Advantages and Disadvantages of Capitalism – Information and examples

We explain what the advantages and disadvantages of capitalism are. Also, how was its origin and its history until today.

advantages and disadvantages of capitalism
Capitalism encourages both investment and financial speculation.

The capitalism

The capitalism it is a socio-economic order sustained in private property, which proposes the accumulation of capital as a reflection of the production of goods and services, as well as investment and financial speculation, depositing the means of production in private hands. It is the prevailing economic system in the entire world at the beginning of the 21st century.

The capitalism arose in England, thanks to the Industrial Revolution of the 18th and 19th centuries and the rise of the bourgeoisie as the dominant social class in the Modern Age. During the twentieth century it was the system defended by the liberal democracies of the West, against the communist totalitarianism of the so-called “Eastern Bloc” led by the Soviet Union, in what is known as the Cold War.

Despite the fact that the conflict culminated in the late 1980s and early 1990s, with an overwhelming triumph of capitalism throughout the world, the truth is that capitalism has not stopped receiving criticism and questioning.

There are not a few who consider it urgent to propose a new system that knows how to preserve the advantages of capitalism and better face its disadvantages. The problem is, precisely, to agree on which are the advantages and which are the disadvantages.

It should also be understood that there is no single and exclusive way of applying capitalism. There are methods with more or less State intervention, with more or less emphasis on the social, in a wide range of trends that depend on the economic, social, cultural and historical conditions of each country.

Advantages of capitalism

advantages and disadvantages of capitalism innovation
Capitalism offers a great capacity for production and innovation.

In general, the advantages of capitalism have to do with its great capacity for production and innovation, especially in the context of a highly industrialized society, which for many is in itself a sign of progress. In any case, we can summarize the advantages of capitalism in the following points:

  • Commercial and entrepreneurial freedom. Capitalism is a system that encourages and rewards innovation, risk and entrepreneurship, thus allowing immense economic mobility, which brings with it various forms of production of goods and services.
  • The capacity for accumulation. By sustaining itself in private property, capitalism allows the accumulation of goods or capital, in such a way that later large sums of money can be invested in initiatives considered worthy: in scientific research, for example, or simply in making still more money .
  • The democratizing effect of capital. Compared with previous systems, such as the feudal, in which the birth status determined access to wealth (noble blood or plebeian blood), capitalism proposes a system that only understands money: those who have it and those who do not, without distinguish between nobles and commoners (immovable categories, for life), but between poor and rich (categories that, in principle, can change). This allows for a greater redistribution of wealth than in feudal systems.
  • Greater consumption facilities. Capitalism is usually accompanied by societies with high consumption of goods and services, since its dynamics of self-regulation of the market (supply and demand) encourages competition between producers and marketers to conquer the consuming public. This means that consumers have, ideally, a variety of products and services to choose from, and this allows great freedom of consumption.

Disadvantages of capitalism

advantages and disadvantages of capitalism inequality
In capitalism there is a great difference in access to opportunities for advancement.

The other side of capitalism’s coin tends to focus on its more or less uncontrollable effects on the environment, and its inequality of social opportunities in a capital-centered system. We can summarize the disadvantages of the system in the following:

  • Ecological havoc. Capitalism is inseparable from industrial production, and the latter, at least as it has been running in the last two centuries, has had a brutal impact on the environment, the most tangible example of which is climate change. The indiscriminate exploitation of natural resources is unsustainable in the long term.
  • Promotion of individualism. The idea that everyone must generate the money to pay whatever they want is an attractive idea when at the top, but terrifying for those at the bottom of society. The culture of individualism does not usually concern itself with the collective welfare, and that often conflicts with dynamics of social control that need the collaboration and solidarity of citizens.
  • Economic inequality. Although capitalism allows the mobility of social classes, that is, classes are not fixed in an immovable way as in feudal times, people born poor have much fewer opportunities than those born in the middle or upper class, and this leads to social classes stagnate. People with more purchasing power have access to more and better goods and services, receive better opportunities and can therefore aspire to better jobs and pay, creating a gap between rich and poor that can often be impossible to bridge.
  • Consumerism. The consumer society built by industrial capitalism requires a mass consumer that is constantly buying new services and products, to keep the productive wheel rolling. This created a culture of consumerism or irresponsible consumption, in which much more is consumed than is needed, especially low-quality, short-lived goods, which not only impoverishes the population and distracts it from more satisfactory long-term goals Instead, it produces tons of waste each month.