Models of Capitalism

Capitalism, Evolution, Characteristics and Criticism

We will address the various existing models of capitalism and their historical evolution. The main criticisms of the capitalist system, the contradictions it highlights, the injustices and challenges it faces. Finally, what are the solutions proposed by critics of capitalism, with a view to building a more just, supportive and sustainable society?

Reading Time: 13 minutes

Beginning of Capitalism

“Capitalism” is the term that was used by Karl Marx in one of his most famous works, the “Communist Manifesto” of 1848.

It is an economic system based on private ownership of the means of production and their exploitation to obtain profit.

Capitalism emerged in Europe between the 15th and 18th centuries, with the crisis of feudalism from the 11th century and the development of mercantilism, which required the expansion of world trade and increased profits, as well as the displacement of people from rural areas. for cities.

O period of Discoveries It began in the Portuguese strategy to conquer the spice trade, controlled by the Arab people who had a monopoly on the Mediterranean route and with the center of European trade in Venice.

It was during this period that international trade developed, mainly using the maritime way to transact goods between different continents.

Capitalism came to be consolidated with the industrial revolution in the 18th century.

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Since then, capitalism has undergone several transformations and crises, giving rise to different models, with their own characteristics and challenges.

History of the evolution of Capitalism

The capitalist system had a long historical process that involved technological, social, cultural and political transformations.

We can divide the history of the evolution of capitalism into three main phases:

– Commercial or mercantile capitalism, which was the initial phase and extended from the 15th to the 18th century. At this stage, international trade was the main driver of the economy, driven by great navigation and Portuguese and European colonial expansion. The accumulation of wealth began with the trade in spices from India and became based on the exploitation of precious metals from the colonies and the establishment of commercial monopolies. The absolutist and monarchical State supported the interests of the mercantile bourgeoisie and practiced mercantilism, an economic policy that aimed to increase the power and wealth of the nation (or the nobility and clergy).

– Industrial capitalism or industrialism, was the consolidation stage of capitalism that developed in the 18th and 19th centuries. At this stage, industry replaced commerce as the dominant economic activity, thanks to the Industrial Revolution that introduced new machines, energy sources and means of transport. Large-scale production and the division of labor increased productivity and, consequently, the businessman's profit. Economic liberalism defended free enterprise and free competition as ways to guarantee progress and prosperity. The proletariat emerged as a new social class, made up of salaried factory workers.

– Financial or monopoly capitalism, which is the current phase of capitalism, beginning in the 20th century and up to the present day. At this stage, financial capital represented by banks, stock exchanges and financial funds began to dominate the economy, determining the pace and direction of productive investments. Capitalism became globalized with the integration of markets and the formation of economic blocs. Large multinational companies have acquired greater economic and political power than national states. Neoliberalism thus emerged as a doctrine that defended the reduction of the role of the State in the economy and the privatization of state-owned companies.

In this evolution there are two aspects that have had greater or lesser relevance, depending on the relative power of the “Shareholders” and the “Stakeholders”.

In the business environment, shareholders, the holders of capital or shares in companies, are called “shareholders”.

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The remaining actors, the “stakeholders”, include customers, suppliers, workers and authorities, whether governmental, local, supervisory or regulatory.

These are the “Shareholder Capitalism” and “Stakeholder Capitalism” models.

The model defended by Milton Friedman, a neoliberal model, is “Shareholder Capitalism” which thus gives primacy to the shareholder, that is, to capital, traditionally followed by the United Kingdom and the United States of America.

After the economic and financial crisis of 2007-2008, this model of capitalism came into question and people began to think more about the logic of cooperative capitalism, in which stakeholders have a say and are an integral part of the system. Cooperative Capitalism is typical of large European economies such as Germany and France and the social democratic heritage of the Nordic countries, which benefited from the contribution of Olof palme.

O Davos Manifesto, launched by the World Economic Forum in 2020 and whose guidelines are followed by many business leaders, argues that companies should be managed taking into account not only the interests of the community, but also of stakeholders.

In Shareholder Capitalism (the owners of capital) companies exist to generate profit and thereby maximize value for shareholders.

Characteristics of Capitalism

Capitalism is a complex and dynamic system, which has presented different characteristics throughout its history. However, there are some characteristics common to all phases and models of capitalism.

– Private property is the right that individuals or companies have to own the means of production, such as land, machines, factories, etc. Private property is considered an incentive for investment, innovation and the entrepreneurship.

– Profit is the main objective of capitalism, which consists of the difference between the value of production and the cost of production. Profit is the source of income for capitalists, who seek to maximize it through the exploitation of the workforce, the reduction of costs and the expansion of markets.

