What Are The Advantages Of Capitalism?

Capitalism is highly debated at the moment but it is seen as the best economic structure available at the moment. In capitalism, the economy is based on the presence of free markets. Firms are resources are privately owned. Basically, state intervention appears to regulate some parts of the economy and protect private property. The US and the UK are essentially capitalist, even if the governments do spend up to forty percent of the GDP.

If you do not know much about capitalism, Turning Point USA showcases the following as being the main associated advantages.

No Better Alternative

The one thing that needs to be stated is that there are no real alternatives to capitalism. In the event that governments start to control economies, different problems appear. The really common ones are a lack of incentives, corruption and really poor information.

Efficient Resource Allocation

The theory states that capitalism makes sure that resources will be distributed based on the preferences of the consumers. A company is not rewarded in the event that it produces products or offers services that people do not really want.

Production Efficiency

The market system present in capitalism incentivizes firms to be efficient. Costs are cut in order to improve productivity and competitiveness. When firms do not remain efficient and productive, going bankrupt is what happens. This simple incentive increases efficiency driven by exactly what consumers demand. We are faced with a dynamic efficiency since firms have to respond to consumer preferences and the changes that occur. Responding to the brand new consumer trends that appear is a necessity.

Clear Financial Incentives

Statistics show that people will work harder when personal financial incentives are present. For instance, the entrepreneurs are only interested in taking risks as they open businesses due to a large potential financial reward. When private profit scope is not present, no new companies will appear.

A Creative Destruction

In capitalism a very strong influence comes from creative destruction. When firms become outdated and inefficient, going out of business is the only option available. You are faced with numerous potential short-term problems, like unemployment. At the same time, resources are moving towards more efficient and innovative industries.

Political Freedom Helped By Economic Freedom

Capitalism offers economic freedom. This leads to political freedom. The state that is limiting rights, like setting up the business or choosing where work is to be done, will always be faced with political interference.

History teaches us that political freedom is not automatically present simply because of capitalism. However, we did see numerous political repressions in various countries, like Chile, so economic freedom does not actually guarantee political freedom, even if it was a clear starting point.

Overcoming Discrimination

Last but not least, it is important to understand the fact that capitalism will encourage trade between different people and nations. Such an economic incentive will break down different barriers and will move past sectarian differences. Free market does not really care about religion, color or anything related. The only thing that counts is producing things that people actually want to buy.

 

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