Capitalism: Meaning

Capitalism is the social system which now exists in all countries of the world. Under this system, the means for production and distribution (the land, factories, technology, transport system etc) are owned and controlled by small minority of people. They are referred as the capitalist class. The majority of people sell their ability to work in return for a wage or salary (who are referred as the working class.)

Capitalism is an economic system based on private ownership of the means of production, in which personal profit can be acquired through investment of capital and employment of labor. Capitalism means free enterprise system, where government intervention in the economy should be restricted and it believes that free market, based on supply and demand, will ultimately maximize consumer welfare. An economic system that features private ownership of the means of production (such as factories, offices, and shipping enterprises) and in which market forces determine the way in which goods are produced and the means by which income and profit are distributed is called capitalism. Other names for this system are free market economy and free enterprise

Capitalism has existed in a limited form in the economies of all civilizations, but its modern importance dates at least from the Industrial Revolution that began in the 18th century, when bankers, merchants, and industrialiststhe bourgeoisiebegan to displace landowners in political, economic, and social importance, particularly in Great Britain. Capitalism favours freedom of individual economic enterprise; however, government action has been and is required to curb its abuses, which have ranged from slavery (particularly in Britain and the United States) and apartheid (in South Africa) to monopoly cartels and financial fraud.

Co-existence of Capitalism: state-sponsored rapid industrial growth of South Korea while under military dictatorship coexist with capitalism. China's economy, in which small-scale capitalism is increasingly allowed within a strictly Communist political framework. On the other hand, though the private production plays a major role in the economies of Germany and Japan, both nations have centrally planned industrial policies in which bankers, industrialists, and labor unions meet and seek to agree to wage policies and interest rates; these countries reject the idea of letting the market wholly determine the economy.

Crony Capitalism:
A description of capitalist society as being based on the close relationships between businessmen and the state. Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.

Freedom of Private property rights

Capitalism provides freedom of property rights to the property owners and liberty to sell their property in accordance to their own valuation of that property; if there are no willing buyers at their offered price they have the freedom to retain it.

Free market : Under capitalism price of goods and services is influenced by the forces of their demand and supply. Freedom of Competition: Capitalist economies typically contain numerous companies, and people are free to enter into many different types of arrangement with each other. There are technological changes, new discoveries and other developments undertaken by companies and individuals. In this way the economy's control mechanisms is characterised by a kind of "survival of the fittest.

Freedom of Profit: Entrepreneurs are given freedom of profit. Economic Freedom: Freedom of production, consumption, distribution and exchange. Distribution of income and wealth: Always concentrated in the hands of few. Economic growth: Under capitalism economic growth is faster.

Capitalism in India: Today, India is showing sign of a full-fledged capitalist economy. Planned Capitalist development in India is responsible for its technological and economic progress. The Indian capitalist class supported planning and the leadership of public sector in basic industries and infrastructure to advance their class interests. This is because of the fact that when India became an independent country capitalist class had no economic resources and the requisite technological base to develop basic industries and infrastructure.

According to G.D. Birla, when new public sector undertakings are set up there is tremendous push to the private sector. He was very true as Per the report of Centra Statistical Organization, 1994.

Source: Central Statistical Organisation

Sector
Mining and quarrying Manufacturing

Total
3,419 37,690

Public sector(%)
97.6 14

Private (%)
2.4 86

Electricity, Gas etc.

Construction Trade and hotels

2,305
9,104 25,887

97.7
21 3

2.3
79 97

Transport, communication
Finance, insurance etc.

