Whenever you watch a news report, you see that the world has many severe problems that cause people to needlessly suffer. Very often, free market, which is commonly referred to as Capitalism, is what is blamed for creating those problems. After all, this is the dominant economic system in the world.
The irony is that, whenever people say that Capitalism is bad, they often do so by posting it on Facebook from their iPhone while having a coffee at Starbucks, none of which would have existed without free market. So, essentially, critics forget about the fact that the economic system that they love to hate is the same system that brought them all their daily comforts and enabled their lifestyle.
Although it is true that a lot human suffering happens under the Capitalist system, it doesn't necessarily mean that it is the Capitalist system that directly causes all of this suffering. Saying that it does is pretty much the same as saying that water is lethal due to the fact that everyone who has ever died used to regularly drink water.
In fact, "water is lethal" statement provides a good example of how manipulative political ideas are pushed. The proponents of a particular idea would first tell you some solid facts that nobody can argue against and then would try to use these facts to express a pseudo-logical conclusion to support their view. As you will see, framing free market as the sole cause of some of the world's problems is one of such pseudo-logical conclusions. In many of such cases, Capitalism per se is not to blame.
Humanity always had severe problems Pretty much anything negative that you see on the news gets blamed on Capitalism, from poverty to international conflicts.
Global financial meltdown of 2008, one of the biggest financial crises of the recent era, is seen by many as have been caused entirely by free market. So is poverty in in developing countries. So is homelessness in development counties. So is the fact that many workers in developing countries have to endure long hours under harsh conditions in factories to manufacture products that are in demand in developed countries. So is the fact that science is sometimes abused for profit, especially in the medical field. The list of such issues can be very long.
However, to determine whether it is indeed the free market that caused all these problems, we would need to establish what the baseline condition of human societies was before Capitalism was adopted. And, once we look into the history, it becomes apparent that thing were a lot worse in the past.
In the Western world, where the system of Capitalism was originally developed, conditions were dire. Except for the elite, who only represented a tiny proportion of population, the living standards for the majority of the population were comparable to what they are in the poorest countries of today. Until the late 19th century, population in European countries was kept low despite the fact that the majority of families had many children. This is because many children never survived to become adults. Famines were widespread, as the amount of available food was heavily influenced by variations in weather.
In the nutshell, the problems that existed before the adoption of free market were much more sever than almost any problem that exists where free market is well-developed. In medieval Europe, being poor didn't mean that you would drive Ford Fiesta instead of Ferrari and have a Motorola instead of iPhone. Being poor meant that you would wear the same clothes for years and wouldn't know where your next meal was coming from.
Free market was the system that solved most of those problemsOverall, the living conditions in the world are improving. And those improvements are well correlated with the adoption of free market principles by the countries where the improvements are happening.
In fact, except for the countries that are ravaged by war, the only countries where living conditions have substantially degraded are the countries where free market was severely restricted and/or replaced by command economy. Venezuela is a good example of this. Once the wealthiest country in South America, it has become the only country on the continent where the majority of population cannot access sufficient food and other essentials. The conditions deteriorated to this level since the country became Socialist and its major industries, such as oil, got nationalised.
The ability to do business freely without being hindered by arbitrary restrictions is what motivates people to solve problems. This is especially true due to the fact that such system provides biggest rewards to those who manage to solve the most challenging and most urgent problems, or invent new technologies that completely revolutionise people's lives.
The key driver of Capitalism is incentives and, despite a popular misconception, those are not always financial. When there very little arbitrary restrictions on what you can do, you can do anything that is close to your heart. This is what enables people with right ideas to put these ideas into action. This is why, in the countries that have embraced the free market long time ago, mothers rarely die during childbirth and the vast majority of children survive until the adulthood. This is why the modern technology is so advanced, that we can fly, go to space or instantly communicate with anyone in any part of the world. This is why those problems that were so common in medieval Europe are only confined to relatively few places in the world and even there those problems are on the way out.
Without Capitalism, you would not be able to read this website article. This only became possible because there were inventors who wanted to bring the access to smart devices and high-speed digital communication to the masses, regardless of whether it would benefit the rulings elites or not. It was the free market that made it possible for them to do so.
Free market is far from being perfect
Despite being the catalyst for technological progress and rapid improvement in living standards, free market has its fair share of problems. But so does any other system.
There are certain problems that Capitalism is just incapable of solving. This includes any service that cannot be monetised, such as cleaning streets, policing the cities and having a standing army. These activities inevitably need to be performed by the government. However, the funding for these services still mainly comes from market activities in form of taxes. Therefore, Capitalism still helps to maintain the public services, albeit indirectly.
For many, global financial crisis of 2008 comes to mind as an example of a major problem caused by Capitalism. But Capitalism itself wasn't actually the main cause of it. Yes, it is true that it is extremely unlikely for such event to happen under any other economic system. However, that doesn't necessarily mean that it is the system that is directly responsibility for its occurrence.
