Life, as we know it, has been this way for only a couple of decades, and even in these recent years, there has been a considerable change and development in the way of things. One of the biggest changes, other than technology, architecture, etc. is the economic system of the world. This change is one in which capitalism has played a majorly important role.
Will capitalism bring inclusive growth? That is the question at hand. To understand this question and to answer it accurately, we need to know the two main terms comprising it, and learn about both in detail. The two terms to be understood and studied are ‘capitalism’ and ‘inclusive growth’.
What is Capitalism?
Capitalism is one of the economic systems which is followed by most of the countries in the world. This system is based on the private ownership of the facilities and resources required for producing goods as well as their operations for profit.
The important characteristics of the capitalist system include private property, capital accumulation, wage labour, voluntary exchange, a price system, and competitive markets. The four main factors of production, that is to say, land, capital, natural resources, and entrepreneurship, are owned by private companies.
It basically also implies that the country’s trade, industry, and profits are controlled by private companies, instead of by the people whose time and labour powers those companies.
Capitalism can be traced back to Western Europe during the Middle Ages, through trade and exchange of products between two or more merchants. It is now followed in most countries everywhere, like the United States of America, Canada, Chile, Hong Kong, Germany (now), United Kingdoms, etc.
However, capitalism is not the only economic system available; throughout history, other countries have embraced other systems, such as Communism in Russia, China and Vietnam, or Socialism as followed in our own motherland, India.
The Advantages of Capitalism
Capitalism has been proclaimed by several as the greatest turning point in history for the growth of the economy of all the nations that follow this system. Here are some of the advantages of capitalism:
1. One of the main advantages of capitalism is that the consumers get the best products at the best prices due to the high competition stakes between two or more companies. Consumers are mostly willing to pay a little extra for quality products, and all businesses obviously want to maximise their profits.
This increases the rate of competitiveness and encourages businesses to be as imaginative, innovative and efficient as possible. The added incentives also play an advantageous role as they cause most companies to cut back on cost and avoid waste whenever possible.
2. The innovation spoken about in the previous point is a benefit in itself as well. A capitalist society encourages and rewards innovative individuals and companies. This is an important factor for the growth of the economy as it forces efficiency and increases competition.
3. Seeing as the government controls all the factors of production and sets the prices of most products in every society that does not practice capitalism, it would create a highly mighty central government that would be often involved in all important aspects of the citizen’s life. This guarantees a lack of political freedom.
In a capitalist society, the citizens of the country are given much more political freedom and stability. Economic freedom leads to political freedom and having a state-owned means of production can lead to federal overreach and authoritarianism.
Countries that practice the capitalism economic system view it as the only sensible way to organise a society, insisting that alternatives like socialism, communism, or anarchism are doomed to fail.
The Disadvantages of Capitalism
Of course, along with the pros, capitalism has a certain amount of cons too. Here are some of its disadvantages:
1. The most disagreeable event that occurs due to capitalism is probably the marginalisation. In a highly competitive and completely capitalist economy, there will be no place for the elderly, children, and the disabled who would presumably not have any skills.
Since such people don’t have any money in their pockets to pay for services or facilities, the private companies are rarely inclined to provide any services to them. Goods, as well as positive externalities, such as health, public transport and education, are under-provided in countries which are following capitalist economic systems.
2. There is a famous proverb that goes like this: “Anyone can be rich if they work hard.” This proverb is false. Under capitalism, there can never be equality. The rich cannot exist unless there are poor to compare them with.
3. Lastly, capitalism is also undemocratic. In a capitalist system, the citizens have very little say in the actions of the government. Governments will only listen to big businesses and banks seeing as they are the ones to fund their election campaigns.
What is Inclusive Growth?
Inclusive growth has been defined differently by different organizations and scholars. The dictionary meaning of the term “inclusive” is “comprehensive”, “including all extremes” and “not excluding any section of the society”.
Basely et el (2007) defined inclusive growth as the “growth that has a high elasticity of poverty reduction”, that is to say, it should have a higher reduction in poverty per unit of growth. The term refers both to the pace and pattern of growth, which are often considered to be interlinked, and therefore are in need to be addressed together.
In simple terms, it implies a direct link between the macro and micro determinants of growth. Inclusive growth means that the fruits of the growth are reaching even the person standing on the last rung of the social strata so that he may lead a life with dignity. Thus it would imply food security, employment opportunities, health care and education infrastructure for all the citizens of the country, regardless of his or her economic status.
The concept of inclusive growth focuses on equitable growth for all sections of society. This involves ensuring that “fruits of growth and development”, as we referred to them before, reach the poor and marginalised sections as well.
It promises to reduce disparities among per capita incomes in agriculture and non-agriculture, in rural and urban areas, and in different socio-economic groups, particularly between men and women and among different ethnic groups. The result of inclusive growth is reduction in vertical inequalities (individual inequalities) as well as horizontal inequalities (group inequalities).
The rapid and sustained poverty reduction requires inclusive growth that allows people to contribute to and benefit from economic growth.
A rapid pace of growth is unquestionably necessary for any substantial poverty reduction, but for this growth to be sustainable in the long run, it should be broad-based across sectors, and inclusive of the large part of the country’s labour force. Hence the term, ‘inclusive growth’.
Inclusive growth is a concept that advances equitable opportunities for economic participants during economic growth with benefits that can be enjoyed by every section of society. This concept expands upon traditional economic growth models to include focus on the equity of health, human capital, environmental quality, social protection, and food security.
Economic growth, according to Adam Smith, depends on the amount of capital invested in businesses and the productivity of the citizens. Capitalism is vital for India’s economic growth ambition, especially for her inclusive growth ambition.
After the Liberation, Privatisation and Globalisation policy in India (the LPG reforms) of 1991, which contained several values practised in a capitalist society, the economic growth in the country has been tremendous over the last decade despite the global slowdown.
The World Bank, among several other international financial agencies, had predicted that India would overcome China as the fastest growing economy by 2017, a prediction which had indeed come true until very recently, the first three months of 2019 to be accurate.
Even today, no list of ‘the richest men of the world’ is complete without some mention or the other of either Ambani or Tata, in addition to many others millionaires, billionaires and zillionaire from India.