Political Theories for Students

workers needed to manage the technology, but the overall number of workers goes down.

Rise of the service economy The second reason for the steady decline in workers proportional to the population is the growth of companies to provide service rather than goods. From 1950 to 1985, the number of people employed more than doubled from 60 million. The number of white collar workers rose from 22 to 53 million. The new white collar workers were employed in government, retail and wholesale trade, schools, insurance, communications, entertainment, health services, finance, and real estate. Government in particular has grown enormously.

The change from producing goods to providing services has led to a shift in the nature of most employment. In 1950, more than half of the labor force was blue collar. Today, white collar workers outnumber blue collar workers by more than two to one. The production line has given way to the office and the product has become a service. This is called the service economy to prevent confusion with the industrial economy that it replaced.

The two–tier labor market has largely been created by the advent of improved technology which separates white collar and blue collar workers more distinctly. Generally speaking, blue collar workers lack the education, pay raises, health insurance and other

benefits that common in the white collar sector. In fact, since 1975, the majority of the household income gains have gone to the upper 20 percent. From 1994 to 1999, inflation was low and unemployment fell to below 5 percent. In 2001, the economy moved into a downswing, however, and the long term troubles with a lack of economic investment, medical cost increases with the aging population, trade deficits, and family income stagnation for the lower income families became problematic.

An important year in American capitalism history related to the rise in the service economy was 1956. For the first time in world history, the number of people performing services was greater than the number producing goods. The same change has since occurred in Sweden, Great Britain, and Canada. This switch has been significant politically because the salaried members of society identify more strongly with the upper and middle classes than with the working class. This white collar group generally produces children who continue in this social stature. The new members of society are better educated and more wealthy than their blue collar counterparts, and because of this, they’re better suited to remain in that position.

In comparison, Russia saw a huge increase in industrial workers, both skilled and unskilled. As its industrialism increased, however, the same phenomenon occurred and there were increasing numbers of white collar members of society. Class lines have become defined despite the communist ideology. The social status of the blue collar worker is distinctly different than that of the white collar worker. These new upper classes are rising at the expense of the lower. In communism as well as capitalism, industrialism breeds this shift in the populous.

The new service economy has greatly affected the strength of the capitalist economies. In a goods– producing sector of the economy there are large shifts of employment and of demand. When there is excess supply, it can usually be stockpiled and the surplus saved. With the service economy, however, the services cannot be saved if there is a surplus in supply. There is necessarily a better balance between supply and demand for this reason and this in turn creates a more reliable and predictable job market.

In countries that practice capitalism, the economic levels are high enough to allow for welfare policies and payment. With other economic systems, however, though there are often welfare policies existing in theory, there is often not enough money to pay for them and they become obsolete. Under capitalism the constant increase of goods and services allows for enough wealth to be able to be distributed to the people who

are struggling. Since the market is permitted to adjust to itself and is in control of all of its own intricacies, it is able to be much more efficient than if the state tried to regulate all of the details.

It is interesting to note, however, that despite the success of capitalism and the relative economic boom in the United States, there is still a poverty problem and an uneven distribution of wealth. Many people are in debt, and the United States itself has a huge debt to repay to its lenders.

Non–Profits Another change in the structure of capitalism has been the increase in the non–profit sector. In the United States, the non–profit sector is made up of private not–for–profit organizations and the government. This section of the economy is growing at a faster rate than the for–profit sector in the United States. Non–profit means that there is a direct, or indirect, contribution back to society. Since the non–profit sector doesn’t invest their earnings in themselves, what would have been profit goes back into circulation.

The non–profit sector has grown for several reasons. The government has continued to expand in the areas of defense, health, education and welfare. Private non–profits have also grown in both health and education. The service economy has helped the non–profit growth as well. As the industrial economy advances and grows, a service economy slowly replaces the industrial economy. When this happens, the production of goods is replaced by services for both for profits and non–profits, such as health, community, welfare and education services.

Finally, as a nation’s economy advances and evolves, there is a greater demand for provision of services that not everyone is getting. Health insurance, educational aid and transportation are considered essential but unobtainable. More socialist governments like those in Scandinavia and Britain have concentrated their socialization programs on service areas like health and education rather than controlling economic activity.