7,906
21,515

37.4
49.4

62.6
50.6

Concentration of Private Wealth

Value of Assets in crores S.N. Name of the House 1963-64 1983-84 1994-95

1 2 3 4 5 6 7

Tatas Birlas Reliance Essar R.P.Goenka J.K.Singhania Thapar

375 283 ---------55 ----

2,449 2,252 360 -----692 ----

26,712 20,391 11,529 10,544 6,556 4,906 6,556

8
9 10

Larsen & Tobro

ITC Mafatlal

21
---40

300
--712

4,117
3,250 1,613

The dashes indicates that these industrial houses were no there among the top 10

The new economic policy of 1991 based on liberalization, privatization and globalization of Indian economy has widened the scope of private sector operation as industries reserved for public sector were reduced from 17 to 6. However, expansion of capitalism has following limitations in the developing countries: Investment in Non-priority sector: Throughout the planning era private sector mostly confined itself to producing all kinds of consumer goods from perfumes and cosmetics to refrigerators and T.V. sets. These are quick profit yielding projects with small investments. But these goods are meant for elitist consumption . A large number of Indian poor have no access to this market.

 Growth of Monopolies: The growth of private sector inevitably leads to the formation of monopolies and restrictive trade practices, which harms the spread of capitalism to unexplored areas of trade and industry. Inability to Compete: The monopolies of the developing countries cannot compete with international monopolies specially multinational corporations of the developed capitalist countries. Therefore, native monopolies have to compromise with international monopoly capitalism. Dependent development: Growth of developing countries depends upon the foreign investments and foreign capital . Investment in infrastructure projects, Shopping malls, retail trade, communication, IT etc. by the foreigners in India is the best example of this.

 Poverty: Concentration of wealth and assets in the

hands of few leads to inequality of income distribution making poor worse and rich better off. In India, the beneficiaries of globalization are mainly educated middle class and the rich class. Unemployment: This is a characteristic feature of capitalist mode of production. Contrary to the objectives of Indian planning, unemployment has increased mainly because of public investment in capital intensive heavy industries. Open unemployment has tripled from 1.6% to 4.48%. Thousands of employees between 2000 and 2004 were retrenched through V.R.S. and half a million workers lost their jobs because of the closure of small scale industries due to the abolition of reservations of products to small industry.

 Poverty: Still 60% of the population belongs to agricultural labour. Their employment is seasonal and in the normal monsoon they get employment between 150 to 180 days in a year. Often they are not paid statutory minimum wages. In the wake of the industrialization of the country artisans like weavers, blacksmiths etc. have lost their livelihood due to competition from factory and industry. Marginal and small farmers who are in majority own uneconomic holdings and their cost of production has increased due to reduction or abolition of subsidies on farm inputs. They are forced to accept wage-labour to supplement their income.

Dominance of middle and upper class: In the support of the Indian Government for education the class interest of the government and bureaucracy can be clearly seen. The level of education which is most generously supported is higher education rather than elementary education. But it is generally the children of the well-to-do who attend colleges and universities. Thus the support of higher education is, in effect, a subsidy for the well-to-do families. It is a transfer of income from the poor to the middle and upper classes, the classes which dominate the government and bureaucracy.

 Exploitation: Rich farmers and rich class of the society acquire more property by making profits through the exploitation of the poor who are forced to seek wage-labour. Thus, the institution of private property has led to accumulation of capital and wealth in the hands of few. Inequality in wages and salaries: Income of the
graduates is six times that of the illilterate and three times that of the school educated. Although in India reservations are provided to schedule castes and tribes, it is mostly the children of the urban based S.C. and S.T. professionals who get admissions in the professional colleges. The majority of the children of rural based schedule castes and do not complete even primary education. Thus, development and underdevelopment are caused by capitalism. Due to profit motive investment are diverted to profit oriented areas. As a result, some regions and sections of population remain backward and are exploited.

Unequal distribution of benefits: The extremes of global capitalism are shocking. While the economies of East Asia have achieved rapid growth, there has been little overall progress in much of the rest of the developing world. Income in Latin America expanded by 75% during the 1960s and 1970s while, average incomes in sub-Saharan Africa and the old Eastern bloc have actually contracted. The World Bank figures the number of people living on $1 a day increased, to 1.3 billion, over the past decade. In combination with the industrial-licensing regime [the small company policyhas given India the worst of both worlds: too many small and inefficient companies at the bottom, too many large and monopolistic ones at the top.