Relationship between Capitalism and Economic Inequality Paper

Relationship between Capitalism and Economic Inequality Paper

 Relationship between Capitalism and Economic Inequality Paper

Capitalism is a financial system in which private individuals or firms possess capital commodities. The creation of goods and services is based on the demand and supply in the market economy. Capitalism is a significant driver of innovation, wealth creation, and prosperity (Ranaldi, 2021). Competition and capital accumulation incentivize businesses to maximize efficiency hence capitalizing on profit growth by allowing consumers to enjoy lower prices on varieties of goods. On the other hand, economic inequality refers to how economic variables are distributed among individuals in a population or among countries. While Capitalism is an economic system that thrives on capital competition, it relentlessly worsens wealth and income inequalities. The purpose of this paper is to explore the relationship between Capitalism and economic inequality.

The Importance of the Topic

The relationship between Capitalism and economic inequality is a significant component for understanding the social-economic paradigms of the society in terms of holistic societal and human development. As such, understanding the pertinent issues and correlation between the two aspects of human life and activities is core to harnessing critical knowledge critical for mitigating the impediments brought about by either Capitalism or posed by economic inequality to spur the sociological development of the society. The sources of ideas and information to be explored in the quest to unpack the relationship between Capitalism and economic inequality will be provided under two sub outlines.

The Outline- Capitalism

In the research, we shall underscore (1) The theoretical definitions and concepts of Capitalism as understood in the field of sociology (2) Classical and modern capitalism concepts (3) Understanding the nature and causes of the wealth of nations in the light of Capitalism (4) The advantages and disadvantages of Capitalism and (5) The Impact of the West capitalistic dominance on the South and the mitigation measures advanced against Capitalism by the South.

The Outline- Economic Inequality

The research will tentatively explore economic inequality’s theoretical definitions and concepts and shed light on economic inequality’s traditional and modern understanding. Similarly, it will seek to comprehend the nature and causes of economic inequality among nations, focusing on the West and the South Economic blocs inequalities as engineered by capitalism (Giordano et al., 2019). In addition, it will seek to give a concise summary of the correlation between Capitalism and economic imparities and the impact of economic inequality on social-economic development.

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Theoretical Definition of Capitalism

According to Carl Marx, capitalism is a system of production founded on the private acquisition of the means of creating goods and services. Capitalists make commodities for the exchange market, and, to stay competitive, they must acquire as much labor from the workers as needed at the lowest possible cost. Capitalism is a financial system in which private individuals or firms possess capital commodities (Ranaldi, 2021). The creation of goods and services is based on the demand and supply in the market economy. Capitalism is a significant driver of innovation, wealth creation, and prosperity (Ranaldi, 2021). Competition and capital accumulation incentivize businesses to maximize efficiency hence capitalizing on profit growth by allowing consumers to enjoy lower prices on varieties of goods.

The Concepts of Capitalism

Capitalism is often perceived as an economic model in which private actors own and manage the property according to their interests. Demand and supply are left to set prices in markets freely. The essential feature of capitalism is the motive to make a profit. Thus, capitalism is built on the concepts of private property, profit motive, and market competition (Liang et al., 2022)

Classical and Modern Capitalism Concepts

The free-market school of thought dominated the classical or competitive concept and the notion that competition between firms and nations was best for all and was the right way for the economy to operate. On the other hand, modern capitalism refers to a type of capitalist society in which a capitalist class of new individual elites and old elites is concerned with maximizing their wealth, securing a political power that serves and protects their interests, thus leading to the creation of a wage-earning class (Tsoulfidis & Tsaliki, 2019). Therefore, modern capitalist systems include a market-oriented economy. The production and pricing of goods and the income of individuals are dictated to a greater extent by market forces resulting from interactions between private businesses and individuals than by central planning undertaken by nation-states.

The Characteristics and Causes of the Wealth of Nations

Adams Smith’s assumption on capitalism was based on the idea that humans were self-serving by nature. However, as long as every individual was to seek the fulfillment of their self-interest, the material needs of the whole society would be met (Luisetti, 2019). This led to the idea that a nation’s wealth come from its farm produce, which circulated throughout the land, nourishing everyone. He proposed leaving economic decisions to the free outcome of self-regulating market forces. The school of thought brings in the idea that economic progress depends upon three basic individual prerogatives: th epursuit of self-interest, division of labor, and freedom of trade. Therefore, the causes of the wealth of nations are founded on the physical supply, human supply, and capital supply that are present to make goods and services. So capital resources refer to goods created and utilized to produce other goods and services (Luisetti, 2019).