The government steps in There have been many successes with capitalism, but there have also been many problems as well. Capitalism has not always gone according to the theory. The Great Depression was an unexpected event. It was responsible for the welfare system which has come to characterize so many capitalist countries, including the United States, Canada, the United Kingdom, and much of mainland Europe. The population believed that laissez–faire economics was ideal and that even when the market

BIOGRAPHY:

Franklin Delano Roosevelt

Franklin Delano Roosevelt was born on January 30, 1882 at Hyde Park, New York. He was the only son of James and Sara Roosevelt. Under the guidance of his mother, Roosevelt received a private education until the age of 14, when he left home to attend Groton. After completing Groton, Roosevelt attended Harvard, where he majored in history and political science.

During his college years, Roosevelt courted his distant cousin Eleanor Roosevelt, and they married on March 17, 1905. He enrolled in Columbia University’s law school, passed the bar after a little more than two years of study, and joined a noted law firm. Roosevelt was elected to the state legislature in 1910.

In August 1921, Roosevelt’s world was changed forever. While vacationing at his island retreat off the coast of Maine, he was stricken with polio. Roosevelt survived the near–fatal attack, but was paralyzed from the waist down for the rest of his life. Roosevelt did- n’t let his condition get him down. He continued to devote his time to his law practice, his hobbies, and some business ventures. He returned to politics at the end of the 1920s, when he was elected governor of New York in 1928. He served two terms as governor.

During Roosevelt’s second term, he dealt with effects of the Depression that had hit New York. Along with a group of advisors, he devised a program that was in many ways similar to the New Deal. The plan included unemployment relief, farm relief, old–age pension, tax increases, and various other reforms. The roots of the New Deal were a big part of his campaign for the presidency in 1932. Roosevelt won the election, and shortly after his inauguration on March 4, 1933, the New Deal became reality. His plan included regulation of credit and currency, reduction of federal

salaries, the allocation of grants to cities and states for relief purposes, agricultural subsidies, and regulation of the stock market. Roosevelt regarded the National Industrial Recovery Act (NIRA) of 1933 as the key to the entire program. The purpose of the act was twofold. It devised codes of fair competition in industry and it also guaranteed labor the right to organize and bargain collectively. Unemployment relief came in the form of various work relief agencies.

After 1935, the most important legislation of the New Deal was focused in the area of reform. The National Labor Relations Act was passed by Congress on July 5, 1935. It guaranteed the right of workers to organize and bargain with their employers. On August 14 of that same year, the Social Security Act, which provided old–age retirement payments and benefits for widows, orphans, and the needy, was passed. The Fair Labor Standards Act of 1938 was the final achievement of Roosevelt’s New Deal; it set a federal minimum wage and outlawed child labor.

After 1938, foreign affairs became the focus of the Roosevelt administration as the threat of war loomed in Europe and the Far East. Roosevelt, despite protests from the majority of Americans and Congress, involved the United States in the growing war. Roosevelt’s involvement in the Allied effort was crucial. He worked on strategic negotiations with the Allied leaders and pursued his dreams of a United Nations.

Sadly, Roosevelt would not survive to see the war end or the implementation of the United Nations. He died from a massive cerebral hemorrhage while on vacation on April 12, 1945. After four terms as President, Roosevelt had successfully realized the social and economic reforms of the New Deal.

plunged it would be able to fix itself again without outside influence. When the economy dipped to the point where one quarter of the population was out of work, enterprises were going bankrupt and couldn’t pay their employees, and farmers couldn’t sell their products without taking a loss, something had to give. The welfare state was created. While not an entirely natural step in the progression of capitalism, it became necessary for the crippled economy.

U.S. President Franklin Roosevelt began the New Deal in 1933. It outlined emergency measures to help

people back onto their feet after the Great Depression. The Agricultural Act (May 12, 1933) provided aid for farmers in return for lowered production, thus raising prices due to a decrease in supply. This allowed them to buy the industrial products to which they had become accustomed.

