The market Is self-regulating, keeping step and arriving because of little to no governmental or political Intervention, exceptions as defense for invocation of rules and regulations to keep “force or fraud” out of the marketplace (Wisped, 2006). Free-Market Capitalism The Industrial Revolution, which began in Britain during the late sass, marked the birth of capitalism. Until that point in history, most of the wealth and power in society was restricted to very few people in society. Capitalism ushered in an age where wealth and power began to transfer throughout society.
This paper will provide a brief history of capitalism, an overview of the trends In capitalism, and mom recommendations for possible solutions to challenges facing capitalism. Overview and history Free-market capitalism has a very short history when compared to the history of civilization. Free-market capitalism has become the strongest influence in the growth of humankind in this relatively short span, and Is where prices on commodity or “controlled market” or more commonly known as the command economy (Wisped, 2006).
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In this uncontrolled system called free market, there are very little governmental or political influences except for regulatory actions to keep fraudulent r unethical activities from flourishing or where, “all capital, goods, services, and money flow transfers are unregulated by the government, except to halt collusion” (Wisped, 2006). However, the free-market capitalism does, in fact, promote democracy and is self-governing promoting various organizations such as trade associations. A free-market system is based on product availability versus the products popularity with consumers.
In addition, competition in the marketplace make the free-market efficient and self-aligning, and although not required there should be no barriers should exist for new entrants. With the motive of profit and the lack of barriers of coerciveness, competition becomes the norm, keeping prices in check. Again, it is important in a free-market capitalist environment that very little political intervention is applied, except for regulatory reasons of safety, environment, or consumer protection. Of course, the ability to pay for the political protection is providing by taxes or fees levied at the time of manufacture of sale.
Brief history This economic style emerged as a recognizable event in the early 18th century. By the 19th century, free-market capitalism had organized support politically, moving Europe out of the custom (tradition) and command economies of the time by way of the “laissez-fairer liberalism. ” The view of some economic historian is that the success of free-market capitalism can be directly attributed to the success of early free- thinking doctrine along with specific entrepreneurial interests that define a clear transition from feudalism to capitalism (Wisped, 2006).
Functioning of Free-Market Capitalism The theory of “supply and demand” perpetuates and is the driving factor within free-market capitalism. The supply and demand of goods has influence on price; rises providing balance of demand against the supply. As the balancing equalizes prices, products are then distributed via the market to the purchaser, based on the consumer’s requirements and his or her ability to pay for the product. Further, in order for this system to work effectively, no undue external or political price pressures can exist.
These pressures could come in the form of taxes, tariffs, or government regulation (other than protection from coercion and theft) and no government-granted monopolies (usually classified as coercive monopoly by free- rake advocates) like the United States Post Office, or Amtrak (Wisped, 2006). Other factors that have a downstream effect on free-market capitalism are weather, prices of commodity or raw materials, technological developments, and governmental influences of other market behaviors such as interest rates.
Society as a whole also influences free-market capitalism by way of the purchasing power or habits displayed through the buying public. Personal investment and spending is dictated by social class, labor and financial markets, unemployment, interest rates, family relationships, gifts, and inheritance all have an impact on the economy. This type of influence also has a pull effect on the producer of the products, in a way “voting with the dollar” for the manufacturer to produce more of the most popular sales items (Wisped, 2006).
The Ideology of Free-Market Capitalism American liberalism along with the European social democracy advocate free-market capitalism. On the most extreme side are “right wing-libertarians. ” No free-market truly exists because of the amount of political intervention even in the capitalist country of the United States. According to this line of thought, those who favor free- rake are only stating that they desire minimum influence of the government or others (taxation, for example).
This should be implemented in order to keep the freedom of the market at its highest potential, making the market more efficient by the use of trade associations and keeping taxation in check to encourage procurement of capital and the elimination of unfair taxation on stock dividends. Critics of Free-Market Capitalism Some capitalists believe that the free-market is not practical, feeling that in a well-established and run industrial economy both government and private sector plays an important role in the market.
Examples of this type of market would be Japan after World War II, Singapore, Hong Kong, Sweden, and even Communist China as it stands today. The governments play an integral role on how management of the industry are guided and used. Furthermore, the government can and does provide for low to no interest loans for capital and specialized tax laws to encourage economical growth of the country (pulling in foreign investment).