– Market is the space where the exchange of goods and services takes place between economic agents. The market is regulated by the law of supply and demand, which determines the prices of products, in which consumers express their preferences and producers offer their goods.

– Competition is the dispute between producers for the consumer market. Competition stimulates the search for quality, efficiency and innovation. However, competition can also lead to the formation of monopolies or oligopolies, which are situations in which few companies control a certain sector of the economy.

– Wage labor is the form of relationship between capitalists and workers. Workers sell their labor power in exchange for a salary, which is determined by the labor market. Workers have no control over the means of production, nor over the product of their work.

Models of Capitalism

There are several models of capitalism in the world, which vary according to the degree of State intervention in the economy, the level of development of the countries, the distribution of wealth produced and social relations. Some of the main models of capitalism are:

– Liberal Capitalism, typified by the expression “laissez-faire, laissez passer” by the Marquis of Argenson, dated 1751 and characterized by minimal State intervention in the economy and the predominance of the market, as a regulator of economic relations. It was the dominant model in the 1929th and early XNUMXth centuries, but went into crisis with the Great Depression of XNUMX.

– Interventionist Capitalism, social welfare or Social Capitalism, characterized by greater participation of the State in the economy, to reconcile economic growth with social justice, through taxation and public policies to regulate markets, offering public services, promoting health policies social well-being and infrastructure. In this model, the State has a more active role in the economy. It was the model adopted by many Western countries after the Second World War, inspired by the ideas of John Maynard Keynes. Nordic countries such as Sweden, Denmark and Norway have adopted this model

– Neoliberal Capitalism, characterized by the resumption of the principles of economic liberalism, with the reduction of the role of the State in the economy and the defense of privatization, deregulation, commercial openness and globalization. It was the hegemonic model from the 1980s onwards, influenced by Washington Consensus and by the policies of Margaret Thatcher and Ronald Reagan. It is the model closest to the classic capitalist ideal, which defends minimal State interference in the economy and free competition between companies. In this model, the market is regulated by the law of supply and demand and the State is limited to guaranteeing security, justice and individual rights. Examples of countries that have adopted this model are the United States, United Kingdom and Australia. The “Wealth of Nations” is the most important work of Adam Smith, considered the father of economic liberalism. The model had, however, negative consequences such as increased unemployment, inflation, rising interest rates and social inequalities.

– Financial Capitalism, characterized by the growing importance of the financial sector in the economy, with the expansion of capital markets, banking institutions, speculative operations and financial crises. It was the model that developed from the 1970s onwards, with the delinking of the dollar from the gold standard and the liberalization of international financial flows.

-State Capitalism, one of the models of capitalism that arises from the dismemberment of the Soviet Union is the so-called State or authoritarian capitalism, which is characterized by the strong presence of the State in the economy, both as owner and as regulator of the main productive sectors. The State controls strategic sectors of the economy, such as energy, telecommunications and transport, and acts as a large businessman. In this model, the State intends to guarantee the country's development and sovereignty, but it also faces problems of corruption, bureaucracy and inefficiency. China and Russia adopted this model of capitalism.

– Cognitive Capitalism, characterized by the emergence of the knowledge economy, based on the production and circulation of information, data, knowledge and technological innovations. It was the model that intensified in the 21st century, with the advancement of digital technologies, the internet, biotechnology and artificial intelligence.

Criticism of Capitalism

Capitalism has been the target of various criticisms throughout history, coming from different theoretical, political and ethical perspectives. Some of the main criticisms are:

– Marxist Criticism, the oldest and most influential criticism of capitalism, formulated by Karl Marx (“Capital” is his greatest work) and his followers. This criticism is based on historical materialism and the theory of surplus value, which denounce the exploitation of labor by capital and the internal contradictions of the capitalist system, which generate periodic crises and social alienation. Marxist criticism proposes the end of capitalism, through a proletarian revolution that establishes a classless society without private property.

– Environmental Criticism, a more recent criticism of capitalism, which emerged in the context of environmental and ecological awareness. This criticism points out the damage caused by capitalism to the environment, such as pollution: global warming and climate crisis, deforestation and loss of biodiversity. Environmental criticism defends the need for a change in the economic development model, which is sustainable and respects the limits of natural resources. Industrial companies, which after making a profit for years when they end their operations, leave their facilities in a degraded and polluted state, with the State having to bear the responsibility and costs of eventual recovery.