The National Labor Relations Act (July 5, 1935), also known as the Wagner Act, changed the nature of relations between employers and employees. Before the act, employers had been at liberty to recognize, or to ignore, unions in their midst. They often fired work-

ers for being involved in union activities and the workers had no means of protection from this. The Wagner Act promoted bargaining between the unions and the employers. It could not force the two sides to agree, but it prohibited both strikes and lockouts, the scare tactics of both sides. The result was a distinct decline in violent labor disputes.

The Social Security Act (August 14, 1935) was another major step in the welfare system’s creation. Private efforts to protect individuals from poverty in old age had proved largely ineffective and the Social Security Act sought to create a public provision for everyone through taxation of wages. This act was of particular importance because it showed the United States’ belief that it was partly responsible for the monetary security of its citizens.

In 1947, The Labor–Management Relations Act, also known as the Taft–Hartley Act, replaced the Wagner Act. Some provisions of the Wagner Act were altered for the Taft–Hartley Act, but the principle upon which it was founded, bargaining between the two sides, remained unchanged.

In 1965, Congress took the Social Security Act even further to include health care for people over the age of 65. The health insurance covered both doctors’ bills and hospitalization. Medicare, the insurance program, existed for senior citizens, but the government also gave grants to the states to provide aid to families unable to cover their medical costs. Many states followed suit by setting up Medicaid, programs set up to deal with federal grants and distribution of money to the families it was designed to reach.

The Elementary and Secondary Education Act in 1965 was another important step. The government made grants directly to school districts with families with low incomes. The Higher Education Act from that same year gave both grants and loans to institutions to improve their facilities. It also gave aid to millions of students in the form of federal loans, federally guaranteed private loans, work–study aid, and grants for students with disadvantages.

The main mechanism for funding the social welfare systems is taxation. Through federal taxation the income is more evenly distributed than it would be if the economy was entirely laissez–faire. This distribution of wealth has led to a higher minimum allowance for many. This allows a greater proportion of the population to remain active economic players which ultimately keeps the economy more stable than it would be if the wealth were more distinctly separated. Government taxation is structured to compensate for economic dips and swings. The government has stores of money from taxation from which to continue its wel-

fare programs regardless of the state’s economy. Through social welfare, the government is able to retain relative stability.

The debate over public vs. private With his New Deal, Roosevelt essentially changed the relationship between the public and private sectors. He supported farmers and farm prices, protected unions, created a social security system for the elderly and retired, gave aid to the unemployed, and regulated the market. His advocates called him a savior, while his opposition labeled him a traitor.

Initially, everyone seemed in favor of the welfare state in the United States. President Lyndon Johnson (1908–1973) proposed “the Great Society” to this end. This trend continued with Democrats and Republicans alike. The conservatives tried to buff up the existing programs, and President Nixon did just this with welfare and education. With his “New Economic Policy,” Nixon also set up price and wage controls.

After 1970, however, attacks on the welfare system became more direct and biting. As time went on, opposition of the welfare system grew. Support and dissent split onto different sides of the fence. Liberals argued that the government should be expanded even further, wrapping its protective, paternal arms even more tightly around its citizens. Two important political changes occurred in the Western world. Margaret Thatcher was elected as the Conservative Prime Minister of Great Britain in 1979, and Ronald Reagan (born 1911) was elected as the Republican President of the United States the next year. Both administrations held strong opposition to the welfare state. Policy shifted and challenged the existing system. Margaret Thatcher privatized even more of Britain’s functions including the post office, and she became known as “Maggie Thatcher, the milk snatcher” for revoking free school lunches.

The conservatives had several gripes. They emphasized decentralization of the government, deregulation of the economy and privatization of public entities. After Adam Smith in 1776, capitalism promised free market growth uninhibited by government regulation. The economic advances were coupled with problems, however, such as monopolies, swings of booms and recessions that affected the economy’s growth, disregard for the environment by the companies producing waste, and an uneven distribution of wealth, which left many without the means to provide health care, retirement funds and other needs for themselves. These troubles led to government aid and action. Governments began regulating the economy and disbanding monopolies, providing social welfare

through taxation, and creating restrictions and guidelines for company waste production.

