Influence of the Capitalist Economic System on the Living Standards

The aim of this assessment will be to focus on evaluating how the capitalist economic system has impacted the living standards, and whether it has delivered a widespread improvement. Since a capitalist economic system is frequently referred to a system which discusses private property, markets and firms, as well as explaining how a country’s industries and trades are controlled by private owners for profit, rather than by the state, it is important to see how it affects living standards. Similarly, living standards have been linked to a capitalist economy quite a lot throughout the years, and that is because living standards refer to housing quality, material comfort, job security, education, friends and family, as well as social aspects of a person’s life, which ultimately is what capitalism is about.

Throughout the years a concept called specialization has been discovered. Specialization is when a person focuses on his productive efforts on only a few tasks, which is frequently in line with their skills, education and interests. Linking to Adam Smith, who was very certain that specialization and the division of labor is the reason for economic progress, shows that by individuals focusing on a narrow range of tasks will ultimately increase productivity within the workplace as total output increases due to the individual being good and efficient at what they do. This allows the businesses to cut certain training and not waste their time or budget on teaching everyone the same thing. Specialization has been widely adopted by most countries, and shows a widespread improvement in living standards for those involved in the economic exchanges due to having a lower production cost for the producers and manufacturers, which could mean that more goods are produced at lower prices. This would impact consumers due to prices for good being lower, which would ultimately lead to more goods being bought by them. Similarly, specialization would affect living standards if there is a surplus. Surplus in economics is frequently referred to as money or good which are left over after a goal or requirement has been met, and it is relevant to living standards because if there is a certain amount of money left over from trading between countries, they may wish to invest the money surplus back into the country, which could increase wages or living standards, depending on where the money is being injected into. This advantage can also be linked to global competition within countries and economies as producers would want to have the lowest costs possible, whilst maintaining/improving the best quality of goods/services to attract more customers, which would maintain low inflation.

Another major improvement to living standards through capitalist economies has been innovation. Innovation, a process of translating an idea or intention into something that creates value, has majorly contributed to economic growth worldwide due to higher productivity, leading to more goods and services being produced, which grows the economy. By having capitalist economies, we are free to explore and produce new technologies which furthermore grow our economies. For example, Switzerland, which has a capitalist economy, is presented as the most innovative country in the world, followed by Sweden and the USA. Innovative countries are frequently referred to as rich, but that is simply because innovation drives economic growth through becoming more productive and efficient, making prices for goods and services fall, rising the worker’s wages, and ultimately leading to a better materialistic happiness, which is the core of living standards. If we compare Germany’s constantly growing economy to the economy of Ukraine, for example, it is clear the standards of living are totally different which could mean that the correlation between innovative countries and living standards is very high.

In 2018, 180 countries have been counted as capitalist economies, or mixed-capitalist economies, which leaves only 15 other countries which have not declared themselves as such. In the last 3 centuries, we have managed to decrease starvation, and 72 countries have achieved the Millennium Development Target of halving proportion of the chronically undernourished. As more countries adopt capitalist economies, the link between that and improvement in living standards grows to be almost undeniable. The prevalence of undernourishment - which measures the proportion of people who are unable to consume enough food for an active and healthy life – has declined by 10.4% in the last 25 years, which shows that due to growing economies we are able to increase people’s quality of life and most importantly living standards. This is a strong indication that the improvement in living standards is indeed widespread which could be due to the three basic institutions of capitalism (right to ownership, freedom of contract and constitutional government), which is what makes it different from all the other social and economic systems, leading to us being able to provide economic freedom, consumer choice and economic growth. Furthermore, capitalist economies intend to make a profit, to then reinvest it into the economy, so essentially the very core of capitalism is to grow the economy, which leads to continuously improved living standards.

