An argument in support of capitalism in America, discussing the benefits regulatory policies bring to a capitalist economy.
Capitalism has roots deep within American history. The country declared independence mainly due to Britain’s unfair taxes, “No Taxation without Representation!” was the motto in 1776. From then on, our founding fathers formulated a government run by the people, for the people. American businessmen and laborers alike have opposed unnecessary taxation since the founding. Income tax was ratified under the 16th Amendment in 1916 and reached its highest in 1945, at 94% for top earners (those making 200,000 or more at the time, approx. 2.5 million of today’s dollars). (Bradford Tax Institute) This was right after World War Two, which the federal government needed funding to pay for it. Such high taxes usually fail as most of the rich’s lawyers and accountants can find various loopholes. As the country industrialized and more and more people migrated to the U.S., the government had more pressure to ensure public health and safety. This led to many laws and acts to protect Americans and ensure the best quality of life possible. It has been proven that countries that embrace capitalism with some socialist aspects are wealthier and more developed than countries that do not. “Communism produced mass starvation in Eastern Europe and Asia” (Freedman). The American economy is the richest and best performing in the world, in terms of entrepreneurial ability, “3rd Quarter earnings growth reported a 28.5% for S&P 500 companies, among the highest in decades” (Bell, 2018). A purely communist or capitalist economy cannot exist as they would not be efficient. Both systems in their pure forms allow for corruption and disadvantages to many people. A mainly capitalist economy with some aspects of socialism is the best for America’s economic well-being because it allows citizens to create and operate businesses, gain wealth while keeping taxes low, and regulations and policies secure the health, safety, and fairness to American citizens.
To understand America’s current economic system, one must investigate its economic history. The country was founded on freedom, and economic freedom was the reason many moved to the new land. There were more opportunities and advantages for companies and workers alike. The colonists were able to form a government that protects their core values, Life, Liberty, and the Pursuit of Happiness (Declaration of Independence). In the late 1700s, there was a major division between the rich and poor, showing the problems with a purely capitalist economy, as the Constitution was not yet ratified. Shay’s Rebellion brought this problem to light, poor, rural farmers land was being foreclosed by courts and banks would not extend credit. These farmers then went to Springfield, Mass. and closed the courts, causing a major disruption. The rebellion was put down by a private militia, showing the weakness of the Articles of Confederation. The government was not strong enough to form a military, let alone tax citizens and regulate the economy. The constitution addressed these issues by forming a federal government that has enumerated and implied powers, as do the state governments; This is called federalism and ensures the government does not get too powerful and allows for a democratic republic. A perfect government and economy were far from reality though. Monopolies, such as Standard Oil, rose to power during the mid-1800s leading the federal government to act. Monopolies are multiple companies fused into one giant conglomerate run by one board. These would be legal in a pure capitalist economy but destroy any competition by having substantially lower prices than competitors.
While this may help the consumer, many small businesses are put out of business, hurting the economy. This outweighs any benefit to consumers. The government acted under Roosevelt by making monopolies illegal, with hefty fines and jail time. After the Great depression America became even less capitalist in order to protect citizens (FDR’s New Deal). Many acts, such as the AAA which limited the amount of wheat farmers could produced based on acreage, were put into place to solve economic issues; Overproduction was the main cause of the recession leaving millions of Americans unemployed and in poverty, even banks were forced to shut down. My Grandpa always disliked banks, and when I asked why he said “When I was 17, I rode my bike to the bank to withdraw my money and saw a huge “CLOSED” sign on the door. All my money gone” that was during the great depression. FDR’s policies helped the country recover from the horrible depression, proof that some socialism can be good for the economy. More recently, the 2008 recession was remedied by government programs “The Great Recession was felt the hardest in the U.S., where it started, but countries across the globe felt its effects and implemented fiscal stimulus programs like the U.S.’s. The programs used different combinations of government spending and tax cuts” (FederalReserve.org) The programs included the Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009. In addition, America has been the prime location for entrepreneurs. American entrepreneurs have consistently outperformed other countries in inventions and technological development, some examples are the combustion engine by Henry Ford and electricity by Thomas Edison. American companies faced lass taxes and regulations, the U.S. economic freedom is currently ranked as the 16th most free in the world (Index), removing obstacles hence being more efficient and profitable.
