The Principles of Capitalism and Their Effects in the World

May 2011 by William Saint

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“Globalization has delivered a lot… but it also has a dark side: a large and growing chasm between the rich and the poor. Clearly we need a new form of globalization.”[1]
—Dominique Strauss-Kahn, Managing Director, International Monetary Fund

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In its Accra Confession of 2004, the World Alliance of Reformed Churches identified the following ten principles to be associated with capitalism as it is presently practiced in the world:

  1. The economy’s purpose is to generate profit
  2. Unrestrained competition
  3. Unlimited economic growth and accumulation of wealth
  4. Consumption must be encouraged
  5. Deregulation of markets
  6. Unrestricted capital movements
  7. Taxes are a constraint on growth
  8. Ownership of private property has no social obligation
  9. Privatization of utilities and natural resources
  10. Nature is a commodity to be marketed and consumed

With the fall of the Berlin Wall in 1989, the “cold war” between the practitioners of socialism and capitalism was effectively won by the latter. In the minds of many around the world, this confirmed the “rightness” of the capitalism model and its underlying principles. Over the past two decades, these principles have created the phenomenon called economic globalization. What have been the consequences?[2]

1.   Profit as economy’s purpose: The common good is not a consideration
Corporate profits have trended steadily upward since the collapse of the Berlin Wall kicked off a sustained period of global capitalist expansion (see chart below). In 2009, the Fortune 500 companies more than tripled their earnings to $391 billion.[3] Although admittedly departing from a depressed level of profits during the Great Recession of 2008, this jump was the second largest in the 56 year history of corporate profit monitoring and occurred while much of the world was—and still is—struggling against economic adversity.

U.S. Bureau of Economic Analysis, Corporate Profits from 1984 to 2010 (in $ billions)

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2.   Unrestrained competition: Countries are not the beneficiaries
In the 1980s free market economics (variously called market fundamentalism, neoliberalism, or the Washington Consensus) was in ascendency, combining “excessive optimism about what markets could achieve on their own with a very bleak view of the capacity of governments to act in socially desirable ways. Government stood in the way of markets instead of being indispensable to their functioning, and accordingly had to be cut down to size.”[4] Consequently, the role of government in regulating markets was put under siege and forced to retreat in a number of areas, including social protection, consumer protection, and environmental protection.

Free trade agreements proliferated, eliminating protectionist barriers that interfered with a competitive market and progressively integrating national economies into a globalized free market economy. Although corporations, particularly the strongest ones, benefitted from this new environment, countries did not. For example, Harvard economist Dani Rodrik notes, “Most recent estimates put the overall gains to the United States from a global move to free trade in tenths of 1 percent of U.S. gross domestic product.”[5]

3.   No limits to growth and wealth accumulation: The rich get richer
At the start of the age of neoliberalism in 1980, the world contained just 12 billionaires. By 1990 the number had climbed to 99, and by 2000 it was 322. Today the number of billionaires is 1,011.[6] This exponential increase is indicative of income inequality trends in the world. World Bank data show that inequality has been increasing worldwide. In 2005, the richest 10 percent in the world received 55 percent of the world’s income. In contrast, the poorest 50 percent got only 6.6 percent.[7] Thus, there is no global catch-up for poor countries, and no global equality of opportunity. Poor countries will likely remain poor and rich countries will continue to be rich, with wealth concentration growing faster than poverty reduction.[8]


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