Capitalism and Economic Development - Essay Example

capitalism and economic development Does history repeat itself? The age old adage may ring true, especially when it comes to an analysis of the Great Depression, almost eighty years ago. The United States is in presently in the worst financial crisis since the Depression of 1929. In the wake of the Cold War, the United States of America emerged as the dominant global economic and military power and ushered in a new world order of capitalist-inspired economic growth and prosperity. Virtually uncontested at the helm of the world’s strongest economy, the United States has recently witnessed ominous signs of an impending economic meltdown. Whenever an economic crisis occurs, such as that of today or the Great Depression of the 1920s and 30s, people start to question capitalism and look to other forms of economic development for answers to economic problems of the day. Essentially, these questions are questions about ideology; about which political, economic and social system should govern our society. Capitalism is arguably the dominant economic system in the world and it is based upon the notion of private poverty. Private poverty is at the core of capitalist ideology and it is arguably the most basic tenant of the modern Western world. Socialism, on the other hand, is based upon collective ownership and the idea that communitarianism and public ownership of goods and property reign supreme. China, an avowedly socialist country, just recently legalized private property in 2004. As the BBC reports, “members of Chinas National Peoples Congress have introduced a proposed amendment to the constitution, which will legally protect private property rights for the first time since 1949” (BBC, 2003). For someone who lived and grew up in a capitalist society it is incredulous to think that private property, an idea so basic in the Western world, was not made official in China until 2004. Unbelievable really. This essay will explore capitalism and communism in comparative perspective. We now turn to an overview of capitalism and private ownership (Hobsbawm, 1994). Capitalism and Private Ownership Capitalism is arguably the most well-known model of economic development and growth and is responsible for the globalization of international trade, foreign capital and the growth and development of much of the Western world (excluding Cuba and including Australia, which is commonly included in economic analyses of the “West”). Capitalism advocates free market economic principles of development and believes in deregulation, a belief in the invisible distributive hand of the markets and the promotion of a market-oriented society. From this perspective, the role of the state is to promote economic development through policies which are beneficial to market-oriented economic growth. Capitalism has propelled the advent of economic globalization and the strong economic growth and development exhibited in the countries of the West. It is currently being embraced as a development model by the formerly socialist countries of Eastern Europe (former states of the U.S.S.R.) and is responsible for tremendous economic growth on a global scale. At its core, capitalism is about private ownership and the role of individual in determining his or her own economic fate. Capitalism is also about a market-based economy in which speculation reigns supreme. John Kenneth Galbraith analyzed the economic situation in the United States leading up to the Depression in a profound book entitled, The Great Crash. In this tome he outlined the preconditions for the crisis. Seeing the rise in speculation as perhaps the most important precondition for the Great Crash of 1929, Galbraith emphatically argues that an economy based upon speculation, such as through stocks, bonds, currencies, real estate, derivatives, and commodities is inherently unstable from a macroeconomic perspective and prone to a burst in the speculative bubble. Optimism is a characteristic of the speculative investor and Galbraith argues that an economic system with a speculative basis is liable to crash and subsequently a shaky basis for an economy. In addition to the risks caused by a speculative market, income inequality, so pervasive in the United States during the period further contributed to an unstable economy and this income distribution imbalance exacerbates instability. Accordingly, when “5 per cent of the population with the highest incomes in that year [1929] received approximately one third of all personal income", an economic crisis is sure to be on the horizon. Additional antecedents to the collapse include a weak banking structure, imbalance in foreign trade, weak economic intelligence and problems in the structure of US corporations. He argued that as economic actors, corporations in America were structured to contribute to the deflationary cycle as opposed to opposing it. As we can see, market-based speculation and inherent inequalities are part of the private property model of economic growth, capitalism (Galbraith, 1992) Socialism and Public Ownership An ideological paradigm promotes public ownership of goods and a society in which equality and egalitarianism reign supreme, socialism is an important political theory which continues to resonate in international affairs. Socialism has traditionally advocated a strong state-centric approach to control over the means of production and is critical of private property, private ownership and what it views as the inherently exploitative nature of the capitalist economic system. With a strong role for proletariat social class and the state in promoting social change through revolution, the socialist experiment has frequently been associated