The Role of Markets and the State in Different Approaches to Understanding a Capitalist Economy

The Role of Markets and the State in Different Approaches to Understanding a Capitalist Economy

Introduction

Boltanski & Chiapello in their book “The New Spirit of Capitalism” (page 47) note that wealth created by one person is wealth to the society in general. They are of the opinion that if theft is not used, then an individual should be left to accumulate wealth. This is the trend that the world has taken. On the one hand the world is changing radically in production of goods and services. Resources are limited and deserve to be utilized to their maximum to ensure that the world is able to feed its population. On the other hand, the increase in population is drastically and it calls for more innovations to maximize utility of natural and artificial resources available. “We affirm that criticism is a catalyst for changes in the spirit of capitalism. So capitalism needs its enemies, people who have a strong dislike for it and who want to wage war against it” (Boltanski & Chiapello 485-501). Capitalism is an economic policy / tool used by the government aimed at minimal participation in production but allowing private people to compete freely. In a fully capitalism economy, the main role of the government is to facilitate trade and production through actions like provision of social needs in order to create a smooth road for good working environment. Energy sector is left to be controlled by the government while private sector in general is the one left to compete. The opposite of capitalism is socialism, totalitarianism, and communism. These are the types of economies where the government has a total control over each sphere of production and over all resources in a country. “In the end, most economists tend to agree with Wolf that developing countries gain more in terms of social progress and eradication of poverty when they engage more openly in international trade” (Vander n.p.). This paper looks into various issues associated with capitalism as guided by various headings.

Communism, Totalitarianism, and Capitalism

Communism and totalitarianism are economies where the government plays a role of producer and owner of capital. They have elements of dictatorship as they show very little recognition of human rights and maintain a system that empowers the government at the expense of its citizens. Their main goal is a distribution of wealth. They aim at having equal distribution of wealth and do not recognize individual wealth accumulation. From this point of view it certainly ensures that the national cake is shared among all citizens. Citizens are not divided into different social classes so government has a great impact on the actions and directions of the people. Sometimes and this phenomena can be observed quite often, members of government make some decisions for their own interest. Production is seen as not geared to profit making and thus the adopted methods of production are in most cases not the most efficient which limits the level of economy in a certain way. Nowadays, due to the lack of resources these systems are not good to be adopted in any developed country moreover in less developed countries.  This is a straight way to poverty and it may take a lot of time and efforts for the government to get out of it.

A socialist economic system is known to be a mix of totalitarianism, communism, and capitalism. Each person is the one who accumulates or loses his wealth one way or another way. “Socialism is usually defined as a political-economic system in which government owns the means of production” (Bradley & Donway 74). There is improvement of the production methods established as the government try to compete with the private sector. This though does not guarantee that the most effective ways are adopted as sometimes a conflict still appears between the private and public interests. Of course such a system should be operational in early development of the economy and of the country as a whole. This system is applied to take control over the distribution of resources. Nevertheless citizens have the right to dictate their rules as the economy of the country and of the world grows. Government is qualified to check prices for minor and regular needs while the market has a right to control other needs. As far as this is an effective policy that is beneficial for the major part of population it hinders the development of agriculture sector that is the backbone of most economic spheres, especially in the developing countries.

Forbes in his book “Capitalism: A True Love Story,”  says that capitalism system of governance does not limit the citizens to the amount of wealth that they can accumulate and gives them a level playing ground for wealth creation. Just recently business has taken an essential part in each sphere of our economy. First of all, there are some disadvantages associated with this system because it certainly leads to corruption and distribution of wealth is not uniform as more than often it is divided between small groups of people only. The larger part of the population is poorly treated and major resources are under control of small groups. “The capitalist emphasis on unrestricted economic activity leads many authors to conceptualize the system according to what justifies such a ban on restrictions ” (Bradley & Donway, 73).

Role of Markets and the State in Different Approaches in Understanding a Capitalist Economy

Boltanski & Chiapello (23) estimate  that “A firm’s senior managers will still devise the competition strategies that allow it to do battle with other multinationals (on those markets where they do not collaborate)“.

In a capitalistic market the prices are controlled by demand and supply forces. If the market’s demand is higher than its supply then the prices go up and vice versa. Although the system is controlled by forces of the market where involvement of the government is crucial. In a broader perspective, they use monetary and fiscal policies for contraction or expansion reasons. When regulations are made, they may hurt or benefit the economy both in short term and long term. The markets in a capitalistic mode are hypothetical but the government has to come and assist in some intervention to ensure that there is sanity and some level of discipline. For example, the private sector cannot be left to provide roads and other infrastructure. Financial market is one of the areas that the government exercises in its controlling power. The effects of the financial industry on the economy are more indirect than direct, it involves mobilization of resources, share resources using a resource pool, giving out credit, hedging out risk. Impact of the government on financial market is felt by investors, companies, and small business owners. Recognizing the need of regulation, the United States of America passed a Finance bill on August 2010 which is aimed to be an addition regulating financial markets policy.

