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Advahtages of Capitalism

Ouestioh: What are the advahtages of capitalism? Capitalism is ah ecohomy based oh free markets where resources
ahd firms are privately owhed. lh practice, this usually ihvolves some state ihtervehtioh to protect private property
ahd regulate certaih aspects of the ecohomy. Most would argue that the UK ahd US is essehtially capitalist despite
the goverhmeht spehdihg betweeh 3 ahd 40% of GDP.
Advahtages of Capitalism
I. What is the alterhative? Churchill's quote oh democracy sprihgs to mihd.
"lt has beeh said that democracy is the worst form of goverhmeht except all the others that have
beeh tried.
Che could say the same for capitalism. Basically, wheh goverhmehts attempt to cohtrol the ecohomy. We ehd up
with problems such as.
y Corruptioh
y /ack of ihcehtives
y Poor ihformatioh
. Efficieht Allocatioh of Resources
lh theory, capitalism or the 'ihvisible hahd of the market' ehsures resources are distributed accordihg to cohsumer
preferehces. Firms are hot rewarded for producihg goods people doh't waht.
3. Efficieht Productioh
lh a market system, firms have ihcehtives to be productively efficieht - cuttihg costs to improve competitivehess
ahd productivity. lf firms doh't remaih productive ahd efficieht they will go out of busihess.
4. Dyhamic Efficiehcy
This is efficiehcy over time. Firms ih a capitalist system heed to respohd to chahges ih cohsumer preferehces ahd
respohd to hew cohsumer trehds.
. Fihahcial Ihcehtives
Evidehce suggests that people work hardest wheh there is a persohal fihahcial ihcehtive. E.g. ehtrepreheurs ohly
take risks ih settihg up busihesses because of the potehtial for large fihahcial reward. lf this scope for private profit
is abseht theh hew firms woh't be set up.