The Advantages and Disadvantages of Capitalism

The positives of capitalism include propulsion for innovation, freedom of choice and competition, and maximizing of profit so that when the free economy does not allow for making for profit, you do not invest unless there are profits to be made. Similarly, production is efficient since there is a need to profit. Further, it has led to better living for individuals (Geloso & Glock, 2020). Moreover, the economic freedom of capitalism helps to reinforce political freedom. However, capitalism is most often criticized for its tendency to allow income inequality and stratification of socio-economic classes. In addition, capitalism brings market failure because of the market’s inefficiency in allocating particular commodities of trade and resources. Universally, the freedom of individuals and firms to use any means to pursue their self-interest leads to spurious results for society as a whole (Geloso & Glock, 2020).

It damages the environment. Capitalism leads to the pollution of air and water, soil degradation, deforestation, and the destruction of biodiversity. Similarly, the creation of inequality creates societal poverty and human suffering (Geloso & Glock, 2020). For instance, organizational and class alienation significantly deprive individuals of the pleasure and joy from everyday life, compelling them into a tiresome pursuit to meet their material needs at the expense of more relevant social experiences (Gidaris, 2019). In addition, capitalism creates individualism, materialism, and intense competition, which undermine human relations among humans. The persistency and constant pressure inflicted on individuals and lack of social support promote the development of mental stress. Furthermore, capitalism genders anxiety, fear, loneliness, and despair leading to depression and mental illness (Geloso & Glock, 2020).

The Impact of the West’s capitalistic dominance on the South

As an economic system, one of the Impacts of western Capitalism is that it bred competition between countries and perpetuated poverty among developing nations in the South because of the personal interests of the private institution rather than the needs of their workers. Similarly, western capitalism fostered social conflict in the South. It also generated political conflict over the conditions and relations of production that define the system, like worker strikes and protests, widespread protests and upheavals, and protests against environmental destruction (Yeros & Jha, 2020). Further, it helped develop individual oligarchies that dominated the amassing of wealth at the expense of society, leading to the deepening of poverty in the South. Additionally, the west capitalist’s institutions and individuals took advantage of the South, massing up wealth to encourage poverty and suffering in the south economic block (Geloso & Glock, 2020).

Mitigation Measures advanced against Capitalism by the South

Since the beginning of the globalization of capitalism, more countries have embraced capitalist ways. International and federal aid has increased, helping boost development projects such as investments in schools, health clinics, housing, and infrastructure and improved access to water but the dear cost of extrapolated interest on the debts (Bond, 2019). This has led to and fostered poverty in the South. As such, the global South has come up with measures for mitigation against the west capitalistic domination approach. The South has initiated economic and political blocks to help consolidate economic and political power to counter the western capitalistic dominance (Bond, 2019). For instance, there is the African Union, the economic community of West African States (ECOWAS), In east Africa: East Africa Community – an intergovernmental organization of six states.

The Common Market for Eastern and Southern Africa (COMESA) comprises twenty-one African Member States promoting regional integration and trade (Dick & Schraven,2019). This is similar to the intergovernmental authority for development for the horn of Africa and the great lakes states. In Asia, the economic organization -the Regional Comprehensive Economic Partnership (RCEP), comprises ten Southeast Asian countries. Similarly, the South has tried to mitigate the West’s Capitalism by developing their industries and regional markets and imposing higher taxes on foreign investments to control their market dominance. Furthermore, other countries have adopted socialistic political and economic policies to manage the effect of Capitalism

Economic Inequality’s Theoretical Definitions and Concepts

Inequality is a concept based on the theory of social justice. It is the state of not being equal, especially in status, rights, and opportunities. Economic inequality refers to how economic variables are distributed among individuals in a group, among groups in a population, or among countries (Muntaner & Lynch, 2020). Development theory has primarily been concerned with inequalities in living standards, such as inequalities in income/wealth, education, health, and nutrition.

Economic Inequality’s Traditional and Modern Understanding

Traditionally, inequality was defined or measured by comparing the income relative to income-the top decile or the top twenty percent-the top quintile; to the national median or average. The traditional never capture the individual populace (Alfani, 2021). On the other hand, modern inequality refers to the unequal distribution of income and opportunity between different groups and individuals in society. It comprises income inequality, wealth inequality, and pay inequality. Income inequality is how dissimilar y income is apportioned throughout a population.

