Can Capitalism Bring Inclusive Growth? | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

–Suneel Sheoran

Published on July 25, 2018, and taking about 13 minutes to read, this article by Suneel Sheoran delves into the ongoing debate surrounding global inequality, sparked anew by the 2016 Oxfam Report. This report revealed a startling fact: the wealthiest 1% of the world's population now possesses more wealth than the entire remaining 99%. In light of these sobering statistics, questions naturally arise about the capacity of capitalism, the predominant economic system worldwide, with a few exceptions, to foster inclusive growth.

Capitalism, which emerged in the wake of the eighteenth-century industrial revolution in Europe, is fundamentally characterized by private enterprise and private ownership of essential means of production like land, labor, and capital. This contrasts with socialism, which advocates for public or state ownership of these means. Capitalist producers, often part of the elite class, are primarily motivated by profit, a fact that has led to criticism from its inception. Critics point to the exploitation of the working class in harsh conditions and underpaid labor, as well as the perpetuation of societal class divisions into 'haves' and 'have-nots.'

Proponents of capitalism argue that other economic systems have their own flaws and that freedom of choice and laissez-faire principles promote economic growth. However, the escalating global economic inequality and subpar living conditions for some even in prosperous capitalist nations raise doubts about capitalism's efficacy in achieving inclusive growth. Inclusive growth aims for equitable development across all segments of society, ensuring that the benefits of progress reach the impoverished and marginalized.

Capitalism, driven solely by profit, occasionally fails to allocate resources to areas that demand social welfare priorities, such as non-profit initiatives like schools and hospitals in rural and underdeveloped regions or the construction of essential public infrastructure like roads and railways in remote areas. Consequently, this concentration of development and industrialization in urban centers exacerbates regional inequality, which eventually leads to socio-economic disparities. Urban migration ensues, further straining public resources and leaving people in dire living conditions.

In the pursuit of higher profits, capitalist producers sometimes compromise on fair wages and proper working conditions, exemplified by reports of inadequate payment in sectors like construction and textiles. Private firms, loyal to their shareholders, are often reluctant to share their wealth with employees. This breeds discontent among middle-class workers, who may endure long hours and insufficient compensation. This phenomenon has driven educated youth to consider government jobs over corporate positions, even if they are overqualified, due to the allure of better compensation and job security.

Capitalism also emphasizes free and efficient markets as drivers of growth and development. However, markets have frequently failed to allocate resources and growth benefits efficiently, distorted by monopolistic practices and short-term views on development. For instance, the Bombay Stock Exchange suffered losses when the Indian government introduced a public food security scheme. The markets' failure to recognize that a well-fed population is vital for holistic and sustainable growth underscores the need for government intervention in such cases.

Furthermore, capitalism has a history of leading the world into economic crises, affecting developing and least-developed economies' vulnerable populations the most. The 2007-08 subprime crisis, originating in the United States due to unchecked greed and unethical practices by investment banks, crippled the global economy, resulting in reduced employment and growth rates. Despite this, the capitalist class largely emerged unscathed, while the middle class and marginalized sections suffered due to economic downturns.

Given these limitations, capitalism's implementation may fall short of delivering inclusive growth. Nevertheless, can the system be regulated and adjusted to promote greater inclusivity and equitable growth? Capitalists themselves have come to recognize that sustained high growth rates, benefiting everyone, depend on increased consumer purchasing power. Companies have started to prioritize employee satisfaction, leading to higher wages and improved working conditions. Government regulations on labor laws have also contributed to better working conditions compared to the harsh conditions during the industrial revolution.

The focus on private enterprise for profit may have drawbacks, but it can also enhance efficiency, boosting economic production, employment opportunities, wealth generation, and GDP growth rates, ultimately improving living standards and lifting millions out of poverty. For instance, India's economic liberalization in the 1990s opened the country's economy to the private sector and limited the role of the public sector. This shift resulted in rapid economic growth and poverty reduction.

However, this success story also depended on effective government regulations ensuring wealth redistribution, either through the "trickle-down" effect or various social welfare programs. Governments must play a role in correcting capitalism-induced wealth disparities by implementing progressive taxation systems, promoting entrepreneurship, establishing venture capital funds for lower socio-economic strata entrepreneurs, and offering affordable, quality education and healthcare services to ensure substantive equality of opportunity.

In conclusion, capitalism as an economic system exhibits several flaws that contribute to growing global socio-economic inequality. Issues such as low wages, poor working conditions, regionally concentrated development, and the enrichment of a particular class clash with the concept of inclusive growth. This situation breeds social unrest and raises doubts about capitalism's ability to deliver inclusive growth. Nevertheless, capitalism, when regulated by a government committed to social welfare, can enhance enterprise efficiency, stimulate private investments, and boost economic production, all while generating the capital needed for poverty alleviation and social welfare programs. Countries like Norway, Denmark, Sweden, and Finland have successfully combined capitalism with robust regulatory regimes and social welfare programs, demonstrating that capitalism can be harnessed to achieve inclusive growth when properly managed.