18 Top Advantages and Disadvantages of Capitalism

Capitalism can be an economic system. It can be a political system. They can work independently or together. It is defined as a system where the trade and industry of a country are controlled by private owners instead of government owners to create profits.

Capitalism may sometimes be referred to as a system of private enterprise, a free enterprise system, or a free market culture.

There are several advantages and disadvantages of capitalism which must be considered when evaluating its overall effectiveness. Here are the key points to consider.

Top Advantages of Capitalism

1. Capitalism allows everyone to control their own profitability.

In a society that is based on capitalism, you have more control over what you do and how you do it when earning a paycheck. You’re not assigned specific tasks or jobs for the benefit of the entire society. You are permitted to find your own job, create your own job, or not work at all, if that is what you prefer. You’re allowed to pursue whatever level of profitability within capitalism you desire to find your happiness.

2. Capitalism can be compassionate.

A society structured on capitalism is often perceived as being selfish because workers are looking out for themselves and their families before anyone else. In reality, capitalism is based on the concept that compassion should be the cornerstone of every action. Corporations earn profits by providing products or services which help others. Workers earn a paycheck by providing services or manufacturing products. Money spent in the economy helps others earn their own paycheck, repeating the process.

3. Capitalism offers more freedom than other economic or political structures.

One of the biggest advantages of capitalism is that everyone is offered the chance to find success in their own way. Some people may be provided more chances than others because of the amount of wealth available to them, but that doesn’t stop anyone, from any socioeconomic group, from achieving what they want out of life. Oprah Winfrey, Mohed Altrad, Kenny Troutt, and many others grew up in humble beginnings before becoming billionaires as they pursued their dreams of success.

4. Capitalism encourages businesses to regulate themselves.

In a free market economy, consumers will gravitate toward the business which offers them the best value at the lowest price. That process encourages businesses to self-regulate, as an inability to meet consumer demands will eventually cause a company to go out of business. A business might be able to offer a cheaper product by ruining the environment, but if customers don’t like their business practices, they’ll still go out of business because their product will not be desired.

5. Capitalism encourages more product variety within each market and industry.

Capitalism is based on the idea that value is found in an ability to solve a problem for a consumer. Because consumers can experience varied problems, they require varied solutions within the marketplace. This need creates numerous niche industries within each market for businesses to operate. With the right expertise, anyone can compete in any space, even if there are large brands which dominate their sector. It is this structure which encourages variety and innovation with the economic and political structures of the society.

6. Capitalism allows people to govern themselves.

The goal of capitalism is to help people carve out a life for themselves which meets their own needs. It is a system which feels that individuals, not the government, are best-suited at making the necessary decisions to move life forward. Although the government stays out of the way of businesses in many aspects in this structure, the people are still encouraged to be actively involved in the governing process. Voting is common within capitalism, from the board room to government itself. It is within this type of structure that people can work toward the outcomes they prefer.

7. Capitalism encourages a borderless world.

Although the calls to maintain national borders typically come from societies based, in some way, on capitalism, this structure actually encourages a borderless world. It encourages businesses to find global resources that promote increases in productivity. It pushes companies to outsource jobs, training opportunities, and other requirements to save money. As profitability expands outward, developing countries become developed and competitive in the global economy. That means we reduce hunger because hunger hampers productivity. We eliminate poverty because it reduces productivity.

8. Capitalism promotes equality.

Capitalism isn’t concerned with a person’s gender identity. It couldn’t care less about their sexual orientation. It doesn’t look at a person’s skin color or ethnicity. To some extent, it doesn’t even care if a person is rich or poor. What matters in capitalism is an ability to produce and a willingness to be more productive. People are valued when their goal is to be as productive as possible within their employment. Work hard and you’re going to be rewarded for that effort in some way.

Top Disadvantages of Capitalism

1. Capitalism creates socioeconomic classes, just like any other form of government.

Although capitalism may not have the government force people into different socioeconomic classes, it does naturally segregate people into different groups. People who find wealth work to keep their position by depressing others. People who are poor have less overall access to the economy because they have fewer resources to offer. It takes money to make money in capitalism, so those without money often get left behind.

