Question
Describe some of the basic components of the evolution of capitalism (pages 73 - 82) According to Investopedia (2017), capitalism grew from European feudalism in
Describe some of the basic components of the evolution of capitalism (pages 73 - 82)
According to Investopedia (2017), capitalism grew from
European feudalism in which workers were controlled by feudal
lords. The system was mainly agricultural in nature, and as
economies became more urbanized, child labor and long working
hours were common. Mercantilism and colonialism expanded
trade among countries, with periods characterized by wars,
nationalism, exploration, and exploitation.
Henri See (1928) also believed that capitalism was part of an
economic revolution in Europe, which first appeared in the form
of commercial and financial capitalism. The capitalistic businesses,
which manifested themselves in the nineteenth century, went
through some transformation with labor businesses and relations
between employer and employee.
Historically, capitalism was seen as an exploitation of labor
in the wealth-creation process and in the reproduction of social
relations. According to Shaikh (1990), the manner in which
society was structured enabled some people to live off the labor of
others. The subordinate classes supported the ruling class, and the
existence of a ruling class was the result of the exploitation of labor,
as well as the perpetual reproduction of the social and material
conditions of that exploitation. Such conditions gave rise to social
and political unrest. Shaikh further explained that capitalism is
a class society in which the upper class's existence is the result of
the ownership and control of a large portion of society's means
of production. In commenting on Marx's ideas, Shaikh (1990)
demonstrated that it is the surplus of the working class's labor that
provided the capitalist profit.
Today, one thing is certainover many decades, capitalism has
gone through a dynamic evolution. The capitalism of today is vastly
different from the one that existed centuries ago. Therefore, some
of the justifiable rationale used to condemn this economic system
many years ago is not applicable today. Capitalism has evolved into
an engine of economic prosperity and poverty reduction.
In describing the evolution of capitalism, it is clear that wealth
creation was accomplished mainly from the acquisition of land
with added labor. Agricultural and forced labor were common. As
capitalism progressed with manufacturing and industrial activities,
capitalists were seen as extractors rather than contributors. Wars,
revolution, and slavery were all associated with capitalism. It was
about being selfish, not about self-interest. The world economy
was seen as a fixed pie; someone's gain was at the expense of others'
loss. Today, the wealthy are more of contributors and should not
be seen as extractors. Their wealth is not created by exploiting
others. Due to the advancement in technologies associated with
transportation and communication and the interconnectedness and
interdependence of economies, capitalism should not be equated
with the European economic systems of centuries ago.
Computers and the Internet have significantly transformed
the manner of wealth creation. It demonstrates the importance
of human capital in economic prosperity, and easy access to the
Internet for business transactions is conducive to economic growth.
According to Li (2011), there is a 2.5% increase to GDP growth
for every 10% increase in broadband implementation.
Modern capitalism is propelled by the acquisition and
enhancement of human capital. Human capital plays a significant
role in wealth creation. Competition leads to innovation because
people are in constant pursuit of trying to produce better, cheaper,
and newer products, as well as more improved distribution methods.
Therefore, those innovators and creators in technology can become
billionaires. Those with the relevant and needed knowledge and
information to sell have the opportunity to become wealthy. This
is certainly not the accumulation of wealth by exploitation of
others. These people have a service to sella service that can
transform society for the betterand as a result, they are highly
rewarded for their service. As a result of this, the education system
is propelling the income inequality. According to Dadush et al.
(2012), advancement in technology results in replicating the task
performed by low-skilled labor but not the tasks performed by
high-skilled labor. The interdependency of the different forms
of technological research and advancement cause an increase in
productivity. This, in turn, creates a tremendous demand for
educated workers who are associated with the development and
operations of such technologies. As a result, the wages of these
workers, such as computer programmers, application developers,
software developers, and computer engineers, experience a
tremendous increase compared to low-skilled workers.
