Capitalism, as first theorized by Adam Smith, involves private ownership of the means of production as well as free & fair competition, which is supposed to channel human greed towards a greater good, namely more innovation and cheaper goods for all.
Monopolies and oligopolies:
- As you can see, monopolies and oligopolies were frowned upon from the beginning, which is why most countries nowadays, including the United States, have a competition authority or regulator.
- The latter is responsible for the enforcement of competition laws, the breakup of cartels (an association of manufacturers or suppliers with the express purpose of maintaining prices at a high level), the removal of barriers to entry, and the eradication of anti-consumer practices.
- You see, without free and fair competition, capitalism is moot and counterproductive. This incomplete system, known as crony-capitalism, enables long-established businesses to reign supreme and thrive without risk-taking, thanks to previously amassed wealth and high connections.
- The crony-capitalism index, while not recognized internationally due to its limitations, is still our best tool in ascertaining whether a country is plagued by crony capitalism.
- It ranks the USA as the 17th most crony-capitalistic country in the world – one of the four developed countries in the top 20, most of which are developing or emergent countries, such as China or Russia – above France and under the United Kingdom.
Startups & nascent businesses:
- The importance of entrepreneurship in capitalistic systems cannot be ignored. In fact, without entrepreneurs, the virtues of capitalism would not last. Indeed, sooner or later, a handful of businesses would outlast viz. outcompete or buy-out, their competitors, and monopolies would ensue.
- Startups act as a new supply of competitors, which serves to deter established businesses from lowering their guard. The problem, however, is that the cost of entry in many industries, such as the automotive industry or certain arms industries, is exceedingly high.
- Moreover, using their available resources, already established businesses are able to sell at a very low price and still make a profit, thereby ensuring their continued control over the market.
- It is thus imperative for governments to come to the aid of nascent businesses and startups not only by relaxing regulations as much as possible and reducing bureaucracy, but also by providing them with financial aid in the form of low-interest loans, subsidies, or even tax exemptions–none of which happen in the US, at least not as often as in European countries.
Equality of opportunity
- When Adam Smith first theorized what would come to be known as capitalism, he understood that, in order for inequality of outcome to be perceived as legitimate, equality of opportunity and rights would first have to be achieved. To that end, he even argued against inheritance, which he thought conferred an unfair advantage to the children of the wealthy.
- Adam Smith’s rationale would later be dubbed as “Bourgeois Morality” by Karl Marx, who thought that equality of opportunity could not be achieved under capitalism due to its exploitative nature.
- For the most part, even in the United States, equality in rights has been achieved but equality of opportunity has yet to be achieved, although upwards mobility has reached a level unseen before.
- With that said, it should come as no surprise to learn that the economic model of European countries, especially that of Scandinavian countries and Switzerland, which have successfully established a functional Welfare State without unnecessarily constraining economic freedom (see Economic Freedom Index), is closer to the ideal of capitalism than the American model.
- After all, access to education and healthcare alongside better infrastructure and transportation ensures that people have access to better opportunities. The entirety of a country’s talent pool is thus used and society more meritocratic.
As you can see, the biggest lie in American politics is that laissez-faire economics is tantamount to capitalism. It is not!
P.-S. – Before any American comments that European countries are Socialist, please understand that European countries practice Social Democracy, which, unlike Socialism, does not encroach on private ownership of the means of production.
Under the aegis of the Welfare State, Social Democracy merely engages in a limited redistribution of Wealth (the output of the means of production), using various Social programs bankrolled by the taxpayer.
It should be said, however, that this economic model, which first originated in Bismarck’s Prussia, was the product of an alliance between renegade Socialists and aristocratic Conservatives, united in their anti-bourgeois attitudes.