The conservatives believed that the market economy would correct itself and that government should step back. Distribution of wealth would be unchecked, branches of the government such as the U.S. Environmental Protection Agency wouldn’t be able to monitor and control emissions of various kinds and people would be entirely responsible for their own livelihood. The conservatives believed that the economic differences are justified; people reap what they sow and create their own wealth or their own poverty.

The decentralization of government is another concern of the conservative opposition. They argue that national policies are less effective than local policies because the localities are better suited to address specific needs. A national minimum wage, for example, ignores the differences in cost of living between New York City and rural Wisconsin. The concentration of power also means more bureaucrats in the capital, which raises the cost of running the government, which in turn raises taxes. As economies encounter problems, the trend is to deal with them on a national scale if they are affecting the entire country. The right wing feels this is a poor remedy, however, and argues that government should be broken up into smaller bits and pieces.

They also contend that the conditions that spurred much of the governmental growth and attention to social welfare are different than they were when the changes occurred. The Great Depression was seventy years ago. There was an economic crisis. John Maynard Keynes’ (1883–1946) ideas of necessary government aid were adopted and Franklin Delano Roosevelt’s New Deal began a wave of change. There are problems with social welfare; the people meant to receive the aid don’t always get it.

Another contention is the belief in the need for privatization of public functions. The United Kingdom did a lot of privatization under Margaret Thatcher, but the United States has shown more resistance and continues to have many large public arenas. Liberals advocate public welfare for the poor while conservatives want taxes lowered and programs cancelled. The right wing feels that public functions do not operate under market pressures and have no drive to be efficient and successful. The same argument goes for social welfare; the conservative viewpoint is that the allocation of aid prevents self–help and, through apathetic acceptance, promotes long–term poverty and complacency.

The conservatives also feel that the publicity of functions deters the freedom of those functions.

Churches, schools, and museums should be private to protect their individuality. In regard to schools, both the United States and United Kingdom have the option of state funded or privately funded schooling.

There are now two sides of the fence. Views on capitalism have split with the liberals on the left, the conservatives on the right, and many stages in between the two. The liberals support increased government spending and centralization, social welfare and national regulation of the economy. The conservatives want to decrease the size and budget of the federal government, distribute power on a local level, and leave the market to its own devices.

Today, the United States has, arguably, the most diverse and technologically powerful economy in the world with a per capita gross domestic product of $33,900. Private individuals and businesses make the economic decisions with little guidance from the state and the government spends an large sums buying its supplies from private American corporations. Business firms in the United States have much greater freedom to make their own decisions than do their competitors in Japan and Western Europe. They may expand capital, lay off large numbers of workers, and create new products. They do, however, face more obstacles in exporting their goods than do outside firms when exporting to the United States. U.S. firms are technologically competitive and are leaders in computing, aerospace, military equipment and medicine. The technological advantage has continued to narrow since the end of World War II, however.

Germany

The German model of capitalism is somewhat different from that of its Western siblings. Because of the discrepancy between the United States, Britain, and France’s definition of democracy and that of the Soviet Union, when the Allies invaded Germany and set up democracy after World War II, there was some debate over which model to install.

Both “democracy” and “capitalism” are ambiguous words and have different meanings for different people and for different countries. The United States, Britain and France have a different meaning of democracy then do the Soviets and Chinese. The former associate democracy with freedom of press and speech, free elections, equality, the right to choose one’s job and to criticize the government, the right to travel within one’s country as well as internationally, and the right to create trade unions to protects one’s rights in the work place. Russia and China, however, consider that version the formal definition. In their view, democracy under communism is the true democracy,

with freedom of everything with certain provisions; freedom of speech so long as it is in favor of communist theory and freedom of the press provided the writing is in favor of the government. To clarify, it seems that capitalism and the democracy favored by the Western world go in tandem.

This western view of democracy includes several themes which are used as a basis for reality, whether or not it lives up to them. Individualism, rationality, voluntary choice, the law, means, consent, and equality are the standards behind the democratic machine. The government is by and of the people.

