Capitalism economy is one that is characterized by lack of government intervention and free markets. In this kind of economy, capital assets are controlled and owned by individuals and labor bought in the form of wages while capital gains accrue to individuals.
In capitalism economy price mechanism is used for purposes of allocating capital goods. In practice though, the capitalist economy needs government intervention primarily for purposes of protecting private property (this aspect is also important as it distinguishes capitalism from anarchism which has no government at all).
In majority of countries, economies are described as capitalist economies and governments spend up to 35%of the GDP. This is attributed to the fact that the government is responsible for paying for national defense, education, welfare and health. The economy in such instances is termed as capitalist because all private firms decide what they are going to produce and whom they will be dealing with.
Types of capitalism economy
There are different kinds of capitalism economy and they are distinguished by:
- Competitiveness degree
- Balance between the private and public sector
- The role played by the government in intervention of the markets
- Price mechanism used.
The most common types of capitalist economy include the following:
- Responsible capitalism-This is not only about free markets but social welfare net as well.
- Turbo capitalism-This is free market with little to no government regulation.
How capitalism economy operates
In laissez-faire and free market capitalism economy, markets are extensively utilized with no or minimal regulation especially over pricing mechanism. Today, most countries have mixed economies where markets plat the dominant rule though they are regulated by the government for purposes of correcting market failures, conserving natural resources, funding defense promoting social welfare and public safety as well as for other reasons.
In state capitalist systems, states rely on enterprises that are state owned more and indirect economy planning to accrue wealth and less on the markets.
Problems of capitalism economy
Capitalism economy is not without its own set of problems. Some of the most notable ones include:
- Monopoly-In this kind of economy firms tend to gain monopoly powers over workers and consumers.
- Inequality-Capitalism economic systems can lead to wealth and income inequalities. It is however argued that this kind of inequality provides wealth generation incentives as well as economic growth.
- Environmental problems-All capitalism economies are driven by the desire or motive to make profits as such, decisions made often maximize economic systems but only in the short duration. All this is done at the expense of the environment.
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