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Although capitalism has shown to improve living standards, has it really? One of the main issues of our society right now is the damage to the environment and global warming caused by overpopulation and production of goods and services. Due to capitalism being a profit-maximizing system, it encourages entrepreneurs from all around the world to invest in technologies, which supports manufacturing for profits. By trying to increase productivity and efficiency, we use more natural resources such as coal and affect the greenhouse gases being emitted into the atmosphere more frequently, as that will bring us a higher profit. Capitalism requires endless and continuous growth to remain stable, raise living standards and so on, meaning that production never stops. Production is dependent on consumption, and without sufficient consumption there wouldn’t be a production cycle. This vicious cycle ignores the fact the we live in a finite planet, so once we use all of our resources, there is no more, which contradicts whether the capitalist economy is the right one to use. As the core belief of capitalism is to be able to trade and operate freely, by putting limitations on what firms can do would cause an uproar, as well as having to reduce profits due to the environment. For example, the Chinese and Indian markets seem to be ignoring climate change issues, however their economies are growing drastically. To put it simply, capitalism doesn’t preserve the environment due to market competition to cut costs and use their profits, which damages the environment further. Although world hunger has been reduced, when it comes to the environment the living standards are decreasing very quickly.

Equality is another issue which we still face, no matter how much time has passed. Inequality is a rising problem in capitalism as some individuals are capable of taking advantage of what capitalism produces. Today, 8 people own as much wealth as 50% of the global population, which highlights the world inequality today. Inheritance is also an issue which irises when speaking about world inequality, as it leads to a different class of education, monetary capabilities and the opportunities available to certain people. This leads to a higher percentage of obesity, imprisonments and teenage pregnancies in countries where that may be particularly suffering from inequality. For example, in 2017 194,377 babies were born to women between the ages of 15 and 19, which was a 10% decrease in 2016. That is only a 0.06% of the population who have had children between 15-19 years. Africa, on the other hand, has an 18.8% of adolescent pregnancies, between the ages of 10-19. The figures portray how much inequality in the capitalist world affects those who are not capitalist, and shows that a communist economy, per say, would do far greater in giving people equal opportunities and ability to live the same as others.

Lastly, there are two types of market economies that implement capitalism – liberal market economies (US, UK, Canada) and coordinated market economies (Germany, Japan, Sweden). Coordinated market economies rely more on non-market forms of interactions in relationships with others, such as industrial relations, training and education, corporate governance, interfirm relations and relations with employees. Although the USA, for example, has done exceptionally well in growing their economy throughout the years, they have also damaged the environment and affected living standards negatively far more than Sweden for example. Unlike the USA and other liberal market economies, countries such as Sweden are collaborative and prefer strategic interaction between people and companies. People do not want to compete as much with each other, but instead try to learn from one another, whilst ensuring that our quality of life and living standards are increasing, as well as tackling issues such as global warming, inequality, supporting the rule of law and promoting education, instead of having profit-maximization and productivity rise being the end goals. By implementing a coordinated market economy, we may still hold all the benefits of capitalism, and then spread them around the globe, as well as reducing the issues mentioned above.

To conclude, a capitalist economic system does indeed deliver widespread improvement in living standards, but for the majority only to those who are born into it and are privileged to maintain a traditional capitalistic lifestyle. Income growth has undoubtedly increased, but at the utter cost of damaging the environment, expanding inequality and promoting inheritance rather than fairness. Although capitalism has helped some countries overcome extreme poverty (e.g., India) and worked for expanding their economy, the traditional way in which we see capitalism no longer works as there is too much at stake. The most successful countries in innovation, free market, widespread equality and improved living standards (e.g., Sweden) do not use a typical capitalist economy, but mix it with socialism and promote coordinated market economy. Ultimately, there are 2 types of capitalism, one of which (coordinated market economy) will and has delivered a widespread improvement in living standards, and will continue to do so in the future, whereas the other type (liberal market economy) has helped economies in the past, but is now majorly affecting living standards of our future generations, as well as promoting issues which we simply cannot maintain any longer.