If we take a look at the economic history worldwide, private businesses have been instrumental in improving the standard of living. Business houses have created job opportunities, invented products, made profits, helped impoverished people and encouraged them to live productively. It is businesses which provide us with food, computers, clothes and airplanes. It is businessmen who create jobs and support governments populist schemes and waste. Without private businesses, nations collapse like the Soviet Union or remain in the Stone Age like North Korea and Nepal.
It is excessive government regulations that have paralyzed economies, while free markets have boosted our economic and societal infrastructure. In this blog post, my aim is to debunk three of the most common myths about capitalism. Let me take the help of Dr. Jeff Miron, Director of Undergraduate Studies at Harvard University.
Capitalism leads to unfair income distribution or capitalistic set-ups make obscene profits
Capitalism believes in rewarding those with talent, creativity and capacity to work hard. People who do not possess the necessary skills or talents lose out in the race. So, the point of concern is not unfair distribution of wealth, but the fact that some people have fewer talents or are too lackadaisical to utilize them to the optimum. This particular fact has no relation to capitalism. The factors that make the economy less productive are price regulations and limitation on quantities because these discourage businesses from upgrading themselves and helping those who are less fortunate. The ‘invisible hand’ of competition can actually play a huge role in offering better quality products at lower prices. Steve Jobs became a billionaire not by looting us, but by providing us with great products that improved productivity and enhanced entertainment and job opportunities for hundreds of millions across the world.
Capitalism was responsible for the 2008-2009 Recession
I would rather say that interference with capitalism led to the crisis and recession. The recent recession was related to excessive risk taking and over-investment in housing, which was created by the government. The private businesses did respond to those risks so they can’t be totally absolved of the blame. However, if the question is about ‘who caused the economic crisis’; it was the bad government policies that can be blamed. Government in the US cajoled, forced and incentivized banks to lend believing that easy credit would stimulate demand. Banks merely responded.
Capitalism leads to globalism which, in turn, hurts the poor
It is a fact that capitalism leads to globalism. However, what is globalism? It means the gradual integration of markets across the world. Globalization is good because it offers greater opportunities for growth and rewards for labor specialization. In a global market, resources shift from the hands of central planners to the people, who, in order to ensure their own well being, will create more wealth. To this end, the aspirants of wealth will create job opportunities for all. In this way, society as a whole will progress. According to The Libertarian Reader (1997), edited by David Boaz, “Globalization is at heart a thoroughly liberal process — an enemy of tyrants, censors, and monopolies”.
Capitalism works in the interest of the people (consumers) and not against them. A capitalistic setup is essential for an economy to grow and for people to improve their living standards.