After World War II, the two definitions caused trouble within the Allied Powers. What resulted was the split of Germany down the middle. West Germany was set up with a western idea of democracy and East Germany with that of the Soviets and communism. Since the Berlin Wall came down in 1989, the two halves of Germany reunified, and Germany has emerged as an economic leader with stability that is envied.

Germany has become a model for much of the European Union’s development. Like the European Union, Germany’s states unified through the Zollverein, the customs union, before there was political unity. The German bank, separate from the woes of politics, is a model for the economics of the European Union. The state and private corporations create business regulations together in a way which would not be possible in the United States due to the individualistic attitude. Germany is more community oriented than the United States. Decisions are made at levels of interaction between the labor, industrial, government, and financial groups.

The German system is almost a merger between the democratic and communist ideals that split the country for so long. Though its politics are not utopian, its economics are almost that. West Germany was able to attain the same Gross National Product (GNP) that she had before World War II by 1950, just five years after the installation of democracy. Germany has trade surpluses today and is in a good position to buffer the collapse of the communist states which border it.

As the United States and Russia distance themselves from Europe, Germany fills the void. Companies like Volkswagen are able to expand, provide more jobs, and produce more cars in order to meet increasing demand. Germany has come from behind and may be winning the race.

Historically, Germany got a late start, about thirty–five years after the United States and sev- enty–five years after Great Britain. Though the states had begun economic unity in Germany by the mid

1830s, the revolutions of 1848 failed in Germany and, twenty years later, Germany was still in economic chaos. Budding capitalism was intertwined with feudalism. There were not entrepreneurial notions or free markets as there were in Great Britain and the United States. In 1871, the Franco–Prussian War and France’s defeat gave rise to the creation of one Germany. Thus, Germany joined the race during the second industrial Revolution: machinery making and steel. Germany’s chancellor Otto Von Bismarck, after having banned the Social Democratic Party, began an early model of welfare in the 1870s. His “marriage of iron with rye” was designed to bring German produce to his armies by train and, ultimately, to unite Germany. His workers were well–provided for, and after Germany had become industrialized, its economy fell into place. Though it was still politically and militarily confused, its economics were beginning to stabilize.

Germany surpassed Great Britain economically in the beginning of the twentieth century, but plummeted again due to high inflation and occupation of the Ruhr. Germany had a brief recovery before the Great Depression and rose again before the complete crumble that happened during World War II. Once she was reestablished, however, Germany rose again and, in the early 1950s, grew by eight percent annually economically.

After the United States and Japan, Germany has the third most technologically powerful economy. Its capitalism has begun to struggle, however, due to its welfare system. There is a high social contribution on wages, which has raised unemployment levels. Taxes may be too high and unemployment benefits too tempting to encourage many to work. At the same time, Germany’s population has grown older, using the resources set aside from social security while fewer in the younger generations are working and contributing to the bank of funds. There is also a continued integration of East Germany which is very costly for the country as a whole. There are annual transfers of roughly one hundred billion dollars. In 1999, growth slowed to 1.5 percent economically, due to lowered export and even lower confidence in the business sector.

New business, combined with tax cuts and increased Asian demand, may boost the growth higher again but the future of Germany is more uncertain than is has been for many years. The adoption of a common currency for the European Union and other communal integrations have affected Germany as well, though the specifics of the effects are still too young to analyze accurately.

Japan

The Japanese idea of capitalism is rather different than that of either the United States or Germany. The Japanese view capitalism as a way that communities can serve their customers, rather than a system to enable individuals to make a profit. This community logic has created a different, and equally successful, example of capitalism.

Companies in Japan not only take responsibility for their employees but also for the way its employees behave toward others. If an employee and his family had a fire, for example, their relatives and coworkers would help them rebuild what they had lost. In the United States, the family would be more likely to take a loan from the bank or to collect insurance money than to ask for collective help. In Japan, employees are paid more if they have larger families, whereas in the United States the size of someone’s family is irrelevant.

The Japanese subscribe to amae (indulgent love), meaning that they treat their best customers as royalty. Giving can become intensely competitive. The idea of sempai–gohai is also popular: elder brother, younger brother relationships played out in the work place in the form of mentors and apprentices. A manager in Japan is likely to help his employees with their work lives and home lives. Work is all–encompassing rather than just time in an office where one spends part of each day.