Lastly, the followers of this belief feel that free-market capitalism is doomed to failure due to lack of external scrutiny as witnessed in some cases such as the Enron debacle. There is hitherto from others who believe that free-market capitalism is more the “American Mantra” where the United States uses governmental force or pressures on the international market to influence profits realized by US corporations (Phillips, 2001).
In his article titled “American Mantra: Free-market Capitalism,” Phillips states, ” The business and government revolving-door cabinet will be comprised of more corporate Coo’s … The new government elite will work to see that the American mantra remains safe, globalizes, and unchallenged” (Phillips, 2001). Phillips believes that free-market means perpetual worldwide mediation by the U. S. Overspent is required in the name of the American corporations. Performed using the “public-private partnership” of American corporations and the diplomatic corps, the three letter agencies of the U.
S. And, of course, the might of the military to protect and maintain vital U. S. Business. Challenges and Opportunities The Great Depression of the sass proved that the workings of a free-market capitalist system were not perfect, and corrections had to be made to improve the system. After these changes, capitalism was able to rebound from the depression and flourished for another 50 years, but in the late sass, more flaws in the workings f free-market capitalism began to appear once again.
Three factors that presently challenge the effectiveness of free-market capitalism in the United States and around the world are a disparity in the incomes within societies, corporate scandals that shatter the trust of investors, and determining the balance between using social programs (socialism) in society without restricting capitalism. The solutions to these challenges are not easy to define, but if these challenges can be addressed effectively, free-market capitalism might continue to flourish throughout the world.
Income Inequality f the sass, and one of these factors was a disparity of income in society. In 1929, the combined income of 15,000 individuals and families equaled or exceeded the combined income of five to six million individuals and families in the United States (Hellbender & Miller, 2002). This disparity of income took money from the hands of people who would spend the funds on goods and services and helped reduce the amount of new investment in the market, which contributed to the stagnation of growth in the economy.
A similar situation appears to be occurring once again within the United States and other countries with free-market systems. Capitalism is working well for those born into wealthy families and those with higher levels of education. However, the gap is increasing between the rich and the poor in society, which is causing many people living on the verge of poverty to question the effectiveness of capitalism (Riving, 2002).
There is no simple solution to the issue of income disparity. Possible solutions include government initiatives such as increasing the minimum wage, affordable housing, welfare reform, and more funds for educational aid. Governments around the world that are operating with free-market economies are faced with the halogen of increasing the opportunity for those in the lower income brackets to improve their position in life if capitalism is to be embraced by everyone (Rivaling, 2002).
Restoring Trust in the Markets One of the main drivers behind capitalism is the investors who are willing to risk savings to invest in publicly traded corporations. The confidence of investors was recently shattered as a result of misleading financial disclosures from companies such as Enron, World, and Delphic. The executives of these companies and their accounting firms mislead the public and their own employees with false earning ports that increased the stock prices of the companies.
Unfortunately, the public and employees were lured into investing their savings into these companies while the executives were actively selling their own shares and reaping huge profits (Rivaling, In an article titled, “Ethics as an Imperative”, accountant and author James 2002). E. Copeland Jar. Offered the following opinions on the current state of ethical decisions in the accounting profession: Numerous unethical accounting practices have seen the demise of Enron, World, Delphic, and other organizations in recent years.
These unethical practices have destroyed billions of dollars in shareholder value to these organizations, resulted in mass unemployment, ruined retirement plans, eroded confidence in capital markets, and tarnished the reputations of honest people in the accounting profession (Copeland, 2005). The United States government has undertaken measures to regulate the reporting methods and improve corporate governance of publicly traded corporations in order to restore investor trust in the markets.
The Serbians-Solely Act of 2002 (SOX) was passed to increase the amount of accountability in the corporate boardroom. Prior to the usage of this act the Coos and Coos of organizations such as Enron, World, and Delphic Communications were able to defend themselves in court by suggesting they were unaware of any unethical financial activities taking place within their organizations. SOX requires that the Coos and Scoffs of all public companies public filings of their organizations.