The less equal the allocation, the higher income inequality (Alfani, 2021). Income inequality is often accompanied by wealth inequality, which is the uneven distribution of wealth. On the other hand, wealth refers to the total amount of an individual or household asset. This may include financial assets, such as bonds and stocks, property, and private pension rights. Wealth inequality, therefore, refers to the unequal distribution of assets in a group of people. In addition, pay equity is also known as equal pay for work of equal value. Therefore, if two different jobs contribute equal importance to their employer’s operations, then the employees in those positions should receive equal pay; the opposite payment is pay inequality (Alfani, 2021).Furthermore, inequality goes beyond the three aspects and includes social inequality, health inequality, racial gaps and segregation, and occupational sex segregation.

The Nature and Causes of Economic Inequality Among Nations

There are two types of inequality: natural and moral. Natural inequality accrues from differences in age, health, or other physical characteristics. While moral inequality is established by convention or the consent or creation of men, the causes of inequality stems from a trinity of explanatory causes of falling wages and rising income inequality: technology, trade, and institutions that the capitalist control (Kuznets, 2019). It can be strongly argued the primary reason there is economic inequality within modern market economies is that wages are determined by a market and are consequently influenced by supply and demand. In this view, inequality is caused by the differences in the store and demand for different types of work accessioned by trade, technology, and institutions (Kuznets, 2019).

The Correlation between Capitalism and Economic Imparities

Capitalism is often perceived as an economic model in which private actors acquire and manage the property according to their interests. The demand and supply freely set prices in markets to serve the best interests of society. The essential characteristic of capitalism is the motive to make a profit. Therefore, inequality is an inevitable product of the capitalist activity, and expanding equality of opportunity only increases it (Nguyen & Rahman, 2019). Furthermore, capitalism is a market economy governed by immutable laws, and inequality results from competition between free and equal individuals in that market

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The Impact of Economic Inequality on Social-Economic Development

Inequality avails a broad scope of health and social challenges, from reduced life expectancy and higher child mortality to poor educational achievement, lower social mobility, and increased violence and mental illness levels. Moreover, in high inequality countries, economic growth that raises the overall income level disproportionately benefits the rich. In contrast, policies that encourage economic growth while reducing income inequality will significantly accelerate the achievement of poverty reduction goals. Thus, economic inequality reduces growth in relatively developing countries (Le Cause & Huang, 2020).

Studies show that capitalism has heightened inequality and worsened the living condition by extrapolating the cost of living. It also argued that despite the high spending on living advanced by economic inequality, workers’ wages have stagnated, forcing employees to spend long hours working to cover their high cost of living expenditure. Moreover, capitalistic governments’ lowered financing for social welfare has spiraled ill health. Further, the lack of funding for the necessary and needed welfare programs has resulted in society’s distress. Capitalistic instigated inequality has hindered socio-economic development, especially in the developing world (Le Cause & Huang, 2020).

 Conclusion

Capitalism is an economic system in which private individuals or firms possess capital commodities. The creation of goods and services is based on the demand and supply in the market economy. Capitalism is a significant driver of innovation, wealth creation, and prosperity. Competition and capital accumulation incentivize businesses to maximize efficiency hence capitalizing on profit growth by allowing consumers to enjoy lower prices on varieties of goods. Whereas classical capitalism majored on the wealth of nations, modern capitalist systems include a market-oriented economy. The production and pricing of goods and the income of individuals are dictated to a greater extent by market forces resulting from interactions between private businesses and individuals than by central planning undertaken by nation-states. Furthermore, modern Inequality refers to the unequal distribution of income and opportunity between different groups and individuals in society.

References

Alfani, G. (2021). Economic inequality in preindustrial times: Europe and beyond. Journal of Economic Literature, 59(1), 3-44.DOI: 10.1257/jel.20191449

Bond, P. (2019). Blue Economy threats, contradictions and resistances seen from South Africa. Journal of Political Ecology, 26(1), 341-362.https://doi.org/10.2458/v26i1.23504

Dick, E., & Schraven, B. (2019). Towards a borderless Africa? Regional organisations and free movement of persons in West and North-East Africa (No. 1/2019). Briefing Paper.http://hdl.handle.net/10419/199836

Geloso, V., & Glock, J. (2020). The New History of Capitalism and the Methodologies of Economic History. Available at SSRN 3557570. https://dx.doi.org/10.2139/ssrn.3557570

Giordano, L. S., Jones, M. D., & Rothwell, D. W. (2019). Social policy perspectives on economic inequality in wealthy countries. Policy Studies Journal, 47, S96-S118. https://doi.org/10.1111/psj.12315

Gould, M. (2020). Revolution in the Development of Capitalism. University of California Press.

Kuznets, S. (2019). Economic Growth and Income Inequality (pp. 25-37). Routledge.

