PROS AND CONS OF CAPITALISM

We have defined capitalism as the economic system which is mainly controlled by private ownership, moved in the search of profit and that distribute goods and services according to supply and demand law. 

That sounds very abstract, but now we are going to discuss some direct consequences of all these characteristics:

PROS

• It searches efficiency. Firms in a capitalist based economy face incentives to be efficient producing goods by cutting costs or avoiding wastes. 

• It tries to meet consumers needs. If there is a demand for something, then it will appear a market. 

• It boosts innovation. Connected with efficiency, competition and consumers preferences, if companies stop innovating they can be surpassed by its competitors. In other hand, entrepreneurs are those who create or develop new profitable goods and services.   

• It depends on the merits. In theory, everybody is entitled to create a new business and, eventually get rich. Wealth is a good incentive for imagination and work.

• Competition, innovation and the pressure of hard work can help economic growth. In general terms, the expansion of capital has ended benefiting rich and poor (benefits, job opportunities, more affordable goods...)

CONS

• It can generate monopoly power. Competition between companies tend to strength the concentration of capital, that could end in monopolistic practices. Also, companies retain more political influence and are stronger than citizens or workers individually.

• It ignores social benefit/common interests. A profit maximising capitalist company is likely to ignore negative consequences from its production, such as pollution or labour exploitation. Similarly, a totally free-market economy will no pay attention to non profitable needs, such as health, public transport and education. Even supporters of capitalism will admit that government provision of certain public goods and public services are essential.

• It creates inherited wealth and wealth inequality. Capitalists argue that a capitalist society is fair because you gain the rewards of your hard work, but very often people are rich, simply because they inherit wealth or are born into a privileged class. Therefore, capitalist society not only fails to create equality of outcome but also fails to provide equality of opportunity.

• Diminishing "marginal utility of wealth". Capitalism supporters argue that it is good if people can earn more leading to income and wealth inequality. However, this ignores the diminishing marginal utility of wealth: a millionaire who gets an extra million sees little increase in economic welfare, but that €1 million spent on health care would provide a much bigger increase in social welfare.

• Boom and bust cycles. Capitalist economies have a tendency to booms and busts with painful recessions and mass unemployment.

https://dilbert.com/strip/1990-04-09

Activity: Put a real example of each pros and cons of capitalism. 

Examples: 

PROS:

Efficiency - If a machine that makes cars wastes too much energy, the company will invest money in an energy saving machine.  

Consumer needs - If it turns out that people wants... peanuts with their faces (?), then it will be peanuts with their faces... 

See the Dilbert comic strip below. Is it pro or against capitalistic economic rules? What is him criticizing?