Capitalism Definition Examples Top 4 Practical Examples Explanation

Capitalism Definition & Examples

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Examples of Capitalism

The following are examples of capitalism

Capitalism Example #1

The US Federal government does not own these corporations. Capitalism has unleashed productive energy in the people of the country, playing a crucial role in the US being recognized as a superpower.

Some important legal provisions in the US constitution enable capitalism in the US. Private property is protected as unreasonable government searches and seizures are prohibited. Certain sections in the constitution protect freedom of choice and free enterpriseFree EnterpriseFree enterprise in economics refers to the private sector that operates at will without government interference.read more. Innovation is protected through stringent copyright laws. States are prohibited from taxing each other’s production. Ownership of private property is also protected.

The renowned chief investor of Berkshire Hathaway, Warren Buffet, had mentioned to the investors in a meeting that he is a card-carrying capitalist. He thinks the US has done an incredible job deploying resources and human ingenuity. However, Warren Buffett warned that capitalism could not be left unchecked.

Capitalism Example #2

Under examples of capitalism, inefficient work methods are not protected through government intervention but can die naturally. This process is known as creative destruction. Creative destruction involves conventional institutions giving way to newer, better, and more efficient practices and organizations. Capitalism inherently rewards innovation.

One of the examples of creative destruction is the fall of the photography company Eastman Kodak. Kodak cameras were replaced by far better technologies involving digital cameras and smartphones. In a socialistic environment, an organization like Kodak wouldn’t have died, and incidentally, society would be compelled to follow older ways of taking photographs. However, capitalismCapitalismCapitalism is an economic system consisting of businesses, resources, capital goods, and labour. Private entities own it, and the income is derived by the level of production of these factors. Because of the private hands, these entities can be operated efficiently and maximize their production activity also.read more recognizes the futility of saving businesses running on old technology that hampers the development of newer and better technologies.

A new incumbent doesn’t need to destroy an older company in the process of creative destruction. For example, an organization like HDFC bank itself brought in digital banking instead of going to the branch to get banking transactions done. Another example of creative destruction is mobile phones’ wireless technology replacing older landline technology.

Thus, capitalism through creative destruction enables the ushering of newer technology, which improves people’s lives and standard of living.

Capitalism Example #3

Up to 1991, India’s policies were more socialistic. But, the 1991 reforms started tilting India in favor of capitalism. Today, India is not capitalistic, but its policies are.

Before 1991, India followed the license-permit raj, where too many licenses and permits were required for doing business. Red tapes accompanied this. Since 1991, the number of licenses and permits required has been progressively brought down in line with capitalistic thinking. As a result, tariffsTariffsA tariff is levied by a government on the import of goods or services from another country. The charges increase government revenue, restrict trade with other countries, and protect domestic manufacturers from stiff competition.read more and government intervention have been reduced, and there is automatic approval of foreign direct investments (FDI) in many sectors. Many public monopolies have also ended.

These measures have led to huge economic growth and development. A significant increase in FDIFDIA foreign direct investment (FDI) is made by an individual or an organization, into a business located in a foreign country. The host nation receives job creation prospects, advanced technology, a higher standard of living, infrastructural development, and overall economic growth.read more has accompanied these capitalistic policies. As a result, India now has global corporations like Infosys, TCS, and HCL Technologies. Low government intervention in the software sector, which is one of the characteristics of capitalism, is to be credited for the rise of these software giants.

Each nation strives to adapt to democracy and capitalism to discover the apt combination of market competition, political pluralism, participation, and welfare. Over the years, the Indian capital market has developed and has opened doors for more investment opportunities, thereby attracting foreign investmentForeign InvestmentForeign investment refers to domestic companies investing in foreign companies in order to gain a stake and actively participate in the day-to-day operations of the business, as well as for essential strategic expansion. For example, if an American company invests in an Indian company, it will be considered a foreign investment.read more. Competition has ultimately forced Indian companies to produce good quality products and upgrade their technical skills.

Capitalism Example #4

One of the examples of capitalism has been the creation of mega-corporations owned by a set of private individuals and institutions. Minimal government intervention and protection of private property rights have enabled the creation of humongous companies. Another result of capitalism is the development of capital marketsDevelopment Of Capital MarketsA capital market is a place where buyers and sellers interact and trade financial securities such as debentures, stocks, debt instruments, bonds, and derivative instruments such as futures, options, swaps, and exchange-traded funds (ETFs). There are two kinds of markets: primary markets and secondary markets.read more in well-known companies such as Alphabet, Apple, Facebook, Berkshire Hathaway, and JP Morgan Chase are examples of mega US corporations. In addition, Alibaba and Tencent are major Chinese corporations.

Capitalism has resulted in vibrant stock markets where stocks are freely traded worldwide. As a result, capitalism has resulted in a huge surge in global wealth. The world has a wealth of USD 317 trillion as per Global Wealth Report 2018 published by Credit Suisse.

Conclusion

The world, in general, has moved in the direction of capitalism in the last few decades. Capitalism is most prominent in our current global economic system in aspects where individuals privately own the production, and the government has limited interference. Capitalism has given people liberty and the incentive to be more productive. On the other hand, it has several drawbacks like creating monopolies, eradicating poverty, income inequalityIncome InequalityIncome inequality refers to the crucial imbalance of income dispersal across the population.read more, market instability, etc. Many critics point out that this system does not have a heart. However, the problems of capitalism can be overcome by a balanced approach.