Japan is a different kind of capitalist country. There is strong cooperation between industry and the government. There is also a very strong work ethic, an excellent technological sector of creation and research, and a relatively small defense spending allocation, as specified by rules set up after World War II. Japan only spends one percent of her Gross Domestic Product (GDP) on defense. The combination of qualities have helped Japan compete strongly with China and the United States for the largest economy on the planet and have given it a second place slot in the most technologically advanced category of economics.

An important asset that Japan has is its Keiretsu, a philosophy of a tightly knit working unit made up of manufactures, suppliers, and distributors. Another ingredient is the guarantee of lifetime employment that Japan gives to much of its urban work force. Both of these assets are beginning to wane, however. There are several reasons for this. Industry is the most important sector of the Japanese economy, and industry is extremely dependent on imports of fuels and materials. The agricultural sector is much smaller and heavily protected and subsidized by the government. Japan

is usually self–sufficient in rice but must import half of its grain and fodder needs. Japanese fishing makes up about fifteen percent of the world’s catch.

For thirty years, Japanese economic growth had been outstanding. It has boasted a ten percent average in the 1960s, a five percent average in the 1970s, and a four percent average in the 1980s. In the 1990s, economic growth slowed remarkably. By 1995, the effects of over–investing and contradictory domestic policies which were meant to bring excess from the markets caused enormous economic shrinkage instead. In 1996, growth picked up a bit to under four percent due to stimulating monetary and fiscal policies and low inflation rates, but by 1998 Japan was in the middle of a taxing recession created by real estate, rigid corporate structure, labor markets, and trouble with the banking system. In 1999 the output began to correct itself with emergency government measures and an improvement in business confidence from increased government spending. The overcrowding of livable land continues to be a burden, however, and the relative aging of the populous is another concern, similar to the social security troubles in Germany and the United States.

Germany and Japan are similar in many ways, though as a group are very different from the United States and the United Kingdom. The latter two were early industrializers and they developed their economies through entrepreneurship. Their governments have only interfered after the fact, to curb adversarial wealth holders. Germany and Japan, however, were late bloomers and have played “catch–up” in the sectors of technology that they deemed most valuable. Their governments are up to date on the strengths of other economies and cooperate constructively with industrialization before the fact.

Comparisons

The United States and United Kingdom have very broad and sweeping education strategies which stress science and management. Their economics are split between macro (the entire economy) and micro (individual firms). Their social policies have been somewhat left behind and the governments may try to impose social burdens on businesses. Germany and Japan, in comparison, focus their education on technology and science. Their economic system is mainly meso, focusing on the dynamics of specific sectors of industry. The social policies are involved in industrialization efforts and the government considers social benefit crucial to its longevity.

The labor relations in the United States and United Kingdom are generally poor due to pressure

on labor costs. In Japan and Germany, relations are still good because wages continue to rise. The American and British development philosophy is laissez– faire, free trade, whereas in Germany and Japan it is managed, protected, and targeted.

Historically, the western transition from feudalism was slow and complete. Industry was built on the values of individualism. In Japan and Germany, the conversion is still in progress. Industry is built on communal ideas of reciprocity. The countries differ in ideas of industry financing as well. While the United States and United Kingdom have short term equity markets and many risk takers in the stock market, the markets in Germany and Japan are dominated by banks and low–risk industrial institutions.

The many countries that are capitalistic are very different in their details and, though they share the capitalistic ideals on some level, what that means from border to border varies quite a bit.

ANALYSIS AND CRITICAL RESPONSE

There is a notable relationship between capitalism and democracy. Throughout the world, the successful capitalistic countries tend to be democratic. Great Britain is a good example of this relationship given the fact it is the birth place of both capitalism and democracy. Through the majority of the nineteenth century, Britain kept its international leadership role as a politically democratic and economically capitalistic nation. These qualities transferred to the United States in the twentieth century.