For example, the Bloomberg company receives large sums
of money for providing data, news, and other information to
companies. As a result, the Bloomberg company is very profitable,
and its founder, Michael Bloomberg, is one of the richest individuals
in America. According to Edmund Lee (2017), Forbes's estimate
of Bloomberg's wealth makes him the eleventh-richest person in
the world and the sixth-richest technology executive behind Bill
Gates, Jeff Bezos, Larry Ellison, Mark Zuckerberg, and Larry
Page
According to Caroline Freund (2016), the advancement in
communication technology has caused people to communicate
more easily, enhancing returns to scale, while globalization
provides a nearly unlimited audience. Benefits of communication
technology lead to wider customer bases and allow for more
efficient production techniques. This new method of wealth
creation has resulted in many self-made billionaires around the
world. These include company founders and executives who are
not inheritors of family wealth. Freund (2016) stated that
many billionaires become extraordinarily rich
because of innovation, especially in the fast growing
markets. Jan Koum and Brian Action (combined
net worth of US $10 billion) of WhatsApp, a phone
base instant messaging service, first appeared on
the list after Facebook bought their app. (23)
In some cases, the fortunes of many other self-made individuals'
wealth come from their executive positions in particular companies.
Facebook's chief operating officer, Sheryl Sandberg, is one such
example. Freund (2016), posited,
Extreme wealth today is largely self-made, and the
self-made share is growing, driven by emerging
markets. Among self-made billionaires, in
emerging markets, the share of company founders
and executives is growing exceptionally quickly, as
the share of inherited money declines. (p. 29)
Another area in which wealth creation is made possible, which
is quite different to the capitalism of long ago, is reflected in the
manner of capital acquisition and the role played by investment
banks and other financial institutions. Miller (2013) made the
point that in many advanced countries, such as the United States,
institutions, such as Wall Street investment banks, stock market
environments, and the related complex financing system, which
facilitate availability of large pools of capital for investment purposes,
have made significant contributions to inequality. Pension funds
now invested and managed in a manner to generate additional
retirement income for employees. The complexity of this financial
system and their importance in stimulating economic growth
require people of high intelligence, insatiable drive, and diligence.
As a result, these individuals possessing such skills are highly paid,
thus making a significant contribution to the inequality in income.
The transformation of investment banks into publicly-traded
corporationsin which a highly competitive financial system
is created and with a complex-incentive structure to reward
profit, large amounts of money flow into the financial system
that is createdstimulates economic prosperity and inequality.
According to Bryan Kantor (1995),
Financial markets link borrowers to lenders and so
determine the rewards for saving and the minimum
returns required for investments. Financial markets
not only help raise capital for investment, but also
keep the score on the performance of investments
made in the past. They inform savers about the
value of their accumulated savings. In order words,
they help measure wealth and by so doing, influence
future consumption, as well as investment decisions.
(106)
Galbraith (2016), in explaining how the financial sector can
influence inequality, demonstrated that facilitating investment
growth and increased income to be concentrated in a relatively
small environment of economic activity at any one time leads to
a herd mentality by financial entities. They all rush in to take
advantage of the available opportunity. Many certainly have
financially lost, but a few have made lots of money.
Another significant component in the evolution of capitalism
is the tremendous involvement of the government in establishing
and enforcing the rules of the game. These laws help to promote
competition, regulate monopolies, and protect workers and
consumers.
Capitalism cannot function without property rights laws.
Miller and Kim (2017) linked economic freedom to economic
prosperity and made the point that there is a direct relationship
between the Index of Economic Freedom and economic prosperity.
The Index of Economic Freedom is a composite measure of how
free a country's economy takes into account the different aspects
such as property rights laws and market openness. As countries
advance their economic freedom, entrepreneurship is encouraged,
resulting in economic prosperity. Miller and Kim explained that
for the past two decades, the global economy has achieved greater
economic freedom, resulting in almost an 80% growth in real
GDP. The reasoning is clear. Economic freedom encourages
open competition, which in turn causes greater productivitya
necessary component for increasing real GDP per capita. That
prosperity has caused a significant reduction in the world's poverty,
and it has created a greater economic well-being for millions of
people.
