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Mankind has made great progress from nomadic life to modern times when goods and services produced in different distant lands are consumed all over the world. Economics is basically concerned with production, distribution and consumption of goods and services required to carry on life smoothly. In the olden times it was very difficult to obtain goods from other countries due to factors like constraints in transport, universally acceptable currency and local governmental preferences. For long in East and West people had to satisfy themselves with whatever was produced locally and articles produced elsewhere, if available for consumption, were a luxury. People also lived under a heavily agriculture-dominated life, a typical feudal living was the order of the day in which the goods and services consumed were limited.
After the age of voyage of discoveries, industrial and agricultural revolutions, colonization by some enterprising European nations like England and France, things began to change. The political changes brought about by the French Revolution and the American War of Independence were also immense. Ideas like Liberty, Equality and Fraternity, liberalism and democracy, free trade, mass production and consumption of goods and the like began to change the life-style of the people. Ideas of nationalism, liberalism and democracy which had permeated in Europe began to spread elsewhere. Industrialization led to production of goods at unheard of dimensions and large markets
had to be procured. The rivalry of European nations for raw materials and finished goods led to imperialism and colonialism and gradually led to the awakening of Asia, Africa and Latin American countries where for centuries societies had functioned under semi-feudalistic norms. The Kings, priestly class, the nobility and the merchants had enjoyed a higher standard of living while the mass of people were generally in very poor economic condition.
With the growth in world trade, many intellectuals began to question the mode and control of the means of production also. For centuries the individual initiative in producing goods remained untouched and even during the days of Imperial Rome, free enterprise in trade was the order of the day. All that began to change in the first and second quarter of the 19th century when old feudalistic order had crumbled and people began to challenge the system in which private means of ownership and production led to perpetual inequality in earnings and standard of living among people. Socialist ideas began to be aired. Just as political situations changed with the influence of intellectuals and ushered in a situation where larger number of people began to participate in the governmental process, so also questions were raised as to the nature of ownership of the means of production and control thereof. Individualism in politics and society largely began to be identified with capitalism while questions of deep import were raised about the untrammeled individual rights which deprived large number of ordinary people a comfortable standard of living.
“Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned. Under capitalism the state is separated from economics (production and trade), just like the state is separated from
religion. Capitalism is the system of laissez faire. It is the system of political freedom.” (Capitalism.org). We thus find a close relationship between the political and economic approach of the people in reference to acquisition, consolidation and increase in properties. It is said that “mercantilism” of ancient times and medieval times which made people to seek goods from different countries for getting profit also formed the basis of capitalism, though with some changes. Whatever it be, capitalism is basically concerned with profit-motive: that is, money is invested with a view to purchase goods at cheaper rates elsewhere and sell locally at higher prices so that profit is had. Ancient kingdoms and medieval Muslim rulers encouraged traders to multiply wealth in this way.
Factors of Production
Land, Labor, Capital and Enterprise are traditionally considered four factors of production under capitalism. Each factor receives its return for contributing to the production. Land receives rent, labor receives wages, capital gets interest and enterprise which brings other factors of production to produce goods and services meets these expenses and enjoys what is left over as its share, that is, profit for its entrepreneurial skills. The system is based on the idea that all individuals are not endowed with equal
capabilities and an individual is free to do what pleases him according to his gifts to accumulate wealth. Wealth creation was admired and it was argued that the individual had the right to accumulate as his skills permitted, because he pays the other factors of production what is due to them.
Richard Hooker points out, that “The accumulation of the means of production (materials, land, tools) as property into a few hands– this accumulated property –is called “capital” and the property-owners of these means of production are called “capitalists.”(The European Enlightenment Glossary). It was believed that the capitalist would get more out of labor by increasing its efficiency through division of labor. Labor would not be entitled to anything more than the wages as determined by market forces. Laborers working for wages and for product was the change brought about by industrialization. Later on socialists would argue that this amounted to unfair exploitation of labor. As profit was the motive for the capitalist he would control the means of production to maximize profits and minimize the costs. This view also had a philosophical backing in individualism which maintained that as individuals pursue a goal to attain their maximum potential, society would automatically reach an optimum in its requirements.
