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How to achieve Sustainable Capitalism: Explained

  • Vrinda Mathur
  • Mar 22, 2024
  • Updated on: Oct 25, 2023
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A decade ago, Matthew Kiernan, the founder of socially responsible investment (SRI), stated that the true test of SRI's success - now known as responsible or sustainable investing - would be its extinction. Unfortunately, this has yet to happen, but progress is being made.

 

The movement's primary peril in its early days was marginalization. Nothing would ever come of it if it were solely populated by dreamy-eyed do-gooders who made a career out of attending conferences with people just like them. Only by going popular will the movement be able to have a genuine influence. Fortunately, a clear road to mainstreaming the core SRI precepts has emerged, and the conversation has shifted from SRI investing to long-term, wealth-creating investing.

 

Brief History about Capitalism

 

The origins of capitalism have been much debated (and depend partly on how capitalism is defined). The traditional account, originating in classical 18th-century liberal economic thought and still often articulated, is the 'commercialisation model'. This sees capitalism originating in trade. In this reading, capitalism emerged from earlier trade once merchants had acquired sufficient wealth (referred to as 'primitive capital') to begin investing in increasingly productive technology. This account tends to see capitalism as a continuation of trade, arising when people's natural entrepreneurialism was freed from the constraints of feudalism, partly by urbanization

 

Capitalism first appeared during the Industrial Revolution in the 18th century. Adam Smith, known as the "Father of Modern Capitalism," was a Scottish economist and radical thinker. Much of the Capitalist economy is based on his views. He advocated for the free market, and his ideals are still important today. Smith believed that people should be allowed to build on their money. He believed that it should be preserved so that they would not lose their profits or possessions to the government.

 

Smith was also not a fan of the Governor's business practices. He feared that it would simply further impoverish the poor. Capitalism, on the other hand, would provide an opportunity for growth and equal prosperity for all. Smith was instrumental in establishing the exchange of commodities and services with other countries. Taking advantage of assets and services given by other countries.

 

Gold and silver were considered valuable at the time. The economy grew exports while resisting imports, believing that this improved metal riches. Smith had another thought. For example, if grapes grow better in France, why try to cultivate them in England? Smith advocated for imports and exports from foreign countries that would benefit both countries.

 

He felt that wealth was obtained from the commodities and services produced by the economy. Instead of limiting a nation's ability, he aimed to liberate it, which is now known as "gross national product."

 

Smith advocated for economic liberty and limiting government engagement with business owners. He wanted businesses to feel safe trading, saving, and investing without fear of an overpowering authority. A flourishing economy would be based on this Capitalist ideology.



 

Features of Capitalism 


Infographic listing the features of CapitalismFeatures of Capitalism


Capitalism, often known as the free market economy or the free enterprise economy, is an economic system that has dominated the Western world since the dissolution of feudalism, in which most means of production are privately owned and output is regulated and revenue distributed mostly via the functioning of markets. Some of the main characteristics of capitalism are.

 

  1. Property ownership rights

 

The ability of a person to hold private property is a key characteristic of capitalism. People in a capitalist system have the right to own assets and property and to conduct lawful commerce. This feature provides everyone with a fair playing field as well as the ability to create a business and own property. The benefit of this element of capitalism is that it allows for the accumulation of riches. The drawback of the right to ownership is that certain individuals or corporations may use it to gain more money at the expense of others, resulting in wealth disparity.

 

  1. No government intervention

 

In a capitalist economy, the government does not intervene, or only intervenes in a limited way. Entrepreneurs are free to manufacture any lawful product or service and set any price they want as long as they can find buyers willing to pay for them. That means no price fixing by the government; when the government intervenes, it helps to control and examine the standard and quality of products before releasing them for consumption, not to fix prices. The downside of allowing capitalists to control the cost of things is that the prices, particularly for essential commodities, may be unaffordable to people. 

 

  1. Free market mechanism

 

Capitalism allows market forces such as demand and supply to work freely. In a pure capitalist economy (Laissez-faire capitalism), the government does not intervene in determining prices or output levels. When consumers and producers behave in their own best interests, the economy runs smoothly; yet, this can lead to market failure because self-interest does not always generate the best results.