What has actually caused the global financial meltdown was an attempt of US government to fiddle with the free market. Prior to that event, banks were acting responsibly and wouldn't loan large sums of money to anyone who is at high risk of not paying it back. However, the government decided that there were not enough home owners in the country. Therefore, they have set up some funds to bail out those citizens who were unable to make the mortgage repayments.
Although bankers are the ones who are often blamed for causing the crisis, they just did what they were supposed to do. Those who were making the lending decisions were told by the government that risk of defaulting no longer matters. If a borrower defaults, the government will be there to make the payments on their behalf.Of course, bankers had zero knowledge of how much money was put aside in those funds. All they could do is trust that the government knows what its doing. However, it later became apparent that it didn't, when there were far more people defaulting on their payments than those funds could cover. And this what the global financial crisis was in the nutshell.
Just like the global recession, there are many other issues that are often thought of as being directly caused by the free market, but really aren't. However, there are some issues that are genuinely caused by free market. Environment problems fall under this category.
Free market directly affect the environment and the effects are both positive and negative. It is a good system to manage natural resources. For example, if a particular resource, e.g. a species of fish, is popular, it will get harvested at a high rate. Eventually, this will lead to the population decline. As the fish becomes harder to catch, the price of it will increase until it will become prohibitive. When this happens, the extraction of the resource is substantially reduced and the population is allowed to recover. Alternatively, sometimes direct measures are taken to improve habitat for popular species, which does not only maintain its own population, but benefits other lifeforms too.
However, when it comes to negative externalities, especially the ones that degrade the environment slowly, Capitalism is not so good. When, for example, cars get manufactured, the air pollution that they produce creates no direct costs to the manufacturer. And, due to demand for cars being high, there is no reason for the manufacturer to stop producing them.
Having said that, free market is still way kinder to the environment than a command economy. Even where environmental degradation happens, it is limited by a demand for a given product, the manufacturing of which causes the degradation. In command economy things get produced in completely arbitrary volumes, which is, quite often, on the high side. This is what caused so many severe environmental problems in Soviet Union, which are completely unimaginable in the industrialised Western countries. The drying up of Aral Sea is one of the most noteworthy examples.
Another example is exploitation of factory workers in poorer countries. In many places, they have to work long hours under bad conditions for relatively low pay. However, this particular issue is controversial. Based on the history, this seems to be a necessary phase that countries go to while Capitalism is being adopted. Once the free market economic system in a given country gets well developed, such practices stop.
This is what was happening in Great Britain during the Industrial Revolution. This is what also was happening in South Korea and Taiwan when these countries were being industrialised. None of these countries have such bad working conditions in their factories anymore. This is also what is currently being phased out in China.
As well as possible being the necessary phase of free market development, the factories with long working hours are not necessarily a bad thing compared to what was there before. The places that host such factories were historically poor. Therefore, the chances are that, if not for those factories, the people who now work in them would have had to live in a true abject poverty. So, in this case, free market may actually be the solution rather than the problem.
Of course, more examples can be found where people were made to suffer due to free market, either directly or indirectly. There are, for instance, many lines of business that rely purely on people being ignorant and making choices against their best interests. Gambling industry is one of them. So is tobacco industry. This is why, to take the most out of Capitalism, while not allowing it to cause problems, some regulations are absolutely necessary.
Any system can get abused
However, Capitalism is not solely responsible for the above problems, even the ones that clearly wouldn't have existed outside of it. The actual culprits for those issues are various aspects of the human nature itself.
Wherever there is a problem that free market as the system gets a blame for, there is always an aspect of human nature that has really caused that problem. For example, negative externalities happen either due to ignorance or the deliberate decision to not consider best interests of outsiders while the business operates. Likewise, the decision to not consider wellbeing of others, and not the free market itself, is the real reason behind exploitation. So is making profit from something that gives people nothing of value, destroys their health and costs them money, such as gambling, internet pornography and tobacco.
There is nothing wrong with acting in accordance with your best interests. However, when you stop taking into consideration the best interests of others while doing so, it becomes a problem.
And this behaviour is not brought out in people by Capitalism. It happens that, just like any other system, the processes that form Capitalism can be exploited. For example, internet protocols were originally designed for efficient communication. However, hackers found various ways to use these protocols for exploitation. The same is with free market. While it was intended to facilitate free exchange of goods, services and ideas, some people have found ways to exploit its processes for their own gain at the expense of others.
In fact, free market is actually the best system to mitigate these negative aspects of human nature. Although it doesn't eliminate them, it does control them better than any other economic system. In free market, the wealthiest people are the ones who create most of the value for most of the people. Therefore, the greediest people who wouldn't normally care about the interests of others are often driven to produce the products that are better and more cost-effective than anything that anyone else produces.
As it is the system that is based almost entirely on voluntary transactions, businesses that performs unethical deeds get boycotted if the conscience within the society itself is high enough. Therefore, even for business owners with prominent psychopathic traits, it pays to play by the rules and produce good quality products in an ethical manner.