As improvements in the methods of agricultural production came about from the last quarter of the 18th century leading to migration of labor from rural to urban centers, industrialization in its early stages tended to take unfair advantage of the large number of laborers to keep them under subsistence wage level. In the second half of the 19th century
as industrialization made giant strides, scramble for acquiring raw-materials and markets for finished goods started. England, France, Germany were some of the leading capitalist economies at the turn of the 20th century. The United States of America was making good progress but it would be a few more decades before it attained great economic strength. In the East only Japan seemed to perceive what was going on the economic front and began to equip itself to become industrialized from the second decade of the 20th century. China was hopelessly under the control of western powers. Many Asian and African nations were under the grip of physical and economic domination of European nations like England, France and Holland. Rapid industrialization, growth in technology, control of raw materials and markets were the driving forces of dominant European countries. Hooker also stressed that, “ the fundamental unit of meaning in capitalist and economic thought is the object , that is, capitalism relies on the creation of a consumer culture, a large segment of the population that is not producing most of what it is consuming.”
From the beginnings of 19th century a number of intellectuals began to question the ethics of capitalism and began to favor a political system which should usher in economic betterment of people at large. They were referred to as socialists as they wanted means of production to be brought under the control of society and not to be left in the hands of a few. They wanted production to satisfy the basic needs of the people rather than the profit motive of a few individuals. So control of state power became necessary to implement 6 the economic measures which would benefit a large number of people. Though Europe was rocked by constant wars and revolutions in the first fifty years of the 19th century, ideological warfare also went on. One of the outstanding thinkers of Europe during this time was Karl Marx whose ideas had great impact and subsequently with modifications led to the founding of the first workers’ state in Soviet Union (formerly Russia), after a successful Revolution in 1917 which saw the overthrow of the Tsarists. The fact that a socialist state and its allies challenged capitalism and these states professing communism were dissolved only by 1990s was a major theme in international relations from 1920 to 1990s.
What exactly this socialism meant at least initially? All factors of production should be brought under social control. Marx believed that exploitation of labor was the basic feature of capitalist system as the capitalist did not pay labor its legitimate due but manipulated and gave the labor force only subsistence wages. All wealth was created by labor only and by his ‘Theory of Surplus Value’ sought to prove that capitalist class was nothing but a parasite one. The theory of surplus value stated that all wealth was the product of labor but it was not given its due and its produce was expropriated by the capitalist class. Marx argued that all factors of production must be brought under the control of the temporary dictatorship of the proletariat because only that class would not seek to exploit classes below it. That is to say, a classless society should be created where everybody has to work and contribute to production.
The immensity of the problem could be easily discerned. There has to be meticulous central planning as to what is required to be produced for satisfying all the needs of citizens. Food, clothing, dwelling, education, health, recreation, technical skills and all aspects of life of all citizens must be taken into account and productive machinery must be geared to produce all that must be taken care of. This would necessitate a thoroughly centralized planning. Even left to individuals these are not easily satisfied. Not only that sectoral analyses are needed. In terms of industrial, agrarian, health care and other outputs planning should be precise. Only when the basic needs are thus met attention would be paid to production of comforts and luxuries. In other words what we now we find in capitalist structure would be absent. Production will not be dependent upon free market forces but based on the needs of the people.
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It must be borne in mind that natural resources, population, stage of economic development, educational level, technological growth and the willingness of the people to transform themselves from previous conditions to a modern consumerist society are all required to initiate and sustain economic growth. Many of the European countries are enjoying high standard of living based on population, natural resources and the general higher educational levels. Also their economies had grown over several decades absorbing the lessons of industrial, agrarian and technological revolutions. To transplant all these values into Afro-Asian soil or Latin-American conditions would not be an easy task, even assuming that socialism could solve the basic problems. Mankind is largely influenced by ownership rights and individualism and may not easily opt for a socialist, regimented society even if it ushers in a state where there are no exploited and exploiters.