2. Capitalism requires consumption to operate properly.

For capitalism to work, there must be individuals who are willing to consume goods and services. That means the focus within an economy, or political entity, that is based on capitalism is always currency. Currency does not need to be money. It could be information. It could be an exchange of equally valued goods. This need to consume naturally limits who can participate within the economy. If you do not have skills to trade or a currency to offer, then you’re excluded from the society.

3. Capitalism focuses on the brand more than the consumer.

Capitalism succeeds when businesses succeed. That means the health of the business must take a priority over the health of the consumer within the society. How this is accomplished can be seen in a variety of ways. Individual taxpayers may be supporting business subsidies. The government may offer businesses a tax break, while increasing the tax burden on individuals and households. People in capitalism are necessary because of their consumption, but replaceable. Businesses, however, must be present to create economic growth.

4. Capitalism offers equal opportunities when they are profitable.

People in a society that is based on capitalism are permitted to pursue their own happiness in life. The reality of capitalism, however, is that most people have a very limited window where they are able to carve out a measure of success for themselves. Those who have access to more resources will receive more chances to get what they want. Those without resource access may need to settle for something else if they take a shot and miss.

5. Capitalism discards those it does not need.

Although capitalism is often treated as a superior system compared to the various degrees of socialism, its practices are very similar. If an individual is unable to be productive for some reason, then they are discarded to the backburners of society. Businesses seek profits, so they focus on hiring people who can be highly productive for the lowest possible wages. Only the compassion of individuals helping other individuals prevents something even worse from happening. The only real difference here between capitalism and socialism is that a business, instead of the government, is making the decisions.

6. Capitalism must be regulated for it to be successful.

If capitalism is left to its own devices, it will eventually consolidate into a socioeconomic and political system where a minority has full control over the majority. The natural path of capitalism is to limit competition until one company remains in control over an entire industry. There may always be niche opportunities for small businesses, but the biggest profits will always consolidate to the biggest business.

7. Capitalism creates a race to the bottom.

Capitalism does not focus on providing the best products or services. It focuses on providing this most profitable products or services. That means, from a wages perspective, the structures of capitalism are designed to lower wages and opportunities instead of increasing them. Business look for workers that will accept lower wages for an equal amount of work. Companies outsource labor to job markets that have lower wage requirements, eliminating domestic jobs that are deemed to be expensive. Unless workers can set their skills apart in some way, there will always be someone willing to take less money to provide for their family.

8. Capitalism is inherently selfish.

The goal of capitalism is ultimately comfort. People are encouraged to consume enough items until they feel comfortable. All other considerations are set aside beyond this one need. If a business needs to harm the environment to create a cheaper product, then capitalism says this is okay to do. If some people need to be harmed to bring a product to the market, then so be it. As long as there is profit in the venture, it is worth doing. That means it is up to the consumer to make socially conscious ideas part of the currency that is traded within an economy that is based on capitalism.

9. Capitalism defines personal values based on individual contributions.

In capitalism, someone is deemed to be more “faithful” if they are more productive. Someone is a “patriot” if their goal is to contribute to the overall good of the society. These definitions, based on the perception of individual contribution, creates shades of gray that can be very disruptive to a society. Is someone who serves in the military more valuable than the writer who created a commercial which inspired the person to join the military in the first place? Is a pastor more valuable than an assembly line worker? Or vice-versa? Instead of looking at how someone contributes, the quantity of what is contributed becomes a priority within the structures of capitalism.

10. Capitalism becomes a religion unto itself.

Consumerism is the fuel that drives capitalism forward. Without consumption, there is no need to produce goods or offer services. Because of this need to consume, people become competitive about their consumption. They look for the best deals in everything. The amount of time it takes to research a product, located a good deal, and then execute a transaction can be days, weeks, or even months in the making. The dedication it requires to the process creates a natural loyalty to it, much like the spiritual processes humans follow. It may not be the best option for some societies, but those who have been involved in it will defend it.

The top advantages and disadvantages of capitalism show us that it can be beneficial to have businesses, instead of the government, making decisions to push society forward. It can also harbor many of the hidden dangers that other economic and governing structures, such as socialism, tend to incorporate. That is why capitalism is most successful when it is smartly regulated, allowing everyone to find their own chance at success.