Capitalism Research Paper

Abstract

Capitalist ideals are currently being practiced around the globe particularly after the demise of socialism. The current political establishments are supporting the capitalist ideals through several ways ranging from economic policies to social and political programs undertaken by various agents of the state. However, the capitalist ideals have been questioned particularly on its emphasis on private ownership.

Capitalist ideals have been faltered in its ability to create instability, social exclusion, and unfairness within the societal systems. On the contrary, capitalism has been observed as dynamic and encourages innovations in political, social and economic establishments. Essentially, capitalistic ideals and practices are embedded on various economic, social and political institutions.

Introduction

Capitalism is an economic system based on the principle that private citizens or corporations have the freedom to own, distribute and control the factors of production in a society as opposed to the state. In other words, capitalism is a concept that emphasizes the private ownership of the means of production (Streeck, 2011). The concept of capitalism has equal measures of support and criticism.

While proponents argue that capitalism is dynamic and encourage innovations in political, social and economic establishments, capitalism has been faltered in its ability to create instability, social exclusion, and unfairness within the societal systems. In other words, capitalism is accused of generating political instability, global financial crises, joblessness and the inability to include the disadvantaged in society (Streeck, 2011).

However, currently, capitalism is practiced in almost all political establishments especially after the collapse of socialism in Eastern Europe. Essentially, capitalism has increased competition in the global market through globalization and free markets philosophy.

Literature Review

Various studies have been conducted on capitalism beginning from the works of Adams Smith to Max Weber. However, previous works on capitalism focused on the theoretical approaches instead of the practicability of capitalism (Thelen & Hall, 2009). The current studies have focused on various dimensions of capitalism especially its weaknesses.

In fact, current studies have raised various questions concerning the capitalistic ideals widely practiced around the globe. In other words, political scientists and economists have constantly debated on capitalism with varied views arising from such debates.

Currently, the types of questions various scholars are grappling with a range from the type of social and economic institutions that bring about improvements in the current capitalist advanced economies to the kinds of institutions that are not functioning well in the current systems.

In addition, current scholars are questioning the manner in which the current capitalist system benefits the society as well as the level of social and economic effects of the current capitalist system regarding social stability and inclusion (Hall & Gingerich, 2009).

Thelen and Hall (2009) argue that the current capitalism is different from the previous classical ideologies of competitive markets. While classical ideology views the market place as being perfectly competitive and prices determined by the supply and demand, the current capitalism is driven by innovations and technological advancements.

Moreover, various economic and social institutions, as well as private players within political units, drove the previous free market dynamics. However, currently, the capitalistic ideals are devoid of any institutions. In other words, current capitalism is based on individual players amorphously situated in diverse countries. Further, Thelen and Hall (2009) argue that the current global economic crises are attributed to this deficiency.

Besides, Hall and Gingerich (2009) faltered the current capitalistic ideals being practiced around the globe and argue that private ownership is not necessary but sufficient for dynamism.

In other words, the capitalist practice where capital can be used in all sectors without the state controls becomes necessary in any economic developments. However, such developments have to be supported by strong economic and social institutions to encourage dynamism and do away with various limitations that may accompany such development.

Streeck (2011) tended to study how current innovations affect capitalist ideologies. Streeck (2011) observed a positive linkage between innovations and capitalism though, in most parts of the globe, various institutions are lacking to support the dynamism.

While innovations are critical in creating new markets, the investments made increases the demand for fixed capital. However, the study failed to identify various institutions critical in fostering decisive responsiveness to the novel prospects brought about by innovations.

Essentially, the recent researches have demonstrated the existence of different models of capitalism practiced in the different parts of the world. Groenewegen (1997) distinguishes four models of capitalists systems practiced across the globe ranging from Anglo American to Japanese models.

Groenewegen (1997) argue that the nature of conventional capitalism is characterized by private property ownership and markets where entities operate with the governmental institutions providing supervisory roles and rarely intervenes unless failures or imperfections occur in the market. However, institutional capitalism emphasizes on the institutions, history, and cultures.

Types of Capitalist Institutional System

Capitalist systems can be classified into four different models. These models are derived from different cultures and histories. The models describe the dynamics and characteristics of various capitalist institutions found around the globe. While the differences exist in terms of characteristics, the bottom-line ideology of capitalism is found in all these institutions.

Anglo-American Model

The model is derived from the capitalist systems practiced in the United States, the United Kingdom, New Zealand, and Canada. In this model, the interest of the shareholders and the center of management of firms are emphasized. Besides, in this system, the providers of capital have absolute control over the asset of the firm. As such, the capitalists assume ownership of the firm putting them at the top of the organizational hierarchy.

In fact, the major shareholder is granted an absolute authority to be the main signatory of all contracts. In addition, the main shareholder has the right to change the membership of the group, to define ownership of the firm among other rights. The model provides for the position of the Chief Executive officer (CEO) as the most powerful manger. However, the CEO must be answerable to a board of governors.

The system provides for elaborate checks and balances on the management and performance of the private entity. Moreover, the duties and obligations of various parties are well documented informal contracts that must be signed by both parties.

The European System

This system is practiced in most European countries such as Germany, Sweden, and the Netherlands, among others. The European model of capitalism emphasizes consensus building through negotiations between various stakeholders.

The system encourages the formation of vibrant labor unions and employer organizations to negotiate for compensation and reward policies and practices acceptable across the board with the survival of the system given priority.

Unlike the Anglo-American model, both the Shareholders and employees whose interests are equally important to participate in managing the organization. Transactions are more open-ended and in most cases based on mutual interests, long-term commitments, and consensus building from both parties.

State Capitalism

State capitalism is characterized by absolute control of the economy by the government. Unlike the European model, labor unions and employer organizations are not engaged in the formulation of labor policies by the central government.

Key to this model of capitalism is the fact that a small elite group of individuals in the state controls the politics and the management of big firms, which forms the core of an economy of a state. This model is very common in some parts of Europe and Africa.

Relational Capitalism

Relational capitalism is practiced mainly in Japan and some Asian countries. The system derives most of its practices from the values of communism. Central to this model is the interest of all the stakeholders that not only include the shareholders and management but also the customers, government, and suppliers.

Each stakeholder in the organization plays a mutually agreed monitoring role on the other stakeholders putting into consideration the survival of the system. The management enjoys a high level of autonomy giving the managers exclusive abilities to prepare long-term plans for the firm. The key component of this model is the level of incentives that comes with competition among different groups.

Conclusions

The models of capitalism present various institutional frameworks characterizing the capitalistic ideals practiced around the globe. However, the current scholars have questioned the ideals of capitalism, particularly its contribution to the benefits of society.

While previous studies have attributed major global developments to capitalistic ideals, the current studies have faltered the ideology arguing that it has led to increased human sufferings particularly in the current system where innovations play a crucial role.

References

Groenewegen, J. (1997). Institutions of capitalism: American, European and Japanese systems compared. Journal of Economic Issue, 26(2), 333-344.

Hall, P. A., & Gingerich, D. W. (2009). Varieties of capitalism and institutional complementarities in the political economy. British Journal of Political Science, 39(3): 449-482.

Streeck, W. (2011). Taking capitalism seriously: towards an institutionalist approach to contemporary political economy. Socio-Economic Review, 9(1), 137-167.

Thelen, K., & Hall, P. A. (2009). Institutional change in varieties of capitalism. Socio-Economic Review, 7(1), 7-34.

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