What crosses your mind when you think of Capitalism? Free-markets? Economic Growth? Billionaires? Or, if you are more sceptical, Inequality? Corruption? Big Corporations? The plight of the poor? All these perceptions generally encompass the approach which the vast majority of the public has on Capitalism. All these perceptions are also partially true, however, are boiled down into a dichotomy, especially in the United States. Through this article, I would seek to enlighten you with an alternate perspective on Capitalism.
The primary pivot on which Capitalism is built on is the Friedman Doctrine. As per Friedman, profit, or generating income for the shareholders, would result in the greater good of the society. This, on the surface level, is made prevalent by GDP growth graphs, per capita income growth graphs, or by any other measure for overall economic growth amongst an array of them. However, the social good element of this approach is contingent on trickle down economics, i.e., the lower and middle class would be able to reap the benefits of this growth as the newly available makes it down from the corporations to the employees. This, in part, is true. However, it fails to be efficient in this trickle down. This very inefficiency is exploited and capitalised on to generate vast sums of wealth, resulting in millionaires and billionaires. It is still able to alleviate poverty as a result of new job opportunities and its structure, and also through competition. However, this does not extend to the middle class. In combination with the inefficiency and the presence of a more flexible and to a degree exploitable demographic below them, the middle class is left in a lose-lose situation.
Socialism on the other hand, aims to curb this inefficiency mentioned earlier by removing the middleman between the vast majority of the population and the profit. In a socialist system, the people themselves, through democracy or otherwise, take responsibility of the distribution of this wealth through the chain, in such a way that this inefficiency cannot be exploited. However, the result is an overall dampened economic growth due to the inefficiency of the other kind – bureaucracy and management. Having a large overarching structure has almost always proven to be more inefficient and less effective than private corporations specialising in their own field. Think of the problem with this analogy:
Think of the population as three simplified groups on the basis of wealth and income. We have the lower class, the middle class, and the upper class. Fundamentally, each economic system is only able to satisfy two of the groups. In the case of socialism, it is the lower and middle class. As for Capitalism, it is the lower class and the upper class. This is made fairly clear in the case of Capitalism by poverty reduction statistics and the huge accumulation of wealth disproportionately, as made by the growth of the fortunes of the rich, or inequality as a concrete measure. However, we see little to no growth within the existing middle class. A similar story is true, while inequality remains low and the worst living standards aren’t as extreme as in a capitalist economy, the overall growth is also lesser. No economic system can ever last without satisfying the lower class, and those who attempted to ignore it, were subject to a deposition. The only true examples to my understanding of this were the oligarchies, aristocracies, and the monarchies of 18th and 19th Century Europe, that too, by infusing religion as a cornerstone of their policy.
The moral of the story is that Capitalism is not necessarily the best policy objectively; neither is Socialism. The dilemma between pursuing either path comes down to a set of compromises which each path demands. The world around us, for the most part, has chosen the former.