 

  1. Promotes competition

 

Competition among capitalists is a very beneficial capitalism aspect since it stimulates innovation and may even drive down prices of goods and services in the endeavour to gain their market share. As a result, customers gain from excellent items from producers and may even enjoy lower prices of commodities as capitalists attempt to entice consumers with lower prices.

 

  1. Customer sovereignty

 

In this arrangement, the market is ruled by customer demands. It governs the degree of production performed by businesses, and the consumer is free to choose which things to buy.

 

  1. Leading Role of Joint Stock Companies

 

A joint stock company's business is conducted by a board of directors that is democratically chosen by the company's shareholders at its general body meeting. As a result, Joint Stock Companies have been dubbed "Democratic Capitalism."
 

However, the actual running of the corporate sector is not truly democratic because elections are held on a one-share-one-vote basis. Because large business houses possess the majority of a company's shares, they are re-elected and the company is run as if it were their family business.

 

  1. Role of the Entrepreneur 

 

The entrepreneurial class is the foundation of capitalist economy. This class underpins the entire economic structure of the capitalist economy. Entrepreneurs serve as producers' leaders in a variety of industries. A healthy competition requires the presence of good entrepreneurs. Entrepreneurs are the primary drivers of the capitalist economy's dynamism.


Also Read | Income Inequality: A Rising Cause of Concern in India | Analytics Steps

 

How to achieve Sustainable Capitalism?

 

Although the continuous development of capitalism as a system began in the 16th century, precursors of capitalist institutions existed throughout the ancient world, and flourishing pockets of capitalism thrived in Europe during the later Middle Ages. The rise of the English cloth industry during the 16th, 17th, and 18th centuries was a driving force in the formation of capitalism. The use of accumulated capital to expand productive capacity rather than invest in economically unproductive enterprises such as pyramids and cathedrals was a component of this evolution that distinguished capitalism from prior systems. Several historical events aided in the development of this trait.

 

Capitalism is a single system of economic production and resource allocation. Unlike socialism or feudalism, which use centralized political systems to plan economic decisions, capitalism uses decentralized, competitive, and voluntary decisions.

 

First, address the danger of stranded assets. Climate change has the potential to have a significant impact on asset valuation. CO2 emissions, for example, will eventually be priced. The longer we wait, the higher the cost of mitigating global warming will be, as will the risk of disastrous repercussions. These occurrences will eventually have a detrimental impact on stock prices in businesses such as utilities, mining, transportation, chemicals, and fossil fuels. 

 

Investors require a more comprehensive understanding of how their investments generate value. This entails adopting integrated reporting, which combines financial and non-financial information in a single document that links the organization's capital resources (physical, natural, financial, and human) to its results (products, services, financial returns, and externalities).

 

Quarterly earnings guidance should be discontinued. This practice generates incentives for short-term management and trading rather than long-term wealth generation. Executive remuneration arrangements should be reconsidered as well. It is also critical to encourage positive investor conduct. Long-term shareholders should be rewarded for their devotion with more voting rights or dividends.

 

Capitalism is fundamentally an economic system in which one or more business owners (capitalists) organize the means of production (i.e., factories, tools, machinery, raw materials, etc.). In exchange for compensation, capitalists engage workers to operate the means of production. Workers have no claim to the tools of production or the profits created by their labor; these are the property of capitalists.

 

Conclusion

 

Capitalism has not always been successful throughout history. However, as it has progressed, its flaws have diminished. Surprisingly, no country has ever completely embraced pure Capitalism. America in the nineteenth century came the closest. Capitalist countries nowadays frequently feature a mixed economy, a mix of freedom and authority. It should not be assumed that capitalism does not exist or has never been.

 

It simply means that Capitalism has never been adopted in its purest form. Capitalism exists in numerous countries and is still widely practiced in the United States. China and the EU account for 33.9 percent of the world's economic output of $127 trillion. The United States stayed third, with $19.4 trillion in output. The aggregate output of the world's three largest economies was $62.4 trillion. That equates to 49 percent of the global economy" - The Balance. Capitalist economies include China, many European countries, and the United States. As a result, profits account for roughly half of the global economy.

 

Whether you agree or disagree with capitalism, there is no denying that its structure delivers excellent outcomes. It is demonstrating that its successes outweigh its flaws. In theory, many of us would never invest or inspire in a company if Capitalism did not exist. Societies would become immobile, and aspirations would cease to exist. Capitalism provides nations with the liberties that our forefathers desired.

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