As Webley (1967) mentioned, in countries in the world where
freedom of the use of capital is allowed, the standard of living
is far greater than those governed by a command economic
system. Webley (1967) stated that "a property-owning society
is fundamental to successful capitalism. To deny the rights of
individuals and corporations to own and derive wealth from
property is to betray the root principle on which western civilization
has been built" (p. 36). According to Powell (2008), since 1980, as
a result of economic reforms, China's economic freedom index has
made a 66% improvement. That created profit opportunities for
business entities, which led to the tremendous economic growth
achieved by China.
According to Beaulier (2008), in 1965, Botswana was
considered the third-poorest nation in the world, but since its
independence in 1966, it has experienced economic growth. In fact,
between 1966 and 1996, it was the fastest-growing economy in the
world, and its growth was the result of significant improvement in
property rights and limiting the government's role in the economy.
The private sector flourished, and profit was the key to its growth.
The survival of a market economy depends on the establishment
and enforcement of relevant rules and regulations that provide an
incentive for citizens to engage in economic enterprise (Cudd
2014). Property rights laws do not only cover tangible assets but
intellectual property as well. There are laws involving copyrights,
patent rights, and trademarks, and many individuals become
billionaires due to their intellectual property.
Owners of patents associated with profitable companies,
such as Google, Facebook, and Apple, have realized tremendous
revenue for these companies. Due to competition, investors are
constantly promoting new inventions as a means of increasing
productivity. Computer engineers and programmers are constantly
developing new software, which promote the enhancement in the
way goods and services are produced and distributed. Computer
programmers, through patents, are given ownership of their
inventions. Duhigg and Lohroct (2012) made the point that large
corporations, such as Google and Microsoft, have ownership of tens
of thousands of patentspatent applications that are computerrelated
and otherwise have been increasing exponentially every
year. In fact, in 2011, the United States Patent Office received
about 540,000 patent applications. In this lucrative sector, many
companies and individuals are profiting from their inventions and
ideas by collecting much revenue from licensing. An example of
how the patent and licensing market generates billions of dollars
in revenue is through contracts involving Microsoft, Apple, and
AOL. In 2012, according to Fuchs (2012), Microsoft sold 650
to Facebook, which were worth US $550 million, and
more astonishing is Microsoft's purchase of AOL's patents for
US $1.5 billion. Vaughan-Nicholas (2014) mentioned that in
2013, Microsoft's android patent licensing contract with Samsung
yielded US $1 billion for Microsoft. For that year, Microsoft made
about US $3.4 billion from its android patent licensing.
The patent market is, indeed, a lucrative way of generating
income. To protect ownership of patent licenses, expensive lawsuits
are filed, resulting in hefty judgments. Duhigg and Lohroct
(2012) reminded that in 2012, Apple won a US $1 billion patent
infringement judgment against Samsung.
According to Louis M. Hacker (2012), property rights laws
are a necessary pillar of capitalism, and for capitalism to function,
it is necessary to have private property and the resulting unequal
wealth and income should be protected by law. Accumulation
of wealth must be linked with both profits from enterprises and
savings as a surplus over personal expenditures. The market
system is dynamic and involves a process in which goods and
services are voluntarily exchanged, and the value of the goods and
services exchanged is mainly determined by how highly they are
demanded. Given that human capital, services, and the goods we
sell are different, we are rewarded differently, and thus, all have
different incomes.
There are numerous federal and state agencies enforcing
hundreds of federal laws and regulations that aim at protecting
workers and consumers. There are laws dealing with workplace
security, minimum wage, health care and other employments
benefits, and job-related harassment and discrimination. In
addition, there are federal laws that protect the formation of labor
unions. This association of workers represents union members in
negotiating labor contracts; dealing with wages, complaints, hiring,
and firing; and handling promotions and demotions. Unions work
for their members' protection against unfair treatment because of
their race, color, religion, ethnicity, and sex.
Consumer protection laws make provisions for people to
challenge businesses if they think they were unfairly treated in the
marketplace. Such laws and regulations help to prevent deceptive
and fraudulent business activities. As Muller (2013) stated, "Prior
to capitalism, life was governed by traditional institutions that
subordinated the choices and destinies of individuals to various
communal, political, and religious structures. These institutions
kept change to a minimum, blocking people from making much
progress" (p. 2).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started