Capitalism is a totalizing and comprehensive economic system that governs our daily lives, guides governmental policy, shapes institutional values, and demands technological growth. The system’s emphasis on competition and innovation on the market has spurred innovation and entrepreneurship, and fortunate individuals have become enriched in the process. While some lucky capitalists use their economic advantages to uplift others and pursue equality, the economic system as a whole greatly incentivizes private ownership, wealth accumulation, and the exploitation of the poor. As such, the wealthy establish monopolies, market barriers, and legislations to consolidate power and protect their fortunes. In this paper, I will explain how capitalism exacerbates inequality and permits the rich to pursue unfair advantages that prevent social mobility and deepen the gap between the wealthy and the indigent.
Capitalism is often touted as a force that encourages people to find creative solutions to difficult problems because, unlike other economic organizational approaches, it forces actors to compete with one another to “earn” both the necessities of food, housing, medicine and the luxuries of non-essential goods and services. Yet, the flipside of this competitive structure is that legions of people are poor while a minute segment of the population become billionaires. To defend a system that creates such disparities in the social distribution of wealth, economists will often cite Adam Smith’s arguments, which posit that capitalism offers a means by which supply and demand for certain products and services find their equilibrium (Smith). According to this logic, people are paid a wage based on the social value of their labor, so people who create “innovative” products are rewarded with greater sums of money.
A rebuttal to Smith’s viewpoint is the observation that this argument justifies inequality by suggesting that those who happen to control the means of producing commodities also deserve to reap all the value realized by those commodities on the market (Gans). In fact, capitalists gain money by reducing the expenditures necessary to produce the commodities or services they sell, and these reductions must be driven by increasing efficiency or cutting production costs – in other words, intensifying the labor process at lower total wages (by cutting salaries or shedding jobs). Competition requires these mechanisms, because those capitalists who neglect to perform these interventions will go out of business. Wage laborers who supply goods that are in high demand, then, do not reap the “value” represented by the price and quantity of those goods sold; rather, they are excluded from these gains because their exploitation is required for those fortunes to be accumulated in the first place.
This form of wage-labor exploitation is dramatically represented in the differences in pay between the average chief executive officer (CEO) and the average worker. In the mid-1960s, it would take the average worker 20 years to earn the annual earnings of the average CEO (Lawrence). Today, this figure has drastically increased to an impossible 312 years, meaning the average worker would need to work over three centuries to match their boss’ single-year paycheck. The gap between the wealthiest capitalists and the masses of laborers is wider than ever, and this inequality is perpetuated by capitalism itself.
Inequality is also allowed to run rampant in the capitalist system because of its exclusion of legislative interventions that would redistribute wealth to those in need. A strict, Adam Smithian approach to the market would advocate for a free interchange of goods and services without any governmental intervention. Competition can flourish and companies are spurred to develop, innovate, and grow through entrepreneurial verve and creative approaches to meeting social needs. However, the truth is that untrammeled competition permits actors to form monopolies, oligarchies, and barriers to market entry to stifle competition and accelerate exploitation. Mergers and acquisitions between large firms ostensibly in different industries, such as Amazon and Whole Foods, permit single entities to control vast swathes of the means of social production and reproduction (Banerjee). Instead of innovating, these companies have created a business model that revolves around reducing competition as much as possible.
One deleterious consequence of this phenomenon has been the massive increase in corporate power. These firms pursue economic gain at the expense of other community stakeholders, such as workers and local residents (Stiglitz). For instance, when Walmart enters a small town, it uses its economic advantage and massive supply chain infrastructure to offer lower prices and drive all other locally owned enterprises out of business. Once all competition is driven out, Walmart is no longer incentivized to innovate, provide variety, or reduce prices. Instead, the company will focus on erecting barriers to entry and increasing profits in the most sustainable and efficient manner. Consumers will then be forced to pay higher prices, workers will be forced to work at lower wages, and product quality will decrease. The texture, character, and life of the town will also decline since the people with real, local stakes in the well-being of the community will no longer be able to run the kinds of unique businesses that give places their soul.
While Walmart is just one large company that implements these sorts of policies and strategies, there are a myriad of other firms that follow suit. The Columbia University economist Joseph Stiglitz emphasizes how monopolized market power permeates our daily lives: “we see it in the limited choices we face for cable TV or the internet or telephone services. Three firms have an 89 percent market share in social networking sites, 87 percent in home improvement stores, 89 percent in pacemaker manufacturing, and 75 percent of the beer market; four firms have 97 percent of the dry cat food market, 85 percent of the jelly market, and 76 percent of domestic airlines revenue” (Stiglitz 66). As a result of public inaction and deregulation, many firms have stopped innovating altogether. For far too long, these industries have stagnated, enriching the victors while impoverishing the vast majority of people, all in the name of competition and market freedom.