Economically Advanced Nations and Developing Nations
So we find the present situation in the world largely determined by historical circumstances. Nations like U.S.A., Canada, most of the European States, Russia, Australia, New Zealand and Japan are among the economically advanced nations of the world. Most of the Afro-Asian and Lain American countries are very backward and some of them are euphemistically referred to as “developing economies”. China and India are making progress in the recent decades to catch up with technological progress to change their economies. Many factors contribute to the development of an economy. The country’s natural and human resources, infra structure, roads, transport facilities, general and technical educational level and above all the attitude of the people to come out of the old rut and reap the benefits of modern economic growth should be important.
The disparity in the standard of living of the people in advanced countries and backward countries can be gauged from the per capita income of the people. The US and most of the European and other advanced nations mentioned above have per capita income ranging from US$ 37,600 to 21,200 while most of the Afro-Asian nations languish under less than $5,000, the poorer among them just less than $1,000. Turkey’s per capita income is $6,690. (All figures, 2003). If one takes into consideration the facilities available in the USA and other Afro-Asian, Latin-American countries in terms of natural and human resources and effective utilization of the same, the task of the latter countries climbing up the ladder could be easily imagined. So now the problem is proper guidance by the advanced nations to developing nations rather than centralized or socialist planning.
The recent decades have been witnessing the phenomenon of what is referred to as globalization of economies. Everywhere capital and enterprise are welcomed as they would help the nations to make progress on the economic front. Everywhere the importance of producing and exporting more has been understood and governments in less developed nations vie with each other to attract what is referred to as ‘direct foreign investment’. The labor costs in poorer countries are undoubtedly low and therefore the capitalists are able to reap higher returns for the amounts invested by them. In many areas of human endeavors this opening up of country for foreign investment is eagerly sought after. However, this trend has its shortcomings as well.
In many advanced nations due to scale of economies capitalists prefer to outsource their work from abroad and this had adversely affected the employment opportunities of their own work force. At the same time advanced nations are also not keen on giving unlimited freedom to laborers from other countries to work in their own countries. The freedom of mobility enjoyed by capital and enterprise is not enjoyed by the labor. There is thus a great divide among the advanced and developing nations in many respects and world agencies are doing their best to help the poor nations to develop the capabilities of their citizens and utilization of natural and human resources of the countries. The UN, the World Bank and the International Monetary Fund are doing a lot to bring about amelioration in the conditions of the poverty-stricken people. There are a host of international voluntary agencies as well. In fact more than ever in the history of mankind, efforts are being made to tackle the problem globally –whether it is global warming or containing infectious diseas.
It is true that capitalism throws up some scare in the form of uncertainties in the stock markets or difficulties in the balance of trade payments etc. However though theoretically the governments should not interfere in the market situations, they do intervene and prevent catastrophic consequences of some situations. The fact that socialism even if it was restricted to one country could not solve many basic issues is noteworthy. Despite very severe governmental control of all factors of production, people did not consume goods or services as much as people elsewhere did during those years of state control. Also wage disparities were not removed nor was equity the watchword for all the actions of the government.
By contrast, despite undoubted shortcomings, capitalism has been thriving and what is more, has been able somehow to survive the worst crises. The answer perhaps lies not in the implementation of capitalism or socialism but in ‘humanism’. The capitalist economies had no hesitation to treat the labor force generously between 1950 and 1975 when the system prospered. Though in the last few years acute competition has forced many multi-nationals to take undue advantantage of lower costs in poorer countries to multiply their profit, sanity should prevail and efforts must be made to safeguard the interests of all sections of the society. The world must not be viewed as constant source for unhealthy competition but a haven of peace and co-operation and promotion of economic well-being and prosperity. Any suffering elsewhere must be attended to with great care and solicitude. By such approach needless and inhuman wars and loss of lives could be eliminated.
China’s Super-power economy, from The Heritage Foundation.
Hooker, Richard in European Elightenment.
The European Enlightenment Glossary –Physiocrats.
The United Nations, Development Policy and Analysis Division.
The United Nations, Statistics Division.
Per capita income figures, retrieved from World Bank figures.