A successful company not only brings success to the owners, but also its workers and the economy. American inventors revolutionized manufacturing techniques, ramping up production while lowering costs. The assembly line and interchangeable parts made the manufacturing of millions of consumer and commercial goods much more efficient and much cheaper to produce. This created the consumer economy present in America and across the globe as nearly every company adopted the techniques. Apple, Ford, and Boeing are examples of major companies that had revolutionizing inventions in many industries. Personal computers, smart phones, and cars make the quality of life of users much better because of their capabilities. One can talk to anyone almost anywhere, writing letters or using a landline are obsolete and much less efficient. Horses and physically walking require a lot of work making many tasks in the modern world very difficult. Commercial flights connect the world, travelling used to take days to even months, now it takes a day or two. The American economy had a major affect on these developments. Looking at America’s history allows us to see capitalisms impact on the U.S.’s economic development, as well as how policies and regulations help stabilize this giant, growing country.
Capitalism allows for a free market without government involvement. In a communist economy any and all businesses are owned and operated by the state, and wealth is split up evenly. This is flawed because if everyone gets paid the same there is no reason to work extra hard to get ahead. It is much harder to become a doctor than work as a cashier, yet under communism they would receive equal pay. Therefore, communism failed everywhere. Pure socialism is very similar in that all enterprises are owned by the people, opposed to the state as in communism, and everyone receives the benefits (Britannica). Competition seen in capitalist economies forces companies to innovate and be productive. This is what fosters economic growth as companies fail and shut down or start up and grow. This competition is the most important aspect to a successful economy. For example, the competition in sports forces athletes to work as hard as physically possible to better their skills, which allows them to excel and reach the top.
This translates directly into the economy, companies must innovate and outwork competitors to become industry leaders. Tesla is an example of how competition pays off. There are many electric cars on the market and Tesla had to set themselves apart from other companies producing similar vehicles, so they spent years developing technology and their signature cars. They eventually became a multi-billion-dollar company employing hundreds of thousands of American workers, all of which pay very well. The invisible hand theory states that individual self-interests will ultimately benefit society (JSTOR, Smith). While this does work very well, it can be slow to progress, so governments come in to help speed things up by funding programs and research to make businesses more efficient. The FDA is an example, while it regulates the food and drug market, it also provides many companies with valuable research to better their products by making them safer. Consumers want safe goods to consume so FDA approved goods sell much better and benefit the consumer. An unhealthy population will hurt the economy.
Countries with open markets consistently do better than those with closed ones, “The U.S’s monetary freedom score was 78.6 (out of 100), the business freedom score is 82, and the labor freedom score is 90” (Index) These values rank the U.S. 16th overall in the world in terms of market freedom, as mentioned previously, and is much higher than the world averages.. China’s scores were 54, 61, and 70 respectively, as they are much less open. Taiwan has a very capitalist economy, “A relatively well-developed commercial code and open-market policies that facilitate the flow of goods and capital have enabled small and medium-size enterprises to become the backbone of Taiwan’s expansion” (Bradford). Close neighbor Vietnam, which was overrun by the Communist Party a year after the U.S. pulled out of the war, has a GDP per capita of $2,374, significantly lower than its capitalist neighbors of similar size like Hong Kong and Singapore. “An exceptionally competitive financial and business hub, Hong Kong remains one of the worlds most resilient economies. A high-quality legal framework provides effective protection of property rights and strongly supports the rule of law. There is little tolerance for corruption, and a high degree of transparency enhances government integrity.” (JSTOR Index). Hong Kong and Taiwan’s economic development came in the last few decades and is very similar to America’s development.
Each country is very capitalist, avoiding corruption and facilitating global trade. Less taxes and regulations allow for economic expansion. The government implemented the Economic Stimulus Act of 2008, which cut taxes for Americans. Less taxes means more money to citizens, which means more purchasing power, and that money will be circulated into the economy. When consumers stop spending, companies lose money and lay off workers, which has drastic impacts on not only people’s individual lives, but also the economy. “North Carolina’s labor, energy, and tax costs rank as the second lowest in the U.S. overall. Job growth and gross state products are expected to rank among the strongest in the country over the next five years. The population is growing twice as fast as the U.S. average” (Moody’s Analytics). North Carolina is a very good example of how fiscal policy enables economic growth. High taxes push businesses out, San Francisco raised the minimum wage to 15 dollars an hour, causing many companies to close completely or outsource to areas with different regulations. San Francisco, ironically, has one of the highest costs of living even with laws intended to combat the wealth gap. This has done the opposite, the money is where the corporations are, and high taxes and regulations deter them. Capitalism is what led to America’s success, along with many other countries, yet many still oppose it.