Defenders of free-market economies and will often argue that companies that create useful products should be rewarded with freedom and wealth, as these incentives are necessary to spur lifesaving goods and life-improving technologies. Yet, the truth is that these companies abuse their advantages to exploit their market position (Chang). Turing Pharmaceuticals, for example, infamously researched a suite of drugs with expired patents that had already been approved by the Food and Drug Administration. Turing then purchased bulk supplies of these drugs, taking advantage of the expired patents to monopolize the market for them (Pollack). One such drug was Daraprim, which is used to treat toxoplasmosis. Under CEO Martin Shkreli, Turing hiked the price from $13.50 to $750 per pill after buying a majority of the world’s supply of this product (Fox). When other firms tried to compete with Turing by developing generic equivalents of Daraprim, they faced the costly barrier of needing to build production lines and infrastructure. This lag permitted Turing to continue selling the drug at exorbitant prices even after generic firms finally managed to overcome the costs to produce Daraprim.
Due to Shkreli’s incompetence and greed, Turing’s competitors were eventually able to enter the market and lower Daraprim’s prices. Shkreli miscalculated by increasing the price too high, gaining attention and attracting entrants; however, if he had raised the price to, say, $100, it’s likely that Turing would not have gotten the same media attention and could have persisted in exploiting its monopolistic advantage over consumers of this essential medicine. Turing’s scheme demonstrates how capitalists can use deceitful and exploitative practices to capitalize on the needs of society and use a lack of regulation to pursue profits off the backs of defenseless workers and consumers.
Other defenders of capitalism argue that the processes of globalization, international trade, and worldwide competition creates better standards of living across the world. However, these same forces actually permit firms to exploit workers even further by transferring labor to countries with lower minimum wages and even fewer protections and regulations for the proletariat. When companies export jobs, they lower costs without any concomitant need to reinvest these savings in helping those in need on either a local or global level. While some new jobs are created abroad, many are likewise lost at home. The net result for domestic workers is a loss (Stiglitz). For this reason, when China was admitted into the World Trade Organization in 2001, American unemployment increased, while the average wages decreased in the industries in which China exports products (Bower). Furthermore, the financial savings of offshoring weren’t invested in American communities; instead, this wealth remained at the top of the corporate hierarchy. Unrestricted forms of globalization also reduced tax revenue and weakened the government’s ability to help people (Schor). The corporate tactic of asking countries to bid against one another for the “right” of hosting that firm’s operations became a tactic for evading taxes. As a result, inequality increased while incomes declined (Stiglitz).
A potential counterargument to the contention that offshoring hurts the American economy and leads to declines in social life would be the view that manufacturing produces negative externalities in the immediate environment. By moving pollution abroad, this argument would contend, offshoring actually produces advantages for American people. However, this premise neglects to understand the global nature of climate change and impending ecological cataclysm; one country cannot insulate itself as if it lives on another planet. Furthermore, such a callous belief in the American ability to export pollution belies the underlying assumption that environmental sustainability is always an inefficient corporate practice. Under capitalism, slowing production or making technological expansion more expensive is always disincentivized, even if such measures are responsive to the fact that climate change is threating humankind (Stiglitz). Throughout American history, conversely, firms have been incentivized by capitalism to pollute the environment. DuPont, for example, knew about the pollutant Perfluorooctanoic acid, which it emitted “in the local water supply… and in dust from the factory chimney, yet did not disclose this to workers or the surrounding public. According to a 2004 study by an industry risk assessor hired by DuPont, the plant dumped and emitted over 1.7 million pounds of PFOA between 1951 and 2003” (Board). Millions of lives were affected, and future generations will bear the burden of this action. This was the price DuPont was willing to accept in exchange for profits. Hence, while some individuals had something to gain, many had much more to lose. In a capitalist system that advocates for the privatization of wealth, the masses are exploited, and pollution is only one of the many side effects with which the poor must contend.
Capitalism is riddled with internal contradictions and built-in inequities. These problems cannot be ignored. The system is inimical to change and detrimental to the vast majority of people. Rampant inequality and political deregulation are the handmaidens of this economic system. While competition encourages innovation, capitalism uses innovation to leverage the prerogative of the few over the well-being of the many. Furthermore, corporations are able to pursue profits mercilessly, destroying lives and the environment in the process. Therefore, capitalism is inconsistent with addressing the challenges that our society is facing on a global level.
Bridges 