The Routledge Dictionary of Politics, Third Edition
At its most simple and value-free, the term capitalism is used to describe any economic system where there is a combination of private property, a relatively free and competitive market, and a general assumption that the bulk of the work-force will be engaged in employment by private (non-governmental) employers engaged in producing whatever goods they can sell at a profit. Capitalism has its own ideology and economic theory, like all politico-economic systems. The original theory of capitalism was essentially that an entirely free market of small-scale entrepreneurs, hiring individual labourers at the minimum possible cost, would produce the maximum output, at the cheapest possible price given the cost of the other inputs necessary for production. This is often called the ‘perfect competition model’ of economics. One aspect of this model is to require government neither to own any productive enterprise, nor to regulate or control the economy in any way.
However valid or otherwise this simple model might be, current understanding of capitalism focuses on two ideas; production for profit, and the existence of private property which is only partially controlled by the state.
To believers in capitalism (which, with some reservations, means all the major parties of the United Kingdom and USA, most parties in Western Europe and the Old Commonwealth, and, since the downfall of the communist governments between 1989 and 1991, most political movements in Eastern Europe and the former Soviet Union), this form of economic organization provides the greater likelihood of maximizing economic performance and defending political liberty while securing something approaching equality of opportunity.
In fact there are no pure capitalist economies, and the functioning of modern economies is more a matter of a sliding scale from minimum to maximum private property and regulation. In many economies, Britain’s being a prime example, the government, including local government and other public services, employs so large a proportion of the work-force as to make it impossible not to wield enormous influence. Furthermore, the 19th-and early 20th-century experience of completely unregulated economies led to such disasters, and such inequalities, that regulation has been common even in the USA, which is the country most ideologically committed to capitalism. A particular problem of capitalism is that unregulated industries often become monopolistic, with the resulting need for anti-trust legislation to maintain competitiveness. One of the principal objectives of Thatcherism was to increase the extent to which the British economy was capitalist by selling off nationalized industries and public utilities, partly in the hope of increasing the ‘capitalist’ class by encouraging ordinary people to own shares. In many countries, including the UK, a process is now fashionable in which activities formerly entirely or largely conducted by the state, like education or major health facilities, are now financed and controlled by a mixture of for-profit and state bodies.
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