Coos and Scoffs can no longer hide behind a wall of ignorance and will be subject to civil and criminal penalties for improper accounting practice (Diana, 2005). Social Programs (Socialism) The American public has a long history of rejecting socialism, but pure free- rake capitalism has too many casualties. The governments of many countries have learned that a free-market system is more productive and efficient when society has effective infrastructures, public services, education systems, environmental programs, and high-quality health care for its citizens.
These types of programs would not exist with a pure free-market capitalism system and society as a whole would suffer (Rivaling, 2002). As a result, a hybrid system of capitalism and socialism is required to meet the needs of society without eliminating initiatives for investment by capitalists. Traditionally, corporations were not likely to help support the type of programs required to improve the communities where they operated and expected local governments to assume full responsibility for any and all programs.
However, a new model of corporate stewardship is developing that encourages corporations to partner with private and public parties to support a common good in the areas where they conduct business. This new form of compassionate capitalism sees many corporations contributing to the success of the communities where they operate. The opportunity for free-market capitalism as a result of this new approach to corporate tidewaters is greater social and political freedoms as well as a higher quality of life for people around the world.
This approach is helping to create an environment where free-market capitalism continues to prosper and be embraced by more countries around the world (Evans, 2003). Trends show increased approval of Free Market System Forces within the free market system are often blamed for social injustice and disparity of wealth between the rich and the poor. However strong socialist economies including Poland, Czechoslovakia, and Hungary have not only embraced he free market capitalism, they have avoided any further involvement with socialism (Bath, 2004).
Some of the strongest moves toward free markets can even be seen in communist rule countries such as China. A poll done in 2005 by the international polling firm Globes finds the free market economic system is best, however governments are called upon to do more to regulate large companies. Out of all the countries polled, except for one, 61% agreed with the statement “the free enterprise system and free market economy is the best system on which to base the future of the world. The other 28% of the countries polled disagreed with the statement.
The poll was made in conjunction with the Program on International Policy Attitudes of the University of Maryland and Globes which polled 20,791 individuals. China demonstrated the highest support with 74% agreeing the free market system is the best system. Others countries such as the Philippines, the United States, and India showed similar approval rates of 73%, 71%, and 70% respectively. Argentina, Russia, and Turkey also showed lower support rates at 42%, 43%, and 47% respectively.
France was the only country in which the poll showed higher disagreement than approval with the free market system statement of which 35% agreed while 50% conjunction with the free market approval findings majorities of the people polled, with a median of 73% to 75%, from all of the countries showed further support towards regulation of large companies to protect the rights of workers, the rights of consumers, and the protect the environment. Two-thirds of each country showed support for more regulation, except for Russia and Germany, which only showed 50% support.
In Russia, only 17% to 18% favored greater enforcement of regulations which protect workers’ rights, consumer rights, and the environment. However in Korea, 54% supported further regulation to protect workers. The rights of investors also favored immensely with a median of 54% among the majority in 15 to 20 countries. Countries across the board agreed, “The free enterprise system and free market economy work best in society’s interests when accompanied by strong government regulations” (Globes, 2005).
Overall this trend was supported with a 65% majority in 75% of all the countries polled. Endorsement with a clear majority included Indonesia at 86%, Philippines at 77%, and China at 76%. Endorsement by Poland was at 47% and South Korea was spilt with 46% in agreement and 43% in agreement with a free market economy accompanied by strong government regulations (Globes, 2005). Top Companies and Global Free Market System Trends The United States economy and that of many other nations around the world are further dependent on each other.
Products and services of the most successful corporations within the free market nations may have dominated their local markets and seek to further expand business abroad. The implementation of corporate structure in many of the free market systems has led to overwhelming corporate power, thus allowing corporations to develop global trade economies that rival that of actions within their corporate structure. The largest economies, which include 51 corporations and 49 countries, include countries such as Israel, Poland, and Greece.
Wall-Mart is listed as 12 on the list and is bigger than 161 countries, including the last three mentioned. The Joining sales of the top two hundred corporations are immensely greater than one fourth of the global economic activity. Companies such as Mediumistic and General Motors are bigger than the nation of Indonesia, the fourth largest nation in the world and Denmark respectively. South Africa is dwindling in imprison to Ford and the nation of Norway is smaller than another corporate giant known as Toyota (Anderson, 2000). Over the past decade global economic activity has grown rapidly.