Are markets a necessary condition for the emergence of capitalism and for the reproduction of capitalism overtime?

Countries that have embraced the spirit of capitalism leave the market to self-dictate and control. “Many of the people protesting in the streets against globalization are protesting against capitalism, which they accuse of oppressing workers, exploiting the poor and making only the rich richer” (Raghuram 1). The one company is successful which uses its resources effectively. Other than at local levels, the world is moving towards  free trade. United States in its turn gained a leading position as the country with the most stable economy. It has embraced capitalism in its economy and blended it with free trade. This strategy has had a great impact and fast economic development as a result. Germany has been the second world’s largest exporter after the United States though China is catching up with them lately. The rapid development of China to the second largest economically developed country, based on the released in 2010 economic survey, is facilitated by the increased capitalism policies and embracing the spirit of free trade in international trade. The living standards of people in China have increased as consumers are enjoying a wider range of products fetched all over the world. The country’s economic growth rate on average is expected to be 8% in the year 2010. The second Quarter of year 2010, the country had a growth rate of 11.6%. Despite the United States recognizing and enjoying benefits of capitalism, it has some government controls for example, on September 19th 2009 the government of Barrack Obama released a finance reform bill that was meant to regulate the financial market. Various measures were listed there that were taken alongside the traditional role that government plays in financial market. The regulatory bill was necessitated by the past financial sector crisis i.e. recent global financial crisis that is believed to have started from financial institutions (ailing of Federal national mortgage association (Fannie Mac) and home loan Mortgage Corporation commonly known as Freddie Mac mortgage companies in United States of America). It came into law in August 2010.

Other policy that has been taken by the Government is participation (directly) in the financial market by offering treasury bills and bonds. Banks and financial institutions are attracted by the high secure of this program and poor their resources to this area since this will give less risky return. Their disposable income to lend to households, companies, and small-scale business will thus reduce. This program has both advantages and disadvantages. The main disadvantage of this policy  is that companies and small-scale businesses will lack funds for their expansions or will have to attain it at a high interest rate. There are  two ways out and one of those is to cut their work force while other one is to increase their prices in order to cover increased interest. During the period of unemployment or whenever they decide to cut off their work force, households are suffering from falling demand for goods and services that they provide. At the same time if they raise prices for products then the demand reduces. The overall trend will affect greatly in slowing the economy. One of the reasons for the government to enter into direct trading is to cure inflation in the economy, if the excess funds were used. Inflation at the expense of households, companies and business in general may be cured by offering treasury bonds at a high interest rate.

In order to protect the consumers of financial services, the government is mandated to ensure that different financial institutions operating in their economy have a strong financial base. This is why it requires a certain financial reserve to be kept with central bank to cater for safety. In order to regulate bank operations government uses the same funds from a financial reserve. Except for the central government, recently created Financial Regulatory Agency is aimed to operate in United States with the task of overseeing consumer lending and giving regulations in complex lending. As far as this is a good measure to ensure that consumers get quality services from financial institutions, it will certainly affect the policy of free trade. Free trade gives equal opportunities to each player and leads to innovations. The requirement of a capital reserve is to monitor and control operation of financial institutions. In those cases when it is necessary to take measures to reduce the circulation of money, the percentage of compulsory reserve of central bank increases which in turn leads to a reduction in lending and has a negative impact on the economy. The economy will not generate investing finances. Contractionary policies are used in order to avoid inflation during period of economic prosperity. At a contractionary period companies, households, and small business get loans at a high cost as this is the best way to injure the economy.

Government of the United States has a specially established consumer financial bureau that struggles against abusive credit card and mortgage operators. These measures are taken to ensure that consumer, companies, households, and small-scale businesses are protected by financial institutions against irregularities.

Regulations taken by the government of B. Obama limit the amount of money the banks can use for the purpose of speculative businesses to 3% maximum of its borrowed capital. This move was enacted to reduce huge financial losses which have occurred in the past from such speculations. The main goal of such actions is to ensure the public in confidence of the banking institution. The investing environment in a country is improved with a help of strong financial institution as investment in both foreign and local economy has been increased, jobs created, household financially empowered, resource mobilized and the cycle repeats. However, there is a negative side as a bank may opt not to lose these funds previously gotten from speculation and this results in increasing the cost of bank operations which something may discourage resource mobilization.

Nowadays since the great economic recession which started in United States in 2008 which was able to paralyze the entire world since United States of America is a major player as a consumer and producer in the world. The purchasing power of the Americans was reduced and thus demand for exports a.............