Socialism has been present in America for decades. The Socialist Labor Party was founded in 1877 and pushed for labor/social reform, and later opposition to World War One which gave it a pretty bad rep along with its ties to the Haymarket Bombing. Socialism is like Communism in that it bans private ownership of land and enterprises. It has the same flaws as communism, there is no incentive for someone to start a company for it to be owned by the community. If everyone was an owner who would run the company? Someone would have to run the company and manage its resources, and these are skills that many people lack. Would the “executives” be paid the same as everyone else? Under socialism, yes, they would. This is socialism in its full form, which never has occurred for the reasons I stated, it just does not work.
This will never occur in America as “the American love and embrace of capitalism, resulting entrepreneurial business culture and the creative destruction inherent in the capitalist market system” are deeply rooted in the American way of life and economics, which have resulted in America’s “special and unique edge in the economic wealth we have today” (Brad DeLong, Washington Post). Socialism in this country is much less extreme, and the socialist party made achievements such as the 8-hour work day and banning child labor. Opposition to child labor started in socialist unions and was not to protect children, but rather eliminate a cheap source of labor in order to force wages to rise for adults doing similar jobs way back in the late 1800s. Regulations imposed by the U.S. government, which make the economy less capitalist, ensure workplace safety to millions of Americans. These regulations are not socialist, but they make the American economy less capitalist. Right at the start of the Industrial Revolution “the American system encouraged the use of labor-saving machines and processes. These developments occurred within a legal and regulatory climate that diminished employer’s interest in safety. As a result, Americans developed production methods that were both highly productive and often very dangerous” (EH) This shows the problem with capitalism. Companies will do whatever they can do to maximize profits: unsafe working conditions, child labor, and very long hours were very common in American workplaces in the late 1800s, even into the 1900s. These conditions led many workers to form unions and demand change, “work safety also became of an increased public concern and the first important developments came once again on the railroads. In 1908, congress passed a federal employers liability law that applied to railroad workers in interstate commerce” (Aldrich). Similarly, congress passed Occupational Safety and Health Administration (OSHA) in 1970, “the work of these agencies had been controversial but on balance they have contributed to the continuing reductions in work-related injuries” (EH).
Workplace safety laws limit company’s freedom but are very important in maintaining workers safety which helps the economy and quality of life of millions of laborers. Child labor was banned, helping many children by removing them from harmful conditions improving their health, many worked in coal mines or textile factories with little no safety education or supervision. Furthermore, Health and safety regulations imposed by the federal government greatly improved public health but created obstacles for businesses. In the long run, these policies helped the economy as millions of lower to middle class workers became healthier. Regulations like these may bring the U.S. a little closer to socialism, but it still has a very long way to go before that change happens. The government implements policies not to make everyone more equal, but to protect citizens, the environment, and the economy. I interviewed Tom Ranucci, owner of Interior Concepts, and my first question was “How do government regulations affect your business?”, he replied with “I have to get permits and abide by the many workers comp and insurance laws, but all that is very easy to follow.” These regulations are put into place to ensure his company will not install any unsafe equipment that poses a threat people using the many facilities he has done work in. Another question I asked was “How do the state laws affect your business?”, which he replied with “”I’d say they are neutral, Colorado isn’t necessarily pro-business like North Carolina, but it is much laxer than say California. I have been here since 1980 when I founded it and haven’t gone out of business yet, so I’d say Colorado does a good job facilitating my market. Also, recently CO’s population has been growing fast, and there are many new jobs out. I get invitations to bid every day and that definitely helps.” State and local laws have a major effect on companies, but they are created for the same purposes as the federal government and are necessary. Government regulation, making the economy less capitalist, is necessary to an extent in maintaining a healthy population and stable economy.
Capitalism is the most efficient and profitable form of economics, benefitting society with the implementation of some laws and regulations. Health, safety, and ethical business conduct all should be regulated by the government, even though it makes our economy less capitalist. Regulations make sure greed does not corrupt businesses and the government, acting to protect all American consumers and workers from unsafe health risks and on-site work injuries by holding the company/employer accountable. Monopolies and collusion between companies is outlawed, giving smaller businesses a chance at success in a very competitive economy. Public aid provides relief for very poor or disabled Americans, boosting the quality of life for them and improving poverty in this country, which benefits everyone.