

Far from being a fair method of distributing wealth, the system works on the basis of legalized unequal exchange. This means that the labourer gets paid less for his labour than it is worth and the consumer pays more for the product than it is worth. The difference goes to the owner, thereby enriching him. The less regulation there is in capitalism, the more rapid the increase in wealth for the ownership class and the more the working class becomes poor. Those companies that do not work for profit, e.g. Mondragon in Basque, Spain, have seen growing wealth for all communities in the region. It is a system of co-operatives which regulates that the CEO cannot earn more than six times what the person at the bottom of the company does. In addition, while provision is made for future investment in newer technologies, break down of machinery, etc., no provision is made for profit. This means that goods are less expensive and that more people in the community can afford them. The company boasts George Lucas and Microsoft as clients.

Globalization harms local communities and, eventually, countries

The idea that by moving production to another country because production is cheaper is shortsighted. Any country that receives the production mandate can reverse engineer the product and eventually produce on its own. In the home country which lost the production, however, the skills are eventually lost, and in an emergency would be unable to produce that product itself. Remember we live on a planet where wars, natural disasters, and many other factors can disrupt flow. It is always a good thing to produce locally.

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Capitalism is responsible for excess pollution

Many products produce excessive pollution. This affects human health and survival as well as that of other animals.
Many products produce excessive pollution. This affects human health and survival as well as that of other animals. | Source

Other disadvantages of capitalism

Other disadvantages of capitalism include commercial or corporate propaganda in which citizens are bombarded with information that promotes only certain information and does not give the real story. This is especially so when it comes to medication where the side effects of numerous pharmaceutical ‘cures’ are downplayed. Yet another disadvantage is that the system is hierarchical giving power to the ownership class and making the labour class subject to others.

Solution to disadvantages of capitalism

It is time to design a new economic system taking into consideration the following factors.

1. What products do human beings needs in order to live safe and happy lives?

2. What products can be produced locally and sustainably that enable this.

3. How can everybody be ensured of access to products that they need.

4. How can the system be implemented with the least disruption.

Anyone who can figure this out should win the Nobel prize for business - if there is such a thing! :)


© 2015 Tessa Schlesinger

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    • burrellboom911 profile image

      burrellboom911 2 years ago

      Bravo! Another great article. I keep looking forward to your next surprise. A job well done, indeed!

    • TessSchlesinger profile image
      Author

      Tessa Schlesinger 2 years ago from South Africa

      pramodgokhale, when you have time, google the company 'Mondragon.' It has been going for 70 years and it brought prosperity to the entire Basque region of Spain. It is not capitalism, and it is not socialism. Believe it or not, there are more than one financial system out there. Also, most of Europe is socialistic, and they are the best countries in the world to live in. There is a vast difference between socialism and communism.

    • pramodgokhale profile image

      pramodgokhale 2 years ago from Pune( India)

      When capitalism committed sins instead welfare, it lost it's sheen. If we want to implement socialism then it requires discipline as in Russia and China but failed later due to power abuse.

      People's participation is the only way for mission's success.In India we failed our socialism and feudalism won over socialism so it is a journey to reach goal.

      People enjoy subsidies and productivity failed in many small nations

      wealth vaporized.Quality governance is always important to run the system