How well does a capitalist economy work

Before we can delve into the development of a benevolent capitalism, we have to take a few steps back to closely examine the demerits of capitalism first.  How did we get to this state of fiasco?  Where did it all begin?  What is the root of the problems?  We need to learn more about what is wrong with the current capitalist economic system.  So Mr. Hinkle invited a guest speaker, Ms. Naomi King, an Economics Professor from the nearby college, to give our group some quick and simple lessons through a series of talks.  Professor King directed us to a reference website fixcapitalism.com, which has a list of The 14 Shortcomings of Capitalism by Dr. Philip Kotler at Northwestern University.  But, we have to learn about basic economics first.

Most of the people work for a for-profit business to earn money for a living.  Where does the business get its money?  By selling goods and services.  How does the business actually make money?  It lies in the equation:  Revenue – Expenses = Profit.  It gets revenue when people pay for its goods, and it incurs expenses when it pays for anything that makes the finished goods possible, like rent, machinery, raw materials, electricity, supplies, salaries, etc.  When it takes in more money than paying out, then it makes a profit.  Every for-profit business exists to make as big a profit as possible, by either increasing revenue through selling more goods, or lowering expenses through cutting its costs.

Let us examine what can be problematic here for the society.  How do businesses sell more goods?  They have two tricks up their sleeves: marketing and planned obsolescence.  Marketing and promotional practices, including all forms of advertising and sales activities, entice and persuade more and more people to want to buy more and more goods whether they need them or not, e.g. 100 pairs of shoes for an individual or the new Keurig K-Cup coffee maker; or whether they are good for them or not, e.g. cigarettes and junk food.  Planned obsolescence deliberately makes goods not durable, not easily repairable, disposable and outdated quickly, so that people have to replace them or want to buy new ones, e.g. single-use plastic water bottle or the iPhone.

When businesses drive up non-existing demand for their non-essential goods, they divert and use up valuable and finite natural resources from essential ones.  Such misapplication leads to resource depletion as well as generation, circulation and promotion of unsafe and harmful man-made and natural compounds and materials.  It also creates a continuous waste stream that results in numerous problems, including all kinds of pollution and environmental degradation from the cradle stage starting with resource extraction, to the grave stage ending in toxic dumps and landfills.  Talk about the tragedy of the commons in the grand scale.  All that harm to the well-being of everyone and everything living on Earth for what?  Just so that we can play the newest Candy Crush game on our cell phone.  How depressing.

On the cost cutting side, if businesses are strictly eliminating wastes and redundancies, that would be a good thing.  Unfortunately, unscrupulous businessmen cut corners to wring more profit to line their own pockets, by using cheaper and more inferior materials, employing shoddy and questionable manufacturing and labor practices, crimping on their quality control, safety and other important processes that do not contribute to the bottom line, replacing skilled and experienced personnel with less qualified ones, stripping their operations to barebones that compromise the integrity of the final products and the well-being of their workers and consumers, etc., etc.  As an illustration, we have seen the worst being exemplified by the 1987 movie Wall Street, directed by Oliver Stone.

It seemed to our group that a lot of the problems are driven by extreme and ever wide-spreading cases of relentless profit seeking, rampant consumerism and brutal cost-cutting.  What are the purposes of businesses other than profit seeking?  Do they have any obligations to the communities they serve and the public good in general?  Obviously, they exist to provide all kinds of goods and services and to provide employment to people.  Such economic structure appears here to stay if we choose to live in a modern interdependent society instead of an isolated primitive self-reliant hunter-gatherer one.  How can businesses be encouraged to do good?

What otherwise will happen if we change the business model and take the profit out of the equation?  What are the implications for a business model to base on breaking even (zero profit) or a profit ceiling?  Will it reduce the incentives for people to start businesses to produce and provide what we need in the society?  Will there be enough businesses or companies to hire all the people?  Will the businesses be financially stable to provide a decent livelihood for their employees?

Let us imagine what if…

Next…

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