In a society where politicians have a very limited control over your life, you can make choices. In such societies, people with the most prominent psychopathic traits, besides the ones who overtly break the law, are most likely to be business owner, as this is the most reliable way of becoming wealthy. Yes, this does mean that one of such people may be your boss. However, if this is the case, you have a free choice to leave your job and move somewhere else. Likewise, if there is a business owner that treats its customers as less than human, customers have a choice not to buy from such business.
In the opposing system, planned economy, things are much harder. In such system, politicians and administrators have an immense control over the population. Command economy, such as hardline Socialism, doesn't make people with malicious intent disappear. Instead, politicians and administrators become the positions that such people will strive to get into.
By getting into those positions, those kind of people gain a direct control over many aspects of your life. Therefore, if any of them happen to see you or your demographic as less than human, there is very little that you can do about it. This is why atrocities have been committed on a massive scale in every country that had command economy.
These factor clearly prove that, overall, Capitalism is the best economic system that has ever existed. However, it doesn't mean that it is the best system that can exist, especially as it has some very obvious flaws.
It may well be possible to create an economic system that is way better than Capitalism, perhaps a system controlled by an advanced AI. After all, people who lived in medieval feudalism probably couldn't imagine anything better than their economic system, until Capitalism came centuries later. However, for foreseeable future, free market remains way better than any alternative that has ever been tried and tested.
Most of free market criticism is nothing but an expression of envy
So, despite all of the good things that come from Capitalism, why is the system vilified so often? The main reason for this is the inequality it creates.
Inequality is not an objectively bad thing in itself. After all, even the poorest people in developed countries generally generally have all of their fundamental needs met and live much better then middle classes lived in the past. However, the fact that some people live visibly better than others create envy.
Envy is what drives the negative rhetoric about free market. People who promote anti-capitalist ideas, such as Labour Party of Great Britain, are almost never concerned about the poor. The real reason for their views is that they resent the rich. However, they will never tell you that. In order to be followed, they need to frame their ideas in a socially acceptable fashion.
One noteworthy attribute of freedom is that, wherever there is freedom to succeed, there is also freedom to fail. There is nobody to dictate to you what choices you are ought to make in your life. Therefore, if your life is not where you want it to be, while you see people all around you who have what you lack, instead of blaming the system, you can ask yourself whether your situation is not just the result of choices you've been making up to this point. You can try to start making different choices and be more disciplined. Once you've made that decision, you can see if, after a number of months, anything in your life changes."Why do you look at the speck of sawdust in your brother’s eye and pay no attention to the plank in your own eye" are timeless words that are just as relevant today as they were when they were said for the first time 2,000 years ago. Therefore, before criticising the system, you need to make sure that your own house is fully in order.
Of course, people do fall on the hard times that are completely beyond their control. However, quite often, people merely experience the natural consequences of the decisions that they've made or refused to make. Therefore, if things in your life are not the way you want them to be, it's not up to me to judge. Nobody knows your situation better then yourself. And yes, you may be right. Things may be the way they are due to something that is completely outside of your control. But, for your own benefit, you have to be completely honest with yourself.
To thrive in free market, you need to change your paradigm
Free market is not a system that exist for pure monetary gain. Neither it is a system that relies on exploitation and poverty for its mere survival. Free market is nothing more than a system where people can trade with each other voluntarily.
And it is not very difficult system to get your head around. With some exceptions, how much you get paid in free market depends on three things: the need for what you do, your ability to do it and how difficult it is to replace you. This is why in-demand professions that are hard to do, such as a software developer, are well paid.
These principles don't necessarily mean that those who work the hardest will get paid more. After all, even though physical labour is hard, a large proportion of population would be able to do it. No qualifications are required. All that is needed is an average level of health. This is why labourers don't get paid very well.
Once you are aware of the principles that drive the level of pay in free market, you can start developing your skills in any niche that interests you. For some people, it would be something technical, while for others it will be something that requires people's skills.
And no, you don't have to be wealthy. In free market, you are free to choose what level of wealth you are comfortable with. If you can achieve this level by working only part-time, there is no reason why you should work more. The reverse is also true. If you want to be wealthy and don't mind working long hours, you are totally free to do so. Free market is the system where you are free to disregard your cultural norms and expectations of others if they don't align with what you want in life.
You may wonder, why did an article about Capitalism appear on this website, which is obviously designed to be a technology blog? Well, this is because, if not for Capitalism, none of the technologies that made this website possible, let alone the technologies that the website provides information about, would exist.
Free market, as Capitalism should be properly referred to, is the framework under which the tech industry operates. Therefore, if you want to navigate your way through the tech world, you need to know what free market is and how it works. This is especially important as people often get bombarded with misconceptions about this economic system by their peers and the media.
Regardless of whether you support Capitalism or not, you live in it. Therefore, it will be extremely beneficial for you to know how it works, at least at a high level.
Written by Fiodar Sazanavets
Posted on 14 Jun 2018