As of 1982 the major two hundred firms attained sales equal to 24. 2% of the world’s gross domestic product. In 2000, the percentage of attained sales increased and grew to 28. 3% of the world gross domestic product. The combined economies of 181 countries were surpassed by the top two hundred corporations. These corporations total combined sales equaled $7. 1 trillion. The total gross domestic product of 182 countries excluding the largest: United States, Japan, Germany, France, Italy, the United Kingdom, Brazil, Canada, and China, total $6. 9 trillion.
The world’s economic income has remained highly allocated among the rich. Some 85% of the world’s gross domestic product is controlled by the top 20% wealthy and 15% of the gross domestic product is controlled by the 80% poorest. Thus the economic activity generated by the 4. 5 billion poorest around the world only accounts for $3. 9 trillion dollars. The revenues of the top world corporations are double, have destroyed Jobs in contrast to the $7. 1 trillion generated and the combined 18. 8 lion people employed within those companies, which amounts to only a third of 1% of the world’s population.
Out of the 5. 6 billion people in the world, 2. 6 billion are in the workforce. The U. S. Postal Service, Wall-Mart, Ford, General Motors, PepsiCo, and Siemens are the top employers in the world. GM employs 709,000 workers and the U. S. Postal service employs over 870,160 people. Another trend in the free market system is for corporate leadership to cut workers in order to reduce costs or benefit financially from a gain in another part of the company. Many Coos benefit from Jobs cuts within their companies.
Companies such as Bluebells, Smart, Chase Manhattan, GET, Mobil, AT&T, Boeing, Lockheed-Martin, and Texaco each laid-off over 3000 workers and the Coos made millions of dollars in the increased value of their stock options after announcing the layoffs (Anderson, 2000). Corporations from Japan have exceeded the rankings of U. S. Corporations among the top two hundred. Out of the top ten firms, six are from Japan and three are from the United States. Also, 58 Japanese accounting firms account for 39% of total sales, while the U. S. ‘s 59 firms only account for 28% of total sales.
Seven countries basically headquarter the world’s top woo hundred businesses which include the United States, Germany, France, the United Kingdom, the Netherlands, Japan and Switzerland. Brazil and South Koreans are the only developing countries to also headquarter top two hundred firms. Over 50% of sales of the top two hundred businesses are spread into five economic sectors which include automobiles, banking, trading, electronics and retailing. The top five world businesses operate with tremendous economic power which can be seen in 60% of global sales of autos and 50% of global sales in electronics.
The top five world businesses also generate 30% of the global sales in steel, oil, personal amputees, airlines, aerospace, chemical, and the media (Anderson, 2000). Therefore the capitalism and its economic trends in the free market system within free market developed nations have allowed for an advanced trade among countries and an advanced economic development thus leading to globalization through means of corporate dominance and control of industry markets within many countries. Conclusion Free-market capitalism might not be the perfect economic solution to the needs of every society.
However, despite some flaws in the system, free market capitalism is an economic solution that does disperse wealth throughout society and promote economic growth. Pure capitalism is a system that was proven to have too many faults, but a hybrid system that consists of principles from socialism and capitalism might work for many countries. The economic needs of the world are not static. Therefore, the economic solutions that societies select to solve their needs will need to evolve as economic problems change.
The current trends in capitalism have proven capitalism is a working system which motivates people to create a profit or allows people to become part of a successful business system. Capitalism is wider spread and accepted through the world. The trend for further government regulation to protect those under the free market system is an example of the capitalism is being refined at the local level. This refinement allows free market abuses or business monopolies to be curtailed within each country working with the capitalist system which yields a mixture of centralized and decentralized control of business.
Wealth and trade under capitalism shows further movement to balance the current trends of protecting workers, protecting investors, Job outsourcing, and expansion of world trade. Free-market capitalism has been tested since the late sass, and has rover to be an effective economic system. There have been some revisions to the system, but free-market capitalism has been able to address the economic needs of society and likely will be used as a model for many countries in the future. References Anderson, S. & Savannah, J. (2000).