Advantages and Disadvantages of Capitalism
Capitalism is the market economic approach in which private entities control assets as per their interests. Private businesses/individuals own the capital goods of a country in this economic system, with the motive to make a profit.
Following are the Advantages (Pros / Positives / Benefits) and Disadvantages (Cons / Negatives / Drawbacks) of Capitalism,
Advantages (Pros / Positives / Benefits) of Capitalism
1. Improve the Level of Entrepreneurship in the Nation
Capitalist society always influences private businesses/individuals to own the capital goods of a country to make a profit. This will enable the level of entrepreneurship in the nation, which helps to start new businesses based on skills and investments.
2. More Choices for Consumers
The capitalist market influences high competition, which will ultimately have more and more choices for the consumers. Individuals have the freedom of choice to purchase. Capitalism allows international trade between continents as well.
3. Increased Production Efficiency
Through capitalism, firms produce in a very competitive environment. The key to surviving in the competition is to improve the efficiency of production. Businesses in a capitalist society reduce costs to an optimum level. This will result in an improvement in overall production efficiency in the economy.
4. High Level of Individual Wealth
The capitalist economy depends on individual efforts. Individuals work harder to achieve more. The motive of resource utilization is to make a profit. Profit increases within the economy and this will ultimately lead to a high level of individual wealth.
5. Optimization of National Resource Utilization
In capitalism, private entities control assets as per their interests. There is very less level of government intervention. Hence, issues like government-level corruption and information circulation gaps will be at a lesser level. This will help to optimize the resources efficiently.
6. Improved Overall Economic Growth
In a nation that follows capitalism, businesses compete with each other to improve their profits. More choice of products, improved production efficiency, and an increase in individual wealth are some of the results. The nation’s Gross Domestic Product (GDP) will be improved as a result due to innovation, and high exports. This will help the overall economy to grow in a very optimum way.
7. Price Set by Market Conditions
The capitalist government allows the free market and free trade.
The government will not interfere to set the prices of the products. Prices will be set by the market conditions which helps to maintain a healthy economy.
Disadvantages (Cons / Negatives / Drawbacks) of Capitalism
1. Negative Effects on the Environment
In a capitalist society, businesses are motivated to earn profits. The primary motivation lies around profit maximization, which pushes them to the extreme of it, without government involvement. Hence there will be non-sustainable negative effects on the environment like air pollution and water pollution. These negative effects on the environment could lead to major disasters since these negative effects are generally ignored until they become serious.
2. Labor Exploit
Capitalists could get excessive work from the laborers and pay poor salaries to them. This will result in business owners becoming richer, but the laborers will suffer ultimately. The capitalist structure could lead to such situations since less government involvement.
3. Unequal Wealth Distribution in Society
Business and private individuals own the production and distribution of goods and services in society. The entire nation’s production is controlled by a few wealthy entities. A major component of the nation’s wealth will be with these few entities. The others are working in these entities to survive from one paycheck to another, which is a comparatively very less portion of the profits made by these entities. This setup will lead the unequal wealth distribution in society.
4. Less Stability in the Industry
There are two entities in the capitalist structure. One is the business owners who own the product and the other is the public who work for these entities. There is always a conflict between these two entities. The business owners want to pay less to the public and get more work to gain more profits. The public wants a higher level of wages. This will result in less stability in the industry which might lead to a revolution as well.
5. Less Government Regulations
Government regulations are essential for a nation to avoid unfair market competition, support minimum wage levels, evade monopoly situations, and increase the wellness of society as a whole. Since government regulations are minimal in a capitalist society, these unfair practices will be implemented which reduce the wellness of the society.
6. Low-Quality Products to Consumers
Due to the high competition in the business, the products they produce could be of low quality to maintain competitive pricing. This will result negatively on the consumers since the products available are less in quality which does not satisfy their needs.