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ISSUES-Capitalism and Globalization

Capitalism and Globalization


Capitalism, also known as the free-enterprise or free-market system, is the economic structure that permits people to use their private property however they see fit, with minimal interference from the government. Under capitalism, people are free to work at jobs of their own choosing, to try to sell their products or services at whatever prices they wish, and to select from among various product- and service-providers for the best value.

It should be noted that "pure" capitalism, unencumbered in any way by government, exists neither in the United States nor anywhere else in the world. Moreover, the capitalist system of present-day America differs in significant ways from other capitalist systems around the globe, just as it differs from the capitalism that existed in the U.S. at the turn of the 20th century. While private-property rights and certain amounts of economic freedom have always been part of American life since that time, those rights and freedoms have become increasingly weighted down by heavy governmental regulation.

Critics of capitalism believe it is imprudent to allow an unregulated market to run its course, and to permit private citizens to make their own economic decisions based on self-interest. Asserting that such systems are inherently chaotic and inefficient, these critics propose that government regulators and bureaucrats -- "experts" presumably unencumbered by the greed or the impulse for self-interest that motivates private citizens -- should be empowered to "manage" economies authoritatively. In response to these positions, the Ludwig von Mises Institute scholar Robert P. Murphy writes:

"This view is flawed in two major respects. First it is impossible for a central authority to plan an economy. New technologies (if entrepreneurs have freedom to create new technologies), changes in consumer taste (if consumers have freedom to pursue their tastes), and innumerable variables that can affect production, distribution, and consumption of everything from newspapers to lawnmowers on national or international scale are simply not 'manageable' in the way socialist planners like to think they are. Second, the planning bias completely misunderstands the role of profit and loss in a market economy. Far from being arbitrary, a company's 'bottom line' indicates whether an entrepreneur is doing what makes sense: if his product is one that people want and if he is using his resources in the best possible way."

Perhaps the most common objection to capitalism is the Marxist claim that it exploits the poor in order to serve the interests of the rich. History shows, however, that this is precisely the antithesis of the truth. In pre-capitalist, medieval Europe, for example, most people either toiled in the fields to which they were bound or they worked at crafts that were heavily regulated by various guilds. The aristocracy, meanwhile, acquired a virtual monopoly on luxury goods.

The rise of modern capitalism changed all this. The fortunes of the big businessmen who emerged under capitalism no longer depended upon the patronage of a few wealthy clients. Rather, these entrepreneurs began catering to the needs and desires of a newly empowered working class consisting of millions of people. By meeting those needs and desires, businessmen greatly increased their own wealth and influence. In the first days of the Industrial Revolution, workers were abused. Yet they organized into unions that protected their interests and changed capitalism itself, pressuring it to evolve from its early exploitative model to a more humane one. As a result, capitalism helped improve the lives of people in every social stratum. For example, the transition into the capitalist era brought a dramatic decrease in infant-mortality rates and a significant rise in life expectancy. Moreover, the average blue-collar worker under capitalism was far wealthier than the “bosses” of socialist economies.

After the Bolshevik revolution of 1917, communist true-believers expected that their system would offer the average person a better standard of living than capitalism ever could. But the working classes in the United States lived far better under capitalism than their counterparts in the Soviet Union under communism, most of whom were subjected to impotence and immiseration. Wherever communism was tried, it resulted not only in economic deprivation but also in political tyranny and oppression. Moreover, it brought about an immense wealth disparity between the common people on the one hand, and government authorities and their bureaucratic operatives (the nomenklatura) on the other.

Notwithstanding this historical track record, modern-day Western intellectual elites continue to despise capitalism, blaming it for virtually every social ill that can be identified. Indeed, feminists blame capitalism for the inequitable treatment to which women were historically subjected. Civil rights leaders blame capitalism for having created the psychological conditions and the economic incentives that made the slave trade and racial discrimination possible. Environmentalists blame free-market industrial pursuits for poisoning the air and water, and for triggering the "climate change" that allegedly threatens the well-being of every form of life on earth. Peace activists blame war on greedy capitalists and their insatiable thirst for wealth and empire. Consumer-advocacy groups allege that capitalism encourages business to put "profits over people," and thus to be inattentive to the needs and the safety of consumers. And moralists decry the commercialization associated with capitalism.


Globalization refers to the worldwide phenomenon of increased technological, economic, and cultural interconnectedness between nations. It is essentially capitalism on a global, rather than a national, scale. In a globalized economy, economic activity is unrestricted by time zones or national boundaries. There is an international exchange of labor forces, ideas, knowledge, products, and services. This trend has accelerated dramatically since the 1980s, as technological advances (most notably the rise of the Internet and advances in telecommunications infrastructure) have made it easier for people to travel, communicate, and do business internationally.

The expansion of international trade and foreign investment was sparked not only by technological progress, but also by two major sociopolitical developments of the 1980s. One of these was the collapse of global communism. The fall of the Berlin Wall and the subsequent dissolution of the Soviet empire freed some 400 million people from the shackles of closed, centrally commanded economic systems. The second development was the demise of the Third World’s reliance upon import substitution -- a trade and economic policy founded on the idea that a developing country can increase its wealth by importing as few goods as possible and relying instead on locally produced substitutes. When import substitution proved to be a colossal failure, struggling countries all over the world -- starting with Chile in the mid-1970s and China later that decade -- began opening their markets and welcoming foreign investment.

Opponents of globalization characterize the phenomenon as a form of Western expansionism and cultural imperialism, claiming that it will merely increase the opportunities for wealthier nations (and their multinational corporations) to take advantage of poorer ones. This happens, the critics say, because multinational corporations can exploit the cheap labor and lax regulations typical of developing countries where there are no labor unions. Believing, despite overwhelming evidence to the contrary, that a planned economy ensures the greatest economic benefit to the poor, the anti-globalization movement tends to favor socialism over capitalism. It also warns that globalization could eradicate regional diversity and lead to a homogenized world culture where “native” cultures are swallowed up by Western traditions.

Supporters of globalization respond by pointing out that since the 1980s, every nation that has experienced an increase in its manufacturing output has also seen its per capita income rise; that nations open to trade tend to be much more prosperous than nations with closed economies; and that the increased wages spawned by globalization correlate with reduced poverty and improved living conditions for all. The most impressive gains in this regard have been realized in East Asia.

The two most prominent pro-globalization entities today are the World Trade Organization and the World Economic Forum. The former, consisting of 144 members, was created to establish a set of rules to govern global trade through the process of member consensus. The latter is a private foundation that does not possess decision-making power but is a powerful networking forum for many of the world’s business, government, and not-profit leaders.

Source for the Capitalism section: The Politically Incorrect Guide to Capitalism, by Robert P. Murphy (Washington, DC: 2007)




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