Le Caous, E., & Huarng, F. (2020). Economic complexity and the mediating effects of income inequality: Reaching sustainable development in developing countries. Sustainability, 12(5), https://doi.org/10.3390/su120520892089.

Liang, Y., Aroles, J., & Brandl, B. (2022). Charting platform capitalism: Definitions, concepts and ideologies. New Technology, Work and Employment. https://doi.org/10.1111/ntwe.12234

Luisetti, F. (2019). Geopower: On the states of nature of late capitalism. European journal of social theory, 22(3), 342-363. https://doi.org/10.1177%2F1368431018803764

Muntaner, C., & Lynch, J. (2020). Income inequality, social cohesion, and class relations: a critique of Wilkinson’s neo-Durkheimian research program. The Political Economy of Social Inequalities, 325-346.

Nguyen, L. U., & Rahman, A. (2019). From totalitarianism to capitalism–the case of IFRS adoption in Vietnam. Accounting & Finance, 59(3), 1649-1680.https://doi.org/10.1111/acfi.12472

Ranaldi, M. (2021). Income composition inequality. Review of Income and Wealth.            https://doi.org/10.1111/roiw.12503

Tsoulfidis, L., & Tsaliki, P. (2019). Classical political economics and modern capitalism. Cham: Springer Nature.

Yeros, P., & Jha, P. (2020). Late neo-colonialism: Monopoly capitalism in permanent crisis. Agrarian South: Journal of Political Economy, 9(1), 78-93.https://doi.org/10.1177%2F2277976020917238

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Research Outline Essay
Capitalism is a financial system in which private individuals or firms possess capital commodities. The creation of goods and services is based on the demand and supply in the market economy. Capitalism is a significant driver of innovation, wealth creation, and prosperity (Ranaldi, 2021).Competition and capital accumulation incentivize businesses to maximize efficiency hence capitalizing on profit growth by allowing consumers to enjoy lower prices on varieties of goods. On the other hand, economic inequality refers to how economic variables are distributed among individuals in a population or among countries. While Capitalism is an economic system that thrives on capital competition, it relentlessly worsens wealth and income inequalities. The purpose of this paper is to outline the relationship between Capitalism and economic inequality.
The Importance of the Topic
The relationship between Capitalism and economic inequality is a significant component for understanding the social-economic paradigms of the society in terms of holistic societal and human development. As such, understanding the pertinent issues and correlation between the two aspects of human life and activities is core to harnessing critical knowledge critical for mitigating the impediments brought about by either Capitalism or posed by economic inequality to spur the sociological development of the society. The sources of ideas and information to be explored in the quest to unpack the relationship between Capitalism and economic inequality will be provided under two sub outlines, namely:
The Outline- Capitalism
In the research, we shall underscore (1) The theoretical definitions and concepts of Capitalism as understood in the field of sociology (2) Classical and modern capitalism concepts (3) Understanding the nature and causes of the wealth of nations in the light of Capitalism (4) The advantages and disadvantages of Capitalism and (5) The Impact of the West capitalistic dominance on the South and the mitigation measures advanced against Capitalism by the South.
The Outline- Economic Inequality
The research will tentatively explore economic inequality’s theoretical definitions and concepts and shed light on economic inequality’s traditional and modern understanding. Similarly, it will seek to comprehend the nature and causes of economic inequality among nations, focusing on the West and the South Economic blocs inequalities as engineered by capitalism (Giordono et al., 2019). In addition, it will seek to give a concise summary of the correlation between Capitalism and economic imparities and the impact of economic inequality on social-economic development.
Conclusion
In summary, the essay will underscore Capitalism, an economic system that thrives on completion for capital items and services based on demand and supply. In addition, it will highlight the competition and capital accumulation as a concept used to incentivize businesses to maximize efficiency that the system operates on the saying: each for himself and God for us all in terms of wealth acquisition. The economic system allows individuals to capitalize on profit growth and avails consumers to enjoy lower prices on a broader range of goods. Therefore, inequality in Capitalism is understood by the outcome of competition between free and equal individuals with equal opportunity of time syllable but unequal economic capital. The concepts shall be considered under the two sub outlines of Capitalism and economic inequality.

References
Giordono, L. S., Jones, M. D., & Rothwell, D. W. (2019). Social policy perspectives on economic inequality in wealthy countries. Policy Studies Journal, 47, S96-S118. https://doi.org/10.1111/psj.12315
Ranaldi, M. (2021). Income composition inequality. Review of Income and Wealth. https://doi.org/10.1111/roiw.12503.