An absolute democracy which entails unlimited rule by the majority is not compatible with freedom and, likewise, with capitalism. Rights would be arbitrary because they could be voted away with the next meeting of leaders. The accepted definition of democracy has come to mean a democracy that is constitutionally limited in its power. The idea behind this kind of democracy is to choose who is in power and how that power is used, but exactly what power the leaders will have remains unchanged because it is outlined in the constitution. A bill of individual rights is also necessary.

Materialism

An interesting development in capitalism is that of materialism. The main object of capitalism is just that, an object. Capitalism relies upon consumers and their every whim, a majority who consumes without producing. Capitalism is based on distributing these goods, though the consumers have no relationship

with the producers or the distributors other than meeting eyes with someone at the counter as they purchase their item. In the internet age, however, the middle man is cut out altogether and people order goods with a click of the mouse.

The only relationship consumers have is with the object itself. This gives the objects more relative importance. Part of capitalism is the mind set of these consumers, that they begin to identify themselves in terms of the objects they have purchased rather than by things that they have themselves produced.

Morality

Regarding morality, there is some debate about capitalistic virtues. Some argue that a capitalist nation is just because everyone is considered equal. Possessions are earned and the distribution of wealth is, in theory, fair. In the 1980s, Reaganomics, United States President Ronald Reagan’s trickle down theory of economics, became popular. President Reagan predicted that even though much of the wealth was in the hands of few, through their spending and existence as people of their stature, their wealth would trickle down through society, remain in circulation and reach the less wealthy. What actually happened was financial investment rather than trickle down economics. Money was put in the bank and in stocks where it could not be reached by the rest of society. Trickle down economics did not work.

Many argue that capitalism is functional but not fair, and others feel that the opposite is true; capitalism is the only fair system to choose. Capitalism allows a division of wealth that would not be possible under communism where everything is communal and personal properties are limited. Because of the economic freedom, wealth is unevenly distributed among the players. So perhaps capitalism is practical, but if this is the case, why is the state increasingly involving itself in the market details? Federal taxes are proportionately higher than they have been since the Second World War, and federal regulations on the register are expanding by 60,000 pages each year. Even the recent tax cut will only have a small effect on the government revenue.

Advocates on both sides, the left and the right, seem to agree that capitalism is immoral but practical. They agree that the free market be kept in some sort of check by the government; it is only in the scope of that check that they differ. Is capitalism moral? Immoral? It allows for great discrepancies in the distribution of wealth, and depending on the explanation, whether one earns one’s due or lucks into it, the feelings of fairness differ. In Capitalism: Opposing

Viewpoints, Michael Parenti argues that capitalism is immoral and quite exploitative:

The apologists for capitalism argue that the accumulation of great fortunes is a necessary condition for economic growth, for only the wealthy can provide the huge sums needed for the capitalization of new enterprises. Yet a closer look at many important industries, from railroads to atomic energy, would suggest that much of the funding has come from the public treasury—that is, from the taxpayer—and that most of the growth has come from increased sales to the public—from the pockets of consumers. It is one thing to say that large–scale production requires capital accumulation but something else to presume that the source of accumulation must be the purses of the rich.

Some argue that capitalism, however, is very moral indeed. Because of capitalism, we have all the products that are available today. There is an abundance of food, whether it reaches the corners of the earth or not. The life expectancy has doubled because of capitalistic driven research. We have air travel, air conditioning, aerospace technology and computers. It is the capitalist who envisions a product, researches it, and turns it into a saleable product.

Capitalism allows people to think freely and enables them to work out their thoughts. If the businessman cannot act on his own volition, his decisions will be limited as may his production and success. An important idea of capitalism is that everyone has the fundamental right to do with their life and property as they please. A government rampant with regulations can thwart this development, as evidenced by the many third–world nations and the fall of the Soviet Union. The free market drives the community to succeed by way of personal ambition. Adam Smith touched on this in his philosophy by saying that capitalism necessarily meant mutual agreement and mutual benefit.

The advocates of the moral defense of capitalism ask if capitalism is selfish, if it is selfish to take one’s own lives seriously and to pursue happiness. A system that revoked some of the personal freedoms would take away some of this liberty and the option to follow a dream, however fantastic. Perhaps for these reasons capitalism is on higher moral ground than it gets credit for.