– Social Criticism, a critique that addresses the social aspects of capitalism, such as inequality, poverty, exclusion and violence. This criticism questions the unfair distribution of wealth produced by the capitalist system, which benefits a privileged minority to the detriment of the impoverished majority. Social criticism also criticizes the individualist and consumerist values ​​promoted by capitalism, which generate not only material and economic waste, but also selfishness, excessive competition and dissatisfaction.

– Feminist Criticism, a critique that analyzes the role of women in the capitalist system, which oppresses and exploits them in different ways. Nancy Fraser, an American philosopher, denounces the sexual division of labor, which relegates women to domestic and reproductive tasks, without recognition or remuneration. She also criticizes the trend in current feminism that favors individualistic behavior, encouraging women to develop their careers and entrepreneurship, instead of seeking social solidarity. Feminist criticism denounces gender violence, the result of patriarchal domination sustained by capitalism and going back to medieval times.

– Cultural Criticism, a critique that examines the effects of capitalism on the culture and identity of people. This criticism reveals how capitalism imposes a homogeneous and alienating culture, based on consumption and the commodification of everything. Cultural criticism also reveals how capitalism destroys local and traditional cultures, which represent forms of resistance, diversity and national identification.

Evolution Capitalism Infographic
Evolution Capitalism Infographic

Alternatives to Capitalism

In the face of various criticisms of capitalism, several proposals for change emerged.

– Communism, the best-known and most widespread proposal for an alternative to capitalism, which consists of an economic system based on collective ownership of the means of production, central planning of the economy and the equitable distribution of wealth. It is the proposal that comes from Karl Marx and was implemented in the Soviet Union, following the proletarian revolution of 1917, in which the defense of workers imposed an autocracy. This is how the Soviet autocratic regime was born.

– Anarchism, another proposed alternative to capitalism, which consists of a political philosophy based on the rejection of all forms of authority, hierarchy and the State. Anarchism defends workers' self-management, voluntary cooperation and the federative organization of society. Anarchism also has different aspects and historical experiences, ranging from anarcho-syndicalism to anarco-feminism.

– Solidarity Economy (or socialist and democratic) a more recent and emerging proposal for an alternative to capitalism, which consists of a set of economic practices based on solidarity, participation and democracy. The solidarity economy encompasses various forms of production, consumption and popular finance, which aim to meet human needs and not just profit. The solidarity economy also promotes education, health, active citizenship and environmental sustainability.

What is the relationship between Capitalism and Democracy?

The relationship between capitalism and democracy is complex and controversial.

On the one hand, capitalism is an economic system based on private ownership of the means of production, free enterprise, free competition and the search for profit. On the other hand, democracy is a political system based on popular sovereignty, citizen participation, equal rights and the guarantee of individual freedoms.

In principle, capitalism and democracy could be compatible, as they both value individual autonomy, freedom of choice and diversity of opinions.

However, in practice, capitalism and democracy come into conflict, as the first generates social, economic and political inequalities that compromise the second.

The capitalist system tends to concentrate wealth and power in the hands of a minority that dominates the market and influences the State, while democracy presupposes the distribution of wealth and power among the majority that forms the people.

Thus, capitalism and democracy face a struggle between the richest and the working population.

The rich bourgeoisie tends to defend its privileges and limit democracy to its formal aspects, such as periodic elections and civil rights.

The popular classes want to expand democracy to substantive aspects, such as social, economic and cultural rights.

It is a conflict similar to the one that gave rise to the Marxist-Leninist revolution.

Throughout history, capitalism and democracy have gone through different phases and models that reflected this tension.

The liberal capitalism of the 19th century coexisted with a democracy restricted to property owners. The interventionist capitalism of the 20th century coexisted with a democracy extended to everyone.

Neoliberal capitalism at the end of the 20th and beginning of the 21st centuries coexisted with a democracy weakened by globalization, by financialization and corruption.

Today capitalism and democracy face new challenges and crises that call their sustainability and legitimacy into question.

Some advocate reforming capitalism and democracy to be more fair, inclusive and participatory.

Others argue that new forms of economic and political organization must be built that are more supportive, cooperative and emancipatory.

What evolution can we expect from Capitalism?

The path forward will depend on all of us. On the one hand, there is an increase in State intervention in regulating the process and economic stability, but on the other there is a growing interdependence of technological research that determines that science can become the main productive force.

The automation of industry, agriculture and transport, as well as artificial intelligence could lead to a greater concentration of wealth in the world.

In recent years, discontent has worsened. A 2020 survey showed that 57% of people interviewed around the world indicated that “capitalism as it exists today does more harm than good to the planet”.

The exact path capitalism takes will depend on several factors, including political decisions, technological developments and social changes.

It's important to note that these are just predictions and the actual future could be very different.

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