What exactly is capitalism and how does it affect you?

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In an article titled “Why Gen Z Turns to Socialism,” Vice explained why Democratic Socialist Bernie Sanders has been so successful in uniting so many Gen Z members through so many progressive causes and movements. It turns out that young people found common ground in a perceived common enemy: the capitalist system.

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But beyond political arguments, what exactly is capitalism? And what about that causes about half of Gen Z – or even a majority, according to several studies – to want to get rid of them altogether?

Characteristics of capitalism and socialism

According to the Columbia University Center on Capitalism and Society, “Capitalism is a largely private property system that is open to new ideas, new businesses, and new owners – in short, new capital. The justification of capitalism for supporters and critics has long been recognized for its dynamism, that is, its innovations and, more subtly, its selectivity in the innovations it experiences. At the same time, capitalism is also known for its tendency to generate instability, often associated with the existence of financial crises, precarious employment and the non-inclusion of the disadvantaged.

The most important characteristics of capitalism are:

On the other side of the economic spectrum is socialism, where instead of private property, a central body controls and allocates the country’s resources. The difference between socialism and communism – the two are often confused – is that socialist countries elect the central body. In communist countries, the central body is not elected and has no accountability.

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A banana, a peach and an apple: capitalism in brief

Michael Rossman, the co-founder of the merchant banking app MachFast, as well as an entrepreneur and banker with an MBA from the University of Chicago, presented this simplified but useful scenario:

“You have a peach, Jane has an apple, and I have a banana. You love apples, Jane loves bananas, and I love peaches.

  • Option A (feudalism / anarchy): Jane attacks me and grabs my banana. You attack Jane and take her apple and banana.

  • Option B (communism): We elect Jane as Supreme Leader. She decides who gets what based on her worldview. She can also choose to keep all the fruits for herself.

  • Option C (capitalism): We all discuss, agree on some business rules and exchange. I exchange my banana for Jane’s apple. I then exchange the apple with you for a peach.

We all get what we want on the basis of free choice, rules and personal freedom. I get my peach. You get your apple. Jane takes her banana.

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Down with capitalism? Gen Z should be careful what they want

Gen Zers who think they better replace capitalism with socialism should look around first. With the possible exception of Bolivia – although even this is hotly debated – there is not a single example on Earth of a socialist country with a prosperous and flourishing economy.

Capitalism, on the other hand, is the common ingredient in the value of centuries of economic expansion.

“The main thing that Gen Z doesn’t understand about capitalism is that it is arguably the most effective way to lift people out of poverty,” said Edward Patrick Akinyemi, economist, founder of the Financial Literacy Movement and a former AmeriCorps VISTA member. “As Gen Z came of age during a time of enormous turmoil – the Great Recession, climate change disasters, the pandemic, the student loan debt crisis, stagnant wages, the odd jobs and lack of worker rights, unsustainable levels of income / wealth inequality – they seem to believe the system is inherently unfair and designed to benefit only the rich at the expense of everyone else. But this is not true.

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He cites the meteoric rise of China as one of the great success stories of capitalism.

“Before China opened up its economy in the late 1970s, it had an agriculture-based economy that was only about 6% the size of the US economy, even though its population was four times greater than that of America, ”Akinyemi said. “A staggering 90% of the country’s population lived in poverty. Today, it is the world’s second-largest economy – and is expected to become No.1 in a few years – and its national poverty rate is in single digits. “

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Socialism: the guardrails of capitalism

Opponents of socialism point to Stalin’s horrors and the contemporary example of Venezuela, where a socialist economy has collapsed so completely that stories have emerged of people eating their pets to avoid starving to death.

Advocates of socialism, on the other hand, often cite the Nordic countries, which by and large are happy, healthy and wealthy thanks to socialist programs like universal health care and state-funded colleges. The problem is that Norway, Finland, Sweden and the rest are not socialists.

“These countries are social democracies, which are essentially economies that focus on the promotion of social justice within the framework of capitalism”, Akinyemi noted. “I like to describe it as “capitalism with safeguards”. Socialism in its purest form is almost entirely dead in the developed world. “

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Without safeguards, capitalism lets the strong eat the weak

In 2015, hedge fund manager-turned-‘pharmaceutical brother’ Martin Shkreli became the child star of corporate greed when he raised the price of a life-saving drug by 5,000% from 13, $ 50 to $ 750. When he pressed it he doubled down and said he should have raised the price even higher.

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Its rationale, according to CBS News, was as old as America itself: “It’s a capitalist society, a capitalist system, and capitalist rules.”

This, fortunately, is not entirely true.

“Most countries, including America, are mixed economies that have elements of socialism – unemployment benefits, minimum wages, social security, etc. – and capitalism – private property rights, no central planning of people. price, private ownership of capital, etc. ”Akinyemi mentioned.

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Capitalism creates classes – and the class with capital always wins

Capitalism inherently divides society into two classes: those who have the resources to start businesses (capitalists) and those who only have their labor to sell for a salary (workers).

“This system has several advantages and many disadvantages,” said Meredith phillips, political consultant with the Lyda group. “The main advantage is that, even if markets are healthy, competition between firms can create reasonably efficient balances between production and demand without the need for central planning. The downsides center on building wealth in a few hands. Capitalism, extended over time, guarantees a decreasing number of viable enterprises and of capitalists themselves. These companies and individuals hold an increasing share of the total wealth of the economy, which is detrimental to the overall health of society. As the number of firms decreases, the efficiency and competitiveness of markets also decrease, and the economy further adopts the characteristics of central planning, thus eliminating one of the main advantages of capitalism.

In other words, left on its own, liberal capitalism inevitably creates a tiny monopoly of ultra-powerful capitalists who control almost everything and therefore determine how all resources are distributed. But when equipped with the “safeguards” of social policies such as unemployment insurance, social security and free or low-cost health care, it can be a more efficient and more effective system. balanced that always promotes profit and economic expansion.

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Last updated: September 30, 2021

This article originally appeared on GOBankingRates.com: What exactly is capitalism and how does it affect you?

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