Modern Realizations

In the material world, there are a lot of problems with modern capitalism. The reality of capitalism was the closest to its theoretical self during its classical period from the middle of the 1700s to the end of the 1800s. Since 1900, capitalism has changed in several ways.

The corporate role The corporate form of business is partly to blame. This form allows for the separation of the ownership of a business from its management and financial control; a company sells its stock and becomes public. The shareholders are only liable for the company in so far as the number of shares that they own. Before the corporation, partnerships involved the complete responsibility of the partners for business operations. Partnerships were small and each member had a sense of moral, financial, and personal involvement with the company.

In the modern world, 100 million shareholders may jointly own a corporation. The connection between these owners and the managers is thin. The corporation may or may not even be in the same country as its owners, and generally less than one percent of the shareholders attend the annual business meetings to elect officers and managers.

Management, rather than owners, decides who runs the elections, who is up for election, what policy proposals are needed, and how salaries should be altered. When these propositions are put to a vote the result is usually over ninety–five percent in favor of the recommendations of management. In political elections, in comparison, the majority usually wins with fifty–two percent. The other forty–eight percent of the population votes the other direction. For this reason, there is a lot of skepticism about the level of democracy within corporate management.

With the government, the people who hold power are accountable to those who gave them this power through elections, assuming the country is relatively democratic and holds elections. The government is the agent of the people, created by and from the population. In theory, political power is in the interest of the people rather than based on what politicians want. With corporations, however, the management makes continual decisions which affect the shareholders. The management is not accountable to them, however, nor does it have any obligation to seek their approval beforehand.

Like other forms of empires, industrial empires fall prey to the same fate. They become increasingly conformist and bureaucratic, leaving the ideology and spirit of capitalistic competition and freedom in their wake as they forge ahead into impersonal rules and enterprises. In many ways, large–scale capitalist enterprise is similar to large–scale socialized enterprise. As corporations become bigger and bigger, they swallow the smaller businesses and the populous is left with fewer and fewer choices.

This has happened in the United States. When on the outskirts of a city it is difficult to tell what city

one is in because the surroundings are the same. There will be a Walmart and a Target, a McDonalds, a Taco Bell, a Bed Bath & Beyond and a local State Farm Agent. Free–enterprise is changing to become safe enterprise and the corporate giants are sweeping the country and leaving their mark across the planet. It is difficult to drive fifty miles without seeing the telltale blue roof of an International House of Pancakes or a Perkins flag.

The same phenomenon has occurred with personal individuals. Fewer than one tenth of a percent of the population own one fifth of all the stock, and though the number of persons owning stock has been increasing, this is still quite a discrepancy in wealth distribution, paralleling the big business ingestion of the smaller.

Competitive opportunities There is another side to the coin, however. There are still many opportunities for small businesses, provided they aren’t in competition with large corporations; quite often, the existence of big business creates opportunities for small businesses. General Motors, for example, produces half of the passenger cars in the United States. Their domination of the market, however, creates opportunities for small mechanic shops, parts stores, dealerships, and gas stations. The corporations are still in

some amount of competition amongst themselves as well. Target is pitted against Walmart. Linens & Things competes with Bed Bath & Beyond. General Motors competes with Ford, and there is also competition between its various divisions: Chevrolet, Pontiac, Buick and Oldsmobile. There is some debate, however, on the compatibility of competition and big business. It is less difficult, for example, to compete with one other company rather than having to compete with thousands of other companies who offer similar products. The drive to produce superior products may decrease.

Given the rapid change of technology and, likewise, people’s desires and wants, there is a continual opportunity for new business. However, there is also a continual failure of businesses that are no longer relevant in the marketplace. Arguments for big business include greater stability for the employees due to less risk. Labor rights are safeguarded by the labor unions.

In big business, however, the profits need not be shared with the shareholders or with the consumer. If two companies merge, their combined assets may be profitable for management only. There are not regulations for this sort of wealth distribution, and monopolies benefit the owners at the expense of the consumer.