with revolution and violent social change. Initially seen as the antithesis to capitalism and capitalist modes of production, socialism today represents a variety of ideas which blend modern capitalism and socialist ideas about redistribution and the role of the state in economic affairs. Seeking to explore the history of socialism and thereby analyze its future in international affairs, this essay will chart the history of socialism through an in-depth analysis of the U.S.S.R. and China. Each country represents socialism in practice and will be used to discuss this important political theory. Socialism in Context: The U.S.S.R. Early socialists such as Karl Marx advocated proletarian revolution and mass mobilization to correct the social inequality perpetuated by capitalism. The public ownership of goods was an integral component of this revolutionary rhetoric. Marxist thought inspired socialists around the globe including Fidel Castro in Cuba, Mao in China and Lenin in the Soviet Union. According, in the Soviet Union, Vladimir Lenin established an authoritarian political system, which grew out of mass discontent associated with the First World War. The October Revolution of 1917 – also known as the Bolshevik Revolution – had an enormous impact on Europe’s social, political and economic landscape and accordingly “produced by far the most formidable organized revolutionary movement in modern history” (Hobsbawm, 1994). The Bolsheviks, led by Vladimir Ilyich Lenin, viewed themselves as the shepherds of a new international communist order in necessary conflict with the old order, embodied by bourgeois liberal capitalism. A centrist planning economy necessitated activist governmental intervention in all aspects of the state’s social and economic growth. Additionally, an important component of this state’s ability to mobilize was the 600,000 member-strong, centralized and highly disciplined Communist Party. Because the Soviet Union removed itself from the global capitalist economic world system following the October Revolution, it was effectively immune to the crisis caused by the Great Depression in 1929. Through bureaucratic regulation and heavy governmental economic intervention, the Soviets worked towards the establishment of a modern, communist utopia (Hobsbawm, 1994). Controlling the means of production and severely curtailing civil liberties, the global Communist community established themselves as “the Second World” during the Cold War. Accordingly, due to an overbearing state apparatus and inefficiency inherent in the socialist mode of production, the global Communist community was severely undermined by economic and political crises which began in the late 1960s. The result was political and economic disorder. Economic crises undermined the political foundations of states like China and the USSR – particularly after the deaths of men such as Mao & Brezhnev – and the centrally planned economic systems of these countries remained under stress and increasingly precarious. The Soviet world was also not immune to global economic crises as evidenced by effects of the OPEC crisis of 1973. These aftershocks paved the way for perestroika and glasnost in the USSR, the implosion of Yugoslavia and popular Chinese dissent expressed in Tiananmen Square and captured live on camera. The political and economic fragilities of the Second World were exposed following 1968 and slowly led to political decay, leading to the eventual implosion of the Soviet Union. The fall of the Berlin Wall signaled the end of socialist experiment in much of Eastern and Central Europe and for many was the death knoll for communism and state-sponsored dogmatic socialist principles (Strayer, 1998). Concluding Remarks Should property be privately owned or does the state have a stake in collective ownership? Avowedly socialist countries which have removed themselves from the global economic community, such as North Korea, Cuba and the U.S.S.R., have withered away or imploded in today’s era of globalization. Although Chinese repression and authoritarianism remain infamous, it has successfully harnessed the capabilities of an entrenched socialist state and has successfully blended socialist authoritarianism with the principles of free-market capitalism and the introduction of private property. Despite socialist successes in China, capitalism remains the most potent form of economic organization and the development of much of the world has been based upon capitalist ideals of private property as opposed to the collective ownership of goods. Some economists, theoreticians and politicians argue that there is no alternative to capitalism and point to the implosion of the USSR or economic stagnation in countries such as Cuba or North Korea. Accordingly, these countries emphatically demonstrate that there is no alternative to capitalism, which remains the most potent form of economic development the world has ever known. . References Clark, G.L. & W.B. Kim. (1995). Asian NIEs & the Global Economy: Industrial Restructuring & Corporate Strategy in the 1990s. New York: Johns Hopkins University Press. Coburn, D. (2000). ‘Income inequality, social cohesion and the health status of populations: the role of neo-liberalism’, Social Science & Medicine, vol. 51, no. 1, pp. 135-146. Hobsbawm, E. (1994). Age of Extremes: The Short History of the Twentieth Century: 1914-1991. London: Abacus. The Economist. (2009). Pocket World in Figures, 2009 Edition. London: Profile Books. Markus, F. (2003). China to protect private property. BBC.com. Web. December 5, 2009. http://news.bbc.co.uk/2/hi/asia-pacific/3340161.stm Strayer, R.W. (1998). Why Did the Soviet Union Collapse? Understanding Historical Change. New